Analysis of Tax Compliance in Sub-Saharan Africa: Evidence from Firm-Level Study

Musa Abdu,Tasiu Muhammad,Adamu Jibir

doi:10.2478/erfin-2020-0007

Abstract

Abstract This study analyses tax compliance among firms in Sub-Saharan Africa (SSA) within an extended Slippery Slope Framework (eSSF). It applies instrumental variables and generalized estimating equations models on a constructed World Bank’s Enterprise Survey longitudinal dataset. The results indicate that the perceived power of the tax authorities does not influence firms’ tax compliance, which could be linked to corruption in the form of informal payment. The results also show that corruption encourages the culture of tax non-compliance among firms in SSA because the defaulting firms bribe tax authorities in order to avoid paying taxes and being punished for that. In addition, the results demonstrate that the perceived trust of tax authorities (state representatives) is vitally important in encouraging tax compliance among firms in SSA. In terms of political decisions, it may be implied that gaining trust of taxpayers should be pursued.

Highlights

Over and above its revenue-generation role, taxation remains one of the most effective tools used to stabilise an economy and ensure equal redistribution of income
The results indicate that the perceived power of the tax authorities does not influence firms’ tax compliance, which could be linked to corruption in the form of informal payment
The results show that corruption encourages the culture of tax non-compliance among firms in Sub-Saharan Africa (SSA) because the defaulting firms bribe tax authorities in order to avoid paying taxes and being punished for that

Summary

Introduction

Over and above its revenue-generation role, taxation remains one of the most effective tools used to stabilise an economy and ensure equal redistribution of income. Tax-payers (including households and firms), perceive taxes as a burden. This negative attitude toward tax payments leads to tax evasion and tax avoidance which directly undermines the share of tax revenue (Alm, 2018; Antinyan et al, 2020). This trend has prompted some countries to introduce tax motivation packages such as improvement in government service delivery, trust and power in order to reduce the level of tax avoidance and improve the share of tax revenue (Gangl et al, 2020)

Objectives

Methods

Findings

Discussion

Conclusion