Tax Policy, SMES Compliance, Perception and Growth Relationship in Ghana: An Empirical Analysis

Tax plays a significant role in the growth of Small and Medium Enterprises (SMES). In a developing country like Ghana, SMES play important roles in the development of the economy. It is vital for policy makers to consider the alignment of tax policies to the growth needs of SMES. Government uses taxation and tax regimes to provide means for SMES to contribute their quota to the economic growth of Ghana. Placing emphasis on this issue, the paper critically analyses tax policy, SMES compliance, perception and growth relationship in Ghana. The specific objectives of this paper are: To find out if SMES comply with their tax obligations and policies; To examine SMES perception on tax policies; and To identify the effects of tax policies on SMES growth in Ghana. The research was primarily carried out at the Accra Metropolitan Assembly and it covers four markets of Kantamanto market, Makola market, Malata market and Dome Market. Respondents from these markets were Original Research Article Ameyaw et al.; BJEMT, 11(2): 1-11, 2016; Article no.BJEMT.22030 2 small and medium business owners in operation from 2002 to 2015. The survey was administered using questionnaire and a total of 200 respondents were used with 50 respondents from each market. Data was analysed using SPSS version 21. Multiple regression analysis was employed in this study and the findings of this research indicated that majority of the respondents perceived adverse impact of tax policies on SMES compliance, growth and perception in Ghana. The findings will be beneficial to stakeholders in reforming measures to bridge tax policies to SMES in an efficient and effective manner.


INTRODUCTION
SME S stimulates entrepreneurial spirits and the diffusion of skills because SME S enjoy wide geographical presence than big companies in developing countries [1]. In 1998, recommendation was adopted by the International Labour Conference to recognise the need for policy and legal framework in setting an environment for the development of small enterprises [2]. Taxation contributes to the development and welfare of an economy through three fonts; generation of sufficient funds for public service financing and social transfers at high level of quality, incentive for more employment and reallocation of income [3]. Likewise the income and need for survival of SME S should also be considered. The Organisation for Economic Cooperation and Development (OECD) issued a "Bologna Charta on SME policies" in which governments from OECD countries recognised the roles of SME S as well as recommending broad policy orientations conducive for their growth [4].
A study conducted by the Ghana Statistical service in 1992 revealed approximately 93% of registered businesses in Ghana are of SME category. The recognition of SME S in Ghana started in the early 1960s due to the springing up of small enterprises. Agriculture was seen as the main dominance of the economy before the 1960s. At that time, approximately 70% of agriculture holdings was managed by farmers whereas not more than 10% was managed by the government. The inclusion of agriculture and rural businesses into SME S contributed greatly to the Kenyan economy [5]. The performance of SME S in Ghana have not achieved its goal of playing significant role in the growth of the Ghanaian economy. Governments have stepped up efforts to promote SME development through the increase of incentive schemes comprising of budgetary allocations for technical assistance. The engine for the growth of the Ghanaian economy depends on the private sector which consist of SME S . 70% of all industry establishment in Ghana is made up of SME S . The SME S contribute about 22% to the Gross Domestic Product (GDP) as well as accounting for 92% of businesses in Ghana and engrossing over 60% of labour force [6]. Likewise, 85% of overall employment growth in Ghana stems from SME S [7]. This statistics makes SME S the most important sector in the Ghanaian economy.
The Government of Ghana imposes several types of taxes to protect infant industries and ensure fair competition among SMEs. Growth of SME S is perturbed by high tax rates and tax complicity [8]. Taxes increase the cost of production of goods and services which eventually cause prices of goods to surge thus affecting the final consumers. However, revenue mobilised from taxes represent major funding for government expenditure [9]. Taxes are perceived to be a major problem for both upcoming and established firms [10]. Attention should be geared towards the adverse effects of taxes on SME S irrespective of the contribution of taxes to GDP because SME S are seen as the driving force for the growth of the Ghanaian economy. This triggers the need for thorough studies on the challenges thwarting the development of effective tax policies, particularly in the context of SME S . This study seeks to address the impact of tax policies on SME S in the Accra Metropolitan Assembly.

Research Objectives
The broad objective of this paper is to analyse the impact of tax policies on small and medium scale enterprises in Ghana. Specifically, the study seeks to satisfy the following objectives: 1. To analyse the relationship between tax policies and tax compliance by SMES in Ghana. 2. To examine the liaison between tax policies and SME S growth in Ghana. 3. To determine the impact of SME S perception on tax policies.

