Examining the Effect of Formal Tax Education on Filing Compliance: The Mediation Role of Procedural Tax Knowledge within the Informal Sector of Ghana

Abstract

In Ghana, tax payment is considered a civic responsibility for all citizens and it is required for all to fulfil their tax responsibilities without hesitation. Nevertheless, in Ghana, few people barely pay taxes voluntarily, most especially within the informal sector. In view of this, the overall purpose of the study is to examine the effect of formal tax education on filing compliance and the mediation role of procedural tax knowledge within the informal sector of Ghana. The study adopted the Theory of Planned Behaviour. The study employed the quantitative research method and descriptive research design. Three critical variables underscored the study: formal tax education, filing compliance and procedural tax knowledge. The study obtained data from 1,152 SME business people within the Greater Accra Region of Ghana. The data was obtained using 11-item questionnaires. Individuals of SMEs within the indicated region were sampled using a multi-stage sampling technique made up of simple random sampling and snowball sampling. Data analysis was carried out using the partial least squares (PLS) tool through SMART-PLUS software. The study found that formal tax education exerts a significant impact on filing compliance. Additionally, the study discovered that formal tax education exerts a significant impact on procedural tax knowledge. Further, the study discovered that procedural tax knowledge exerts a significant impact on filing compliance. Moreover, the findings show that procedural tax knowledge mediates the effect of formal tax education on filing compliance. In conclusion, it was revealed that the mediating role of procedural tax knowledge, as revealed by the study, also amplifies the impact of education on the actual filing behaviour of informal sector business owners. It suggests that providing a solution to both theoretical comprehension and procedural capabilities is very critical in propelling voluntary compliance among informal sector businesses. This is not the only gain that tax authorities obtain by raising revenue; it is also achieved by fostering a milieu of accountability and transparency. Therefore, the study underpins the need for more comprehensive tax educational programs, especially those targeted at informal sector participants, with the aim of enhancing overall tax compliance.