Ordinal Logit Modelling of Socio-Economic Determinants of Tax Evasion Among SMEs in Ghana: Evidence from Sunyani Municipality

Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent. Taxes are mostly difficult to take from the informal sector since individuals must honour them through self-payment. Due to this, some individuals and cooperate bodies fails to pay voluntarily thereby evading tax. Thus, this paper sought to assess the key determinants of tax evasion and its effect on the Ghanaian economy based on evidence from Sunyani Municipality. The study therefore employed primary source of data collection. Cluster sampling technique was first utilized to group the respondents and subsequently applied systematic random sampling to select the final sample of 250 respondents. The results indicated that nine key determinants of tax evasion were identified. These include waste and corruption by government, complex tax system, high tax burden, compromised tax agents, inadequate tax education, non-consideration of taxpayers’ view, lesser punishment for tax evaders, owners’ unawareness to pay tax and the notion of only the rich pays tax. However, seven of these tax evasion determinants were significantly affecting or influencing the Ghanaian economy whereas the remaining two determinants of tax evasion were found not to contribute significantly, in terms of effect, on the economy. Also, the finding shows that tax evasion does not really depend on the type of business engaged in by SME owners.