Assessing the Effects of Tax Compliance on Business Growth: A Case Study Among Selected SMEs in Ndola District, Zambia (Journal of economics, business and commerce.)

Summary

• A mixed-methods study of 50 SMEs in Ndola District, Zambia, assessed how tax compliance affects revenue, sustainability and operational costs.p.1
• Tax compliance was positively associated with revenue, but the relationship was not statistically significant (p = 0.3064).p.1
• Tax compliance had a statistically significant positive effect on business sustainability (p = 0.0002).p.1
• Higher compliance-related operational costs were associated with growth effects (F = 4.35, p = 0.0423).p.1
• 62% of the SMEs were not registered, 28% were partially registered and 10% were fully registered.p.11
• 34% of SMEs recorded 26% to 50% growth, the largest group.p.12

Key insights

1. Developed economies record SME tax compliance rates ranging from 60% to about 90%, with developing economies lower.p.2
2. Retail accounted for 20% of the sampled SMEs, manufacturing 18%, agriculture 12% and transport 10%.p.11
3. The one-sample t-test on revenue gave a mean of 2.840 against a hypothesized 3.000 and a p-value of 0.3064, so the null hypothesis was not rejected.p.13
4. 26% of SMEs reported a significant positive sustainability effect and 34% a positive effect.p.13
5. The sustainability test produced a t-value of -3.97 and a p-value of 0.0002, rejecting the null hypothesis.p.14
6. The regression of performance on monthly operational costs gave a coefficient of 0.3065 and a p-value of 0.0423.p.16