Financial Literacy, Perceived Justice in the Tax System and Tax Compliance: A Sub-Saharan African Perspective
Authors
Main Article Content
Abstract
This study explores the relationship between financial literacy, perceived justice in the tax system, and tax compliance behaviour among individuals in Ghana's informal sector. Using a self-administered questionnaire, data was collected from business owners in the Greater Accra region. The data was analysed using descriptive statistics, correlation, and multiple regression analyses in SPSS and Process MACRO for SPSS. The results indicate that higher levels of financial literacy and perceptions of justice in the tax system positively influence tax compliance. Furthermore, perceived justice moderates the relationship between financial literacy and tax compliance, with the relationship being stronger when individuals perceive the tax system as fair. These findings suggest that both financial literacy and an equitable tax system are essential in fostering voluntary tax compliance in Ghana’s informal sector. The study highlights the need for policymakers to create and sustain transparent and fair tax systems, alongside implementing financial literacy programs tailored to the needs of the informal sector. Thus, by improving the perception of tax fairness and enhancing financial literacy, there is potential for increased voluntary tax compliance, which could result in higher tax revenues and better funding for public services. This, in turn, could contribute to the overall economic growth and development of Ghana.
Article Details
The data that support the findings of this study are available from the corresponding author [PDA] upon reasonable request
Abd Hamid, N., Ibrahim, N. A., Ibrahim, N. A., Ariffin, N., Taharin, R., & Jelani, F. A. (2019). Factors affecting tax compliance among Malaysian SMEs in e-commerce business. International Journal of Asian Social Science, 9(1), 74–85.
Adams, J. S. (1963). Towards an understanding of inequity. The Journal of Abnormal and Social Psychology, 67(5), 422.
Adekoya, A. A., Olaoye, A., & Lawal, A. (2020). Informal Sector and tax compliance in Nigeria-challenges and Opportunities. International Journal of Emerging Trends in Social Sciences, 8(2), 57–69.
Agrawal, D. R., & Wildasin, D. E. (2020). Technology and tax systems. Journal of Public Economics, 185, 104082.
Alm, J. (2019). Tax compliance and administration. In Handbook on taxation (pp. 741–768). Routledge.
Alm, J., Bloomquist, K. M., & McKee, M. (2017). When You Know Your Neighbour Pays Taxes: Information, Peer Effects and Tax Compliance. Fiscal Studies, 38(4), 587–613. https://doi.org/10.1111/1475-5890.12111
Alshira’h, A. F., & Abdul-Jabbar, H. (2019). The effect of tax fairness on sales tax compliance among Jordanian manufacturing SMEs. Academy of Accounting and Financial Studies Journal, 23(2), 1–11.
Ameyaw, B., Korang, J. A., Twum, E. T., & Asante, I. O. (2016). Tax policy, SMEs compliance, perception and growth relationship in Ghana: an empirical analysis. British Journal of Economics, Management & Trade, 11(2), 1–11.
Ameyaw, B., Oppong, A., Abruquah, L. A., & Ashalley, E. (2016). Informal sector tax compliance issues and the causality nexus between taxation and economic growth: Empirical evidence from Ghana. Modern Economy, 7(12), 1478–1497.
Anaman, P. D., & Ahmed, I. A. (2021). Taxation within the Transport Sector : A Ride-hailer and Sharing Economy Perspective. Account and Financial Management Journal, 6(10), 2470–2480. https://doi.org/10.47191/afmj/v6i10.01
Ataguba, J. E. (2021). The impact of financing health services on income inequality in an unequal Society: the case of South Africa. Applied Health Economics and Health Policy, 19(5), 721–733.
Azmi, A. A. C., Zainuddin, S., Mustapha, M. Z., & Nawi, Y. (2016). The mediating effect of tax fairness on the relationship between knowledge, complexity and voluntary tax compliance. Asian Journal of Accounting Perspectives, 9(1), 1–12.
Barrios, S., d’Andria, D., & Gesualdo, M. (2020). Reducing tax compliance costs through corporate tax base harmonization in the European Union. Journal of International Accounting, Auditing and Taxation, 41, 100355.
Bello, O. I., & Kasztelnik, K. (2022). Observational Study of Tax Compliance and Tax Evasion in Nigeria. Financial Markets, Institutions and Risks, 6(4), 1–14.
Bentouhami, H., Casas, L., & Weyler, J. (2021). Reporting of “Theoretical Design” in explanatory research: a critical appraisal of research on early life exposure to antibiotics and the occurrence of asthma. Clinical Epidemiology, 755–767.
Bird, R., & Davis-Nozemack, K. (2018). Tax avoidance as a sustainability problem. Journal of Business Ethics, 151, 1009–1025.
