VAT Compliance Intention among SMEs in Developing Countries to implement sustainable development goals: The Carrot and Stick Approach

Abstract

Sustainable Development Goals (SDGs) generally seek to end poverty, fight inequality and injustice as well as tackle climate change in 2030. Hence without funds the aim cannot be achieved. Value Added Tax (VAT) was introduced to increase the revenue base of the government and make funds available for the developmental purposes as well as financing the cost of implementing the sustainable development goals, as that will improve the growth and development of a country. Despite its importance, the compliance rate in developing countries as compared to developed countries is low. Thus, this paper investigates the relationship between fairness in the tax system, detection probability and penalty magnitude with VAT compliance intention among Small and Medium Enterprises (SMEs) in developing countries. Data was gathered through the administration of 500 questionnaires which 373 questionnaires were retrieved, thereby representing the sample size for the study. The respondents are SMEs in Nigeria. 13 indicator items were measured on 5-point Likert Scale from 1 (strongly disagree) to 5 (strongly agree). Statistical Package for the Social Sciences (SPSS) 23 was employed as the primary statistical analysis tool for the study. The result indicates there is positive relationship between fairness in the tax system, detection probability and penalty magnitude with VAT compliance intention in developing countries. This study recommends a blend of carrot and stick approach in tackling VAT compliance intention among SMEs, as that will encourage the SMEs to remit the VAT collections and also assist the policy makers to map-out policies that would
ensure an effective management of VAT revenue and compliance among SMEs in developing countries. Furthermore, empirical studies should also be conducted in other developing countries to test the consistency of the results.