Tax is an important stream of revenue for government’s development projects. The importance of tax systems as a major revenue source in a country is undeniable, these statistics have evidenced that tax revenues are one of main income source for many governments throughout the world but to maximize tax collection and minimize tax evasion among taxpayers is difficult to achieve in practice. However, tax compliance among SMEs is poor. In the framework of this study, an attempt to identify and evaluate the determinants of tax compliance of SMEs in Plateau State, as well as the perceived fairness of tax rates and tax legislations by government on the part of SMES and it’s effect on tax compliance  level. The study also aims to ascertain the extent to which individual taxpayers’ burden influences their attitudes to tax compliance in Plateau State.

This research was a survey whose data is collected from two hundred taxpayers in Small Medium Enterprises. After the data was collected, it was analyzed using descriptive statistics then summarized and presented using statistical tools such as the Chi-Square, SPSS.

From the findings, the conclusion is that taxpayer’ attitudes do affect their compliance behaviour and recommendations were made for SMEs. The results also suggested that tax knowledge has a significant impact on tax compliance even though the level of tax knowledge varies significantly among respondents. The results also indicate that tax compliance is influenced specifically by probability of being audited, perceptions of government spending, penalties, personal financial constraints. Results of this study answer such questions as which various taxpayer characteristics of tax knowledge affect compliant behaviour. The results of this study also inform policymakers on the extent to which tax knowledge is important in a self assessment system and in what ways it can affect compliance.Keywords: taxpayers’ attitude, tax compliance, SMEs, developing economy, tax knowledge, tax rate.




Most large companies have their roots in small and medium enterprises suggesting that the future large corporations are the SMEs of today that that must be nurtured to ensure their growth. Thus, SMEs are generally perceived to be the seedbed for indigenous entrepreneurship and generate all the many small investments, which would otherwise not have taken place (Aryeetey & Ahene, 2004). Therefore, developing economies like Nigeria needs to further the development of its private sector by creating an environment favorable to the growth of SMEs, strengthening the factors that lead to business success, and addressing the problems threatening the existence and advancement of small and medium enterprises (Chu, Kara & Benzing, 2008), so they can adequately play the role expected of them in economic transformation. Such role includes mobilization of domestic savings for investment, appreciable contribution to gross domestic product, increased harnessing of local raw materials, employment generation, and significant contribution of poverty reduction efforts through sustainable livelihoods and enhancement in personnel income, technological development and export diversification (Smatrakalev, 2006).

Small Businesses are key players in the economy of developing countries such as Nigeria, as they generate significant employment and output. .Due to the importance of this sector in the country’s economy, it is important that the strategies of tax administration that are implemented enhance the SME taxpayers’ attitude and compliance towards paying taxes. Federal Inland Revenue Services (FIRS) major purpose is assessment, collection, administration and enforcement of tax laws with professionalism governed by integrity and fairness. Nigeria FIRS administer different types of taxes under different Laws and Acts such as Income Tax, Value Added Tax, Customs Duties and Exercise Tax among others and hence, are supposed to ensure taxpayers comply with the respective tax laws. It has been observed however, from previous taxation studies that several SMEs in developing economies are non tax compliant in spite of major reforms, since they cannot easily be located by tax administration, yet they pay less tax than their fair share of tax.

Taxation is one of the important elements in managing national income, especially in developed countries and has played an important role in civilized societies since their birth thousands years ago. Tax is defined as ‘a compulsory levy, imposed by government or other tax raising body, on income, expenditure, or capital assets, for which the taxpayer receives nothing specific in return. However, not all payments to government are considered tax payments: for example, charges, tolls and other levies are paid to obtain a specific service and are not strictly tax payments. 

The importance of tax systems as a major revenue source in a country is undeniable, these statistics have evidenced that tax revenues are one of (if not the) main income source for many governments throughout the world but to maximize tax collection and minimize tax evasion among taxpayers is difficult to achieve in practice.