Carsamer, E., & Abbam, A. (2023). Religion and tax compliance among SMEs in Ghana. Journal of Financial Crime, 30(3), 759–775.
Connelly, L. M. (2016). Cross-sectional survey research. Medsurg Nursing, 25(5), 369.
Corr, P. J. (2016). Reinforcement sensitivity theory of personality questionnaires: Structural survey with recommendations. Personality and Individual Differences, 89, 60–64.
Creswell, J. W., & Creswell, J. D. (2017). Research design: Qualitative, quantitative, and mixed methods approaches. Sage publications.
Creswell, J. W., & Hirose, M. (2019). Mixed methods and survey research in family medicine and community health. Family Medicine and Community Health, 7(2).
Cvrlje, D. (2015). Tax literacy as an instrument of combating and overcoming tax system complexity, low tax morale and tax non-compliance. The Macrotheme Review, 4(3), 156–167.
De Neve, J.-E., Imbert, C., Spinnewijn, J., Tsankova, T., & Luts, M. (2021). How to improve tax compliance? Evidence from population-wide experiments in Belgium. Journal of Political Economy, 129(5), 1425–1463.
Egbunike, F. C., Emudainohwo, O. B., & Gunardi, A. (2018). Tax revenue and economic growth: A study of Nigeria and Ghana. Signifikan: Jurnal Ilmu Ekonomi, 7(2), 213–220.
Etikan, I., Musa, S. A., & Alkassim, R. S. (2016). Comparison of convenience sampling and purposive sampling. American Journal of Theoretical and Applied Statistics, 5(1), 1–4. https://doi.org/doi: 10.11648/j.ajtas.20160501.11
Faizal, S. M., Palil, M. R., Maelah, R., & Ramli, R. (2017). Perception on justice, trust and tax compliance behavior in Malaysia. Kasetsart Journal of Social Sciences, 38(3), 226–232.
Gitaru, K. (2017). The effect of taxpayer education on tax compliance in Kenya.(a case study of SME’s in Nairobi Central Business District).
Gobena, L. B., & Van Dijke, M. (2017). Fear and caring: Procedural justice, trust, and collective identification as antecedents of voluntary tax compliance. Journal of Economic Psychology, 62, 1–16.
Goyal, K., & Kumar, S. (2021). Financial literacy: A systematic review and bibliometric analysis. International Journal of Consumer Studies, 45(1), 80–105.
Güzel, S. A., Özer, G., & Özcan, M. (2019). The effect of the variables of tax justice perception and trust in government on tax compliance: The case of Turkey. Journal of Behavioral and Experimental Economics, 78, 80–86.
Hayes, A. F. (2018). Partial, conditional, and moderated moderated mediation: Quantification, inference, and interpretation. Communication Monographs, 85(1), 4–40.
Hofmann, E., Voracek, M., Bock, C., & Kirchler, E. (2017). Tax compliance across sociodemographic categories: Meta-analyses of survey studies in 111 countries. Journal of Economic Psychology, 62, 63–71.
Inasius, F. (2019). Factors influencing SME tax compliance: Evidence from Indonesia. International Journal of Public Administration, 42(5), 367–379.
Intansari, M. R. (2022). The Effect of Tax Literacy on Tax Compliance: The Moderating Role of Patriotism. Technium Soc. Sci. J., 34, 455.
Jensen, A. (2022). Employment structure and the rise of the modern tax system. American Economic Review, 112(1), 213–234.
Jimenez, P., & Iyer, G. S. (2016). Tax compliance in a social setting: The influence of social norms, trust in government, and perceived fairness on taxpayer compliance. Advances in Accounting, 34, 17–26.
Lusardi, A. (2019). Financial literacy and the need for financial education: evidence and implications. Swiss Journal of Economics and Statistics, 155(1), 1–8.
Mahangila, D., & Holland, K. (2015). Analysis of procedural and retributive justice in tax compliance. Mahangila, DN and Holland, K.(2015), Analysis of Procedural and Retributive Justice in Tax Compliance, The Operations Research Society of Eastern Africa (ORSEA), 5(1), 113–160.
Marsonet, M. (2019). Philosophy and logical positivism. Academicus International Scientific Journal, 10(19), 32–36.
Mukhlis, I., Utomo, S. H., & Soesetio, Y. (2015). The role of taxation education on taxation knowledge and its effect on tax fairness as well as tax compliance on handicraft SMEs sectors in Indonesia. International Journal of Financial Research, 6(4), 161–169.
Naeem, A., & Gulzar, S. (2021). Voluntary tax compliance behavior of individual taxpayers in Pakistan. Financial Innovation, 7(1), 1–23.
Nasution, M. K., Santi, F., Husaini, H., Fadli, F., & Pirzada, K. (2020). Determinants of tax compliance: A study on individual taxpayers in Indonesia. Entrepreneurship and Sustainability Issues, 8(2), 1401.
