SME Characteristics and Value Added Tax Compliance Costs In Nigeria

Abstract

This study examines the effect of SME characteristics on tax compliance cost in Nigeria. Specifically, it investigates the effect of Business age (LIFET), Outsourcing (OUTS), Employee size (WRKS), Export status (FOT), Turnover (TURO), Industry class (INDCLAS) and Distance to tax office (DISTANCE) on tax compliance costs for Value Added Tax (VAT) in Nigeria. The study utilized the survey research design using questionnaire as the research instrument and primary data as the data type. The population consists of all registered SME’s in Nigeria as at the study period. A sample of 750 taxpaying SMEs across the six (6) geo-political zones of Nigeria was used for the study and this was done using the purposive sampling technique. 597 responses were received out of which 574 were adjudged valid. Our analysis revealed that the effect of LIFT, TURO, INDCLAS, DISTANCE and WRKS on Tax Compliance Costs of VAT (CVAT) is negative while the effect of FOT and OUTSOURCING appear to be positive. However, none of the variables appear to be significant going by their t-ratios and this suggests that SME attributes do not impact significantly on CVAT in Nigeria. The study concludes that the porosity of the tax system coupled with the fact that the activities of SME’s in developing countries are domiciled within the shadow economy may explain the insignificance of SME attributes in determining and hence in predicting tax compliance costs. This study on this note, suggests that more empirical studies are needed in Nigeria in this areas.

DOI: 10.5901/mjss.2014.v5n20p614