Accordingly, tax compliance is widely acknowledged, as a universal phenomenon that prevails in all economies and societies systems in developing and developed countries. Questions about tax compliance are as old as taxes themselves and will remain an area of discovery as long as taxes exist. 

History has shown that there has always been a reluctance to pay tax. A major reason for this attitude is that the taxpayer does not always perceive that he receives any benefits from parting with his hard earned cash.  

Most citizens, however, realize that state expenditure for the purpose of creating or maintaining national infrastructures, such as services and roads, is a necessity. But, citizens object to having to finance unnecessary state expenditure. In this regard, everyone has his own understanding of what is unnecessary. Taxpayers feel that whatever is contributed by way of tax is mostly squandered away and the social responsibilities the government is expected to discharge get neglected. 

The government's bad image because of its failure to discharge functions is a great disincentive for paying taxes. Most people feel that tax is a burden and should be avoided. Taxpayers feel that they are being treated harshly and the punitive provisions in the tax laws are applied ruthlessly against them. Hence, it is better to be away from the tax department and the number of non-filers of tax returns is increasing.

In this climate of mutual trust and voluntary compliance, the compliance behavior is influenced by different factors as pointed out by Nicoleta (2011). Taxpayers‟ attitudes towards the tax system and the way taxpayers feel treated by a tax authority are important in explaining taxpayer non‐compliance. Related to the tax system itself, there is specific evidence to suggest that perceptions of unfair tax burdens can affect taxpayers‟ views about paying tax and can go on to affect their compliance decisions. Tax fairness seems to involve at least two different dimensions: the first relates to the benefits one receives for the tax given; the second dimension involves the perceived equity of the taxpayer’s burden in reference to that of other individuals.  

Tax compliance is defined as the accurate reporting of income and claiming of expenses in accordance with stipulated tax laws. Thus, the failure of small scale entrepreneur to accurately report or pay income tax is considered non-compliance tax. Roth et al. (2005) also defined tax compliance as filing all required tax returns at the proper time and that the returns accurately report tax liability in accordance with the tax code, regulations and court decisions applicable at the time the return is filed.


The issue of compliance is major problem and it should be researched at length. Currently the government is not collecting enough taxes and people are not complying, the issue is to identify the root problem. The problem of not complying is highly assumed to be related to attitude. This relationship is not well understood due to lack of research in this area, so there is a gap which the researcher is trying to work on by formulating this study. 

The rise in the non-compliance of tax payment among SMEs in Pleateau has an influence on the budget deficit in Nigeria negatively. This problem has led to the increase in public debt which causes an absence of tax justice between the citizens and lead to the increase in the rate of tax non-compliance especially   in    among SMEs who are small taxpayer’s.

It is a well known fact that the revenue generated from the taxation of individuals and businesses is an important stream of income for government. In an economy like ours that is struggling to remain afloat, it is even more important. Tax revenue is the source of funds used for development projects such as provision of infrastructure like good roads, stable power supply, stable water supply etc. All of which combine to create an enabling environment for businesses –and in turn the economy at large- to grow.  Small and Medium Enterprises being profit generating establishments are also expected to pay their dues. Yet, the important question however is “how much tax should they be levied”. Small and medium enterprises are volatile establishments that need special treatment. Putting their nature into consideration, every little resource at their disposal can make a world of difference. For this reason, a number of Nigerian SMEs choose to remain in the informal sector because they feel the cost of compliance is too high. And a considerable number of those who pay only do so because they are coerced by the authorities.

Thirdly, since the individual SME pays a very small amount of tax compared what the larger establishment would pay, tax authorities tend give the larger corporations more attention. This means a good number of SMEs get away with not paying their taxes hence revenue that would otherwise have been invested in development projects that will end up being of benefit even to the SMEs is lost. This therefore is a situation that needs to be corrected.