Concepts and Definition of SME S
The commonly used criterion in the definition of SME S is the number of employees. The Ghana Statistical Service (GSS) considers firms with less than 10 employees as Small Scale and Enterprises whiles firms with more than 10 employees are also considered as Medium and Large-Sized enterprises. However, in the national accounts of GSS, firms with 9 employees are considered as Small and Medium Enterprises. Alternatively, SME S can be defined according to the number of fixed assets in the organisation. The National Board of Small Scale Industries (NBSSI) in Ghana uses both the fixed assets and number of employees in defining SME S. The NBSSI defines SME S as a firm with no more than 9 employees with plant and machinery of not more than 10 million Ghana Cedis excluding land, buildings and vehicles. An upper limit of 10 million Ghana Cedis is also used by the Ghana Enterprise Development Commission (GEDC) to define SME S . However, the problem with this definition is that the continuous depreciation in the exchange rate as well as the processes involved in valuing fixed assets makes such definitions unacceptable. SME S can be classified into three categories. (i) Micro: firms employing less than 6 workers; (ii) Very small; firms employing between 6 and 9 workers; (iii) Small firms; firms employing between 10 and 29 workers [11].
The concepts pertaining to SME S are relative and dynamic [12]. In an attempt to gain an in-depth understanding of SME S , it is important to obtain knowledge on it features. SME S in Ghana consist of individual ownership or family owned businesses that tend to lack good management structures to help in their development. SME S comprise of sole proprietorship or partnership although they may be registered as limited liability [13]. SME S tends to have few number of employees which make the lifespan of the enterprise dependent on the owners' lifespan.
Most SME owners possess low levels of education because they comprise of market women and well established small businesses. Additionally, SME S require lower start-up capital as compared to the larger companies. Managers decision may also be subjective because the same individuals are managed and controlled every day. The organisational forms of SMEs are also likely to vary from sole proprietorships (with or without employees), small corporations (public or private), professionals and partnerships which may result into different management practices and record keeping for the enterprise. Notwithstanding all these features, SME S haven't been vibrant enough to increase in output production even though many larger manufacturing companies rely on them for supplies [14].

Challenges Faced by SME S
SME S face several challenges that hinder their development. Surprisingly, these challenges are the same irrespective of the geographical location of their businesses. Lack of access to land, import procedures and utility instillation and services were recognised as constraints to the growth of SME S [15]. In developing countries, the challenges faced by SME S cannot only be emphasized by introduction of ineffective tax policies but also much emphasis should be placed on market failures in respective regions [16]. Generally, other factors affecting SME S are the dependability of import, lack of access to technology, high inflation, unreliable management practice to combat macroeconomic issues and high debt burden on a particular country. In developing countries where corruption is seen as a major issue confronting all the sectors of the economy, SME S face problems of high operation cost, lack of transparency in all processes and designs that aim at protecting the development and growth of SME S .

Concept of Taxation
Taxes are the compulsory transfer of money from citizens of a country to the government as a source of revenue [17]. [18] stated emphatically that taxes cannot be avoided without attracting punishment. Tax policies are implemented either to: (i) Finance a budget deficit, (ii) Promote long run growth or (iii) Counter other influences in the economy [19]. Taxes differ according to economic policies adopted by governments and are instruments of social engineering in stimulating economic growth [20]. Taxation consists of four principles: certainty, equality or equity, convenience and economy [21]. The observance of rules and regulations for tax assessment collection and implementation can be referred to as the principles of taxation [22]. These include Fairness: Taxes should be fair to taxpayers as well as being aligned with the benefits received by taxpayers; Economic growth: taxes paid should gear towards the achievement of goals required for the economic growth of a country; Equity: taxpayers' revenue and expenditure should correspond with their tax liabilities; Convenient: systems on the manner of paying taxes should be suitable for taxpayers [22].