Nichita, A., Batrancea, L., Marcel Pop, C., Batrancea, I., Morar, I. D., Masca, E., Roux-Cesar, A. M., Forte, D., Formigoni, H., & da Silva, A. A. (2019). We learn not for school but for life: Empirical evidence of the impact of tax literacy on tax compliance. Eastern European Economics, 57(5), 397–429.
Niesiobędzka, M., & Kołodziej, S. (2020). The fair process effect in taxation: The roles of procedural fairness, outcome favorability and outcome fairness in the acceptance of tax authority decisions. Current Psychology, 39(1), 246–253.
Okpeyo, E. T., Musah, A., & Gakpetor, E. D. (2019). Determinants of Tax Compliance in Ghana: The Case of Small and Medium Tax Payers in Greater Accra Region. Journal of Applied Accounting and Taxation Article History, 4(1), 1–14. https://doi.org/10.30871/JAAT.V4I1.935
Pantazatou, K. (2018). Taxation of the sharing economy in the European Union. Forthcoming, Cambridge Handbook of Law and Regulation of the Sharing Economy, Davidson, Infranca and Finck (Eds.), CUP.
Pavot, W., Diener, E. D., Colvin, C. R., & Sandvik, E. (1991). Further validation of the Satisfaction with Life Scale: Evidence for the cross-method convergence of well-being measures. Journal of Personality Assessment, 57(1), 149–161.
Pham, A., Shah, J. A., & Zhou, J. (2020). Tax Compliance in Developing Countries. 113th Annual Conference on Taxation.
Prichard, W., Custers, A. L., Dom, R., Davenport, S. R., & Roscitt, M. A. (2019). Innovations in tax compliance: Conceptual framework. World Bank Policy Research Working Paper, 9032.
Resmi, S., Pahlevi, R. W., & SAYEKTIET, F. (2019). Is there a pattern of relationships between financial literacy, tax literacy, business growth, and competitive advantage on creative MSMEs in Yogyakarta. Journal of Advanced Management Science Vol, 7(4), 136–141.
Resnick, D. (2021). Taxing informality: Compliance and policy preferences in urban Zambia. The Journal of Development Studies, 57(7), 1063–1085.
Roberts, M. L., & Roberts, T. L. (2020). Distributive Justice and the Tax Fairness Partisan Divide. In Advances in Taxation. Emerald Publishing Limited.
Ryan, T. P. (2013). Sample size determination and power. John Wiley & Sons.
Taherdoost, H. (2017). Determining sample size; how to calculate survey sample size. International Journal of Economics and Management Systems, 2.
Taing, H. B., & Chang, Y. (2021). Determinants of tax compliance intention: Focus on the theory of planned behavior. International Journal of Public Administration, 44(1), 62–73.
Tan, L. M., & Braithwaite, V. (2018). Motivations for tax compliance: the case of small business taxpayers in New Zealand. Australian Tax Forum, 33(2), 221–247.
Tee, E., Boadi, L., & Opoku, R. (2016). The effect of tax payment on the performance of SMEs: The case of selected SMEs in Ga West Municipal Assembly. European Journal of Business and Management, 8(20).
Teresi, J. A., Yu, X., Stewart, A. L., & Hays, R. D. (2022). Guidelines for designing and evaluating feasibility pilot studies. Medical Care, 60(1), 95–103.
Tseng, L.-M., & Kuo, C.-L. (2014). Customers’ attitudes toward insurance frauds: An application of Adams’ equity theory. International Journal of Social Economics.
Tuffour, J. K., Amoako, A. A., & Amartey, E. O. (2022). Assessing the effect of financial literacy among managers on the performance of small-scale enterprises. Global Business Review, 23(5), 1200–1217.
Twum, K. K., Amaniampong, M. K., Assabil, E. N., Adombire, M. A., Edisi, D., & Akuetteh, C. (2020). Tax knowledge and tax compliance of small and medium enterprises in Ghana. South East Asia Journal of Contemporary Business, Economics and Law, 21(5), 222–231.
Wadesango, N., Mutema, A., Mhaka, C., & Wadesango, V. O. (2018). Tax compliance of small and medium enterprises through the self-assessment system: issues and challenges. Academy of Accounting and Financial Studies Journal, 22(3), 1–15.
Wiquar, M. R., Wiquar, M. S., & Burney, T. (2022). Tax Literacy and the Role of Financial Knowledge: A Study of Government Initiatives and Individual Investors from Delhi NCR. EPRA International Journal of Economic and Business Review (JEBR), 10(5), 6–11.
Yildirim, C., & Correia, A.-P. (2015). Exploring the dimensions of nomophobia: Development and validation of a self-reported questionnaire. Computers in Human Behavior, 49, 130–137.