Furthermore, many SME taxpayers do not know the domain of tax professionals since they lack the independence and have no tax competency. (Mof & Mor 2010) One of the chief features of SMEs is the lower level of the specialist tax expertise and greater owner-involvement in day-today management and this call for them to search for assistance from experts. Consequently, a developing country like Nigeria is still characterized by the low income tax compliance levels, in the face of the numerous advocacies for voluntary tax compliance. Many of such governments have adopted tax compliance administrative measures like penalties, rates and tax audits to ensure tax enforcement instead of compliance, which have still failed to yield positive response.

Finally, besides, the low compliance level in Plateau State has been deep rooted in incessant stagnation of income taxes at 25.8% from 13.2% with high rates of tax avoidance and evasion. In addition the tax potential of SMEs in developing countries is partially exploited as most enterprises have small profits from the inaccurate financial records (Nakiwala, 2010); hence having presumptive tax revenue contribution towards total tax revenue in the state as less than 0.5% of total tax. 

It is suspected that low income tax proficiencies among tax payers may be responsible for the low levels of income tax compliance.

Whereas previous research has attempted to examine the predictors of tax compliance like social norms, taxpayers‟ morale and nature of tax system, using models from a developed world context. 

The above problem brings to light reasons why the issue of taxation of SMEs is really important. First, tax provides revenue for the government to create an environment that will ease the running of all businesses SMEs inclusive. 

At the same time if an SME is faced with high compliance costs, it has a tendency to avoid paying taxes hence; the revenue that would have been used to create this environment is diminished thereby reducing the SME’s chances of survival.  

It is against this backdrop, that this study tends to evaluate the determinants of tax compliance of SMEs in Plateau State.


The general objective of the study is to assess the determinants of tax compliance of SMEs in Plateau State.

Other specific objectives include:

1. Identify the factors that encourage non-compliance with tax obligation by SMEs in Plateau State.

2. Ascertain the level of financial literacy and exposure of the owners/managers of SMEs on tax compliance by SMEs.

3. Determine maybe the probability of detection and degree of punishment for tax evaders have a significant impact on SMEs tax compliance in Plateau State.

4. Determine whether the perceived fairness of tax rates and tax legislations on the part of SMEs have a significant impact on their tax compliance.

5. Determine how the individual taxpayers’ perceives the burden of tax influences on the attitudes of individual taxpayers in Plateau State.

6. Assess the effect of taxpayers’ attitudes and the factors influencing it compliance behavior among SMEs business income earners in Plateau State.


The research question provides a framework and guidelines through which substantial knowledge of the research study can be understood.

Arising from the above, the research question asked includes: 

1. What are the factors that encourage non-compliance with tax obligation by SMEs in Plateau State?

2. Does the level of financial literacy and exposure of the owners/managers of SMEs have a significant impact on tax compliance by SMEs?

3. Does the probability of detection and degree of punishment for tax evaders have a significant impact on SMEs tax compliance in Plateau State?

4. Does the perceived fairness of tax rates and tax legislations on the part of SMEs have a significant impact on their tax compliance?

5. To what extent do individual taxpayers’ perceptions of the burden of tax influences the attitudes of income taxpayers in Plateau State?

6. How do taxpayers’ attitudes and the factors influencing it affect compliance behavior among SMEs business individual taxpayers in Plateau State?


In order to achieve our research objectives, the following research hypotheses are formulated and presented in the null form:


Ho1 - There is no relationship between taxpayer attitudinal aspects and tax compliance of SMEs IN Plateau State.


The level of tax knowledge and exposure of owners/managers of SMEs has no significant impact on the tax compliance of SMEs.


Fairness of tax rates and tax legislations on the part of government has no significant impact on the tax compliance of SMEs.


As mentioned earlier, the main aim of this study is to examine the determinants of tax compliance among SMEs in Plateau State. While tax compliance determinants are limited to nine variables, prior literature indicates as likely to be the core determinants.   

This seminar paper focus on the informal sector of the economy, because these persons were self employed/petty traders and individuals engaged in small and medium scale enterprises located within the Jos Metropolitan area. 