Tax Policy and Reforms in Ghana
Appropriate policies have been made by the World Bank in reforming tax policies [23]. In creating an enabling and suitable environment for the success of businesses, governments reform taxes to garb long term economic objectives [21]. Taxation policies were passed by governments to promote and protect SME S [18]. However, [24] probed into tax policies by asking these three questions: How much money should government gather as taxes?; How can tax liabilities be distributed among potential taxpayers?; How can the economic cost of taxation be absorbed or minimised? Irrespective of these questions on tax policies, tax policies should create a serene environment in which SME S can expand their activities.
In Ghana, tax policies and reforms have been instituted to ensure compliance to taxes. For example, the Internal Revenue Service (IRS) and the Custom Exercise and Preventive Service (CEPS) were merged into the Ghana Revenue Authority (GRA) to enhance the payments of taxes and to improve efficiency in tax systems. Furthermore, the e-government project was introduced in November 2011 by the government of Ghana to link the GRA to the Registrar General's Department (RGD) in order to electronically keep tabs on the payment of taxes from registered businesses.
Tax reforms have been enacted to protect SME S. In 1998, an attempt for the re-introduction of VAT systems failed because of extensive public opposition in 1995. The Value Added Tax (VAT) flat rate scheme was enacted by an Act of Parliament in 2007, Act 734 and it served as an amendment to the VAT Act, 1998, Act 546. For example, the Tax Stamp instituted a flat tax on various SME S retailers in Ghana. These SME S retailers were grouped into three categories. Category A consists of retail trades; Category B consists of dressmakers, hairdressers, beauticians and artisans; Category C consists of butchers, individual undertakers and traditional healers. Despite these groupings, the Value Added Tax (VAT) flat rate scheme-retailers charged a flat rate of 3% without recourse to input tax.

Policies Adopted to Promote SME S in Ghana
The role of SME S in boosting the economic growth of a country cannot be underestimated. SME S are seen to be the largest employer of workers. Initiatives have been undertaken to promote SME S by various governments.

Tax Compliance of SME S
Tax compliance has been hindered by the substantial changes to tax laws, which exhibited complexity to the extent that only tax experts can understand. This might lead to challenges for taxpayers who do not have access to tax specialist to enlighten them on the complex nature of tax laws [25]. Correlation cannot be established between enforcement of tax laws and tax non-compliance because certain tax measures can lead to SME S being under severe liquidity pressure [26]. Realisation to tax compliance can only be noticed when the liabilities of taxpayers are accurately computed by realising the factors that can be linked to tax liability [27]. There is the likelihood that illiterate taxpayers can either be under-paying or overpaying taxes. SME S admitted to have possessed low competence and independence relating to tax issues corresponding to the recruitment of tax agents by SME S for aggressive tax planning [28]. Lack of expertise on tax laws is responsible for low tax compliance [29]. Tax policies in developing countries often favours large firms who have higher tax revenue payback returns than SME S with lower tax revenue payback returns [30]. Registration of business for tax payments by SME S are not done voluntarily whereas those who fail to register fail to file their tax returns and accurately settle their tax liabilities [26]. Tax evasion by SME S is predicted to be high whereas high investment in auditing might prove futile without adequate audit trail [28]. The above literature reviewed leads us to our first hypothesis: H 1 : There is significant relationship between tax policies and compliance to taxes by SME S in Ghana.

Tax Accountability by Government
Taxpayers' perception on the fairness of tax systems influence the ability to pay taxes [31]. Revenues generated by taxpayers for the government are expected to be accounted for meaningfully by the state [32]. There should always be a link between compliance to taxes by taxpayers and the tax accountability by the government such as securing the safety and security of individuals including taxpayers' right to property [33]. The existence of tax accountability generally comprise of two parties; the one entrusted with something that results into accountability and the principal who gave the mandate [34]. Correlation was established between governance and accountability and income tax revenue performance, for example South Africa, Nigeria and Uganda had income tax ratio to good governance score as 14.4%: 69.4%; 2.5%: 49.6%; 3.8%: 57.9% respectively in 2006 [35]. The function of the degree to which governments can better the lots of its people is through the state political obligation [36]. The accountability of governments can correspond to tax payment by citizens thereby increasing the willingness to pay taxes and reducing the cost of tax collections. However, the non-accountability of government can also result in the likelihood of the demand of high taxes by the state which may also result in protest and violence by the citizens.
In the Ghanaian community, most owners of SME S have negative perception towards the taxes collected by the government. Although, they may be aware of the use of taxes as major source of government revenue as well as the funding of public expenditures, they also have a perception that taxes paid to the government are not used for their intended purposes. Recently, the economy of Ghana is on a recess despite the numerous taxes paid by taxpayers. With respect to this issue, SME S in Ghana see no reason to comply with taxes because the government is not able to align the payment of taxes to the socioeconomic development of the country. SME S in Ghana may perceive tax obligations favourably when the government acts in a trust worthy manner. There may be existence of high levels of trust and tax morale if government makes good use of tax revenues.

