Assessing the Effect of Informal Tax Education on Reporting Compliance: The Mediating Role of Legal Tax Knowledge within the Informal Sector of Ghana

Abstract

The informal sector of Ghana plays a critical role in the economic advancement of the country. One of its major challenges is tax compliance, resulting from huge failures in fulfilling tax obligations. In light of this, the study assessed the effect of informal tax education on reporting compliance and the mediating role of legal tax knowledge within the informal sector of Ghana. The study utilized the quantitative method and descriptive research design, specifically at the cross-sectional level. Data was collected from respondents using a 15-item questionnaire designed in congruence with the literature. The questionnaire was used to obtain data from 1,152 informal sector SMEs within the Greater Accra Region of Ghana. The study respondents were sampled using two important sampling techniques: simple random sampling and snowball sampling. Analysis of data was carried out using SMART-PLUS with partial least squares (PLS) as the main tool. The study found that informal tax education exerts a significant positive impact on legal tax knowledge. In addition, informal tax education was found to exert a significant positive impact on reporting compliance. Further, legal tax knowledge was found to exert a significant positive impact on reporting compliance, and legal tax knowledge mediates positively to the impact of informal tax education on reporting compliance. In conclusion, this research contributes to the broader discourse on taxation in developing economies by illustrating how targeted educational interventions, initiatives, and strategies have the capacity to bridge the gaps in compliance. Notably, the findings advocate for a holistic approach to tax education that recognizes the unique challenges faced by SMEs within the informal sector of Ghana while promoting sustainable economic growth through enhanced reporting compliance.