The meaning of small and medium scale enterprises in this study is based on the definition and classification i.e. the age of respondents, annual incomes, educational backgrounds and the type of enterprise operated were analyzed. These factors were considered important because of their likely effects on the individual’s compliance decision.

The scope of this research work covers all the SMEs in Plateau State, Nigeria. For our field study, a number of SMEs will be randomly selected from the Jos Metropolis as the representative sample of the study.

 Specifically, 150 SMEs will be randomly selected from the Benin Metropolis from which 150 respondents will be drawn from the management or ownership cadre of the establishments. 

In this regard our sample comprises of SMEs drawn from the following sectors: oil, agribusiness, eateries, hotels, bakeries, building and construction, transport companies, schools, shopping malls, beauty shops and ICT-firms. Respondents were drawn from the management and ownership cadre of these establishments.


The Government of Plateau relies mostly on tax revenues as an important source of financing almost a half of its annual budget. Despite the efforts made by the Government to equip the tax administration with adequate resources (both human and capital), only a half of its budget is financed by tax revenues, and this may limit the Government to offer adequate goods and services needed by the citizens. The knowledge of determinants of tax compliance in Plateau State will help the State Tax Administration to put in place an informed compliance strategy to address compliance issues and therefore, boosting government tax revenue collections. 

The significance of this study is primarily underscored by its focus on tax compliance which stands as one of the major challenges of our nation’s tax system, as well as on the SMEs sub-sector as a relevant sector of the economy. In this regard, this study will provide insight into the factors responsible for the near-absence of a comprehensive and coherent tax policy for the Nigerian SMEs sector.

One of the major contributions of this study is to assist the State Internal Revenue Service in developing their tax education system and tax audit judgments in tax compliance. The findings of this study will give indicators to the tax administrator in terms of the level of tax knowledge, compliance, and the characteristics of taxpayers’ compliance behaviour in assisting the SIBR to accomplish the three fold objectives of SAS, including impacts on voluntary compliance among the taxpayers, especially for SMEs.

The relevance of our study is further reinforced for by the dearth of scholarly and empirical literature on tax compliance in the Nigerian economy, especially studies focusing on the tax compliance of SMEs in Nigeria. In this regard, this research study is an addition to the already existing body of knowledge in this area and would be beneficial to researchers in similar analysis or investigations.

Finally, besides academic interests into tax compliance determinants in this critical sector, this study is relevant from a policy perspective. In this regard, this research study empirically establishes the critical determinants of tax compliance of Nigerian SMEs and there from propose result-based recommendations for policy makers, as well as tax and revenue authorities.

It will also be of use to the student, researchers for further research study, the existing and prospective entrepreneur as well as any interested party. It will assist students in their knowledge build-up and appreciation of the concept of tax compliance and it determinants in the case of small and medium scale businesses in Nigeria.


Aryeetey, E., & Ahene, A. (2004). Changing regulatory environment for small-medium size

enterprises and their performance in Ghana. CRC Working Paper No. 30594, Centre on Regulation and Competition (CRC). Retrieved from http//ageconsearchumnedu/bitstream/30594/1/cr050103.pdf

Chu, Kara & Benzing, (2008). Business Tax as State-building in Developing Countries: 

Applying governance principles in Private Sector Development.   

Mof & Mor, (2010). Reducing tax compliance costs for small and medium-sized enterprises: a government discussion document; December 2007; The Policy Advice Division of Inland Revenue, Wellington http//taxpolicy.irdgovtnz/publications/files/smeddoc.doc

Nakiwala, A. (2010). Tax competencies, compliance costs and income tax compliance among SMEs in Uganda; Masters Dissertation 

Nicoleta Barbusu-misu (2011). A review of factors for Tax Compliance: Romania.

Roth, Ronald G. & Cumings, et al. (2005). Effects of Tax Morale on Tax Compliance. 

Experimental and Survey Evidence.

Smatrakalev, G. (2006). Tax policy for small and medium enterprises. Paper delivered at 

the 6TH Global conference on business and economics. U.S.A: Gut man conference center.



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