Tax Policies Influence on SME S Growth
Resources directed towards the compliance of taxes can be used for reinvestment to facilitate future growth [37]. Complex tax policies can put uneven pressure on smaller businesses. Reduction in tax rates increases the profit margin of SME S as well as intensifying government tax revenues since such provisions reduce the size of the shadow economy [38]. Complex tax systems distort the development of SME S and often result in the morphing of groups that offer a lower or no tax burden hence resulting in tax systems that levies high expenses on the economy [39]. Poor implementation of tax policies connote high collection charges, low efficiency, time wastage for taxpayers and staff, deviation from optimum allocation of resources and low amount of tax revenues [40]. The efficiency of tax policies depend on the designing of appropriate and rational tax rates, reducing tax burden of the indigent people and intensifying the fight against the corruption and the evasion of taxes [41]. The complex nature of tax policies such as multiple taxes, high ports charges etc. can exert serious burden on SME S. Such complexity in tax policies may results in SME S hiring agents to explain tax policies which result in additional cost for SME S . Public corporations possess vast knowledge on tax systems than SME S . For example, the accounting requirements of public corporations is much sturdier than sole proprietors because employees of such corporations may be subject to the awareness of requirements relating to withholding income taxes and social contributions [42]. Taxation of SME S has a negative effect on SME S sector growth and the economy by reducing sales, profit, capital and employment level [43]. Accumulation of assets is a key indicator of a firm's growth and performance. Inaccurate taxation policies and uncertainties hinder SME S from acquiring assets to strengthen their growth [44].

Tax policies and SME S growth in developing and emerging countries
In developing countries, by contrast, over 90% of all firms outside the agricultural sector are SMEs or micro-enterprises. These firms produce a considerable part of GDP. In Morocco, for example, 93% of industrial firms are SMEs, representing about 38% of the production, 33% of investment and 30% of exports. The contribution of SMEs is considerably higher in South Africa. The estimated 91% of the formal business entities in South Africa that are SMEs contribute 52-57% to GDP. In Ghana, SMEs are even more prominent in the local economy, representing about 92% of Ghanaian businesses and contributing about 70% to Ghana's GDP [45]. Although tax forms an integral part of the development of most developing countries, an increment in tax rates might really affect the productivity and structure of their business. In most developing countries especially Ghana, some exemptions are allocated to certain types of SME S . Especially with our target population, virtually no tax exemptions are offered to petty traders in our respective market whereas in emerging countries, tax policies are implemented to enhance the growth of SME S . For example, in China, tax policy has been designed to encourage the financing of SME S by providing business tax exemptions for corporations that guarantee loans to SME S . Also, tax deductions are awarded to market entities and venture capitalist who invest in SME S to the tune of 70% of the amount of investment. The lack of tax exemptions to these petty traders in most developing countries hinder the expansion of their businesses as compared to emerging countries.
In Ghana, SME owners see taxes as just governmental way of earning revenue with no much good to the SME S and the society at large. SME S under the regulatory system of taxation are discriminated against since the requirement of compliance, cost of compliance and tax rate are the same for both small and large corporations. As stated earlier, such uneven nature of tax policies can exert serious burden on SME S and might distort their development. Therefore, policy changes should be implemented to align SME S revenue generation to the percentage of taxes paid. The growth of SME S will result in a significant boost of the Ghanaian economy. This therefore leads us to our second hypothesis: H 2 : There is a negative impact of Tax Policies on SME S growth in Ghana.

SME S Perception on Tax Policies
SME S face numerous complications during their business operations. Such complications include the payment of taxes before SME S start production of goods and services as well as the payment of other forms of taxes like payroll levy, sales tax, corporate tax etc. [45]. The informal sector deems tax authorities to be among the most feared institutions in terms of institutionalising their activities. Institutionalising the activities of the informal sector operators include registration with tax authorities, the requirement to pay relevant taxes etc. In order to avoid such institutionalising activities which serves as an additional cost, informal sector operators avoid the payment of taxes. Tax regulations and company laws are primary regulations that negatively impact SME S [46]. The three key situations affecting SME S owners' perception on tax policies are: meaningful tax knowledge; decisions that portray taxes as a painful loss; perception about non-compliance opportunities [47].
In Ghana, most SME S perception on tax policies is not quite appealing. Tax policies are seen by SME S as an attempt made by the government to deter their growth. Most SME S in Ghana have had enough of such policies that minimise their overall profit of business operations. Of course, there are tax policies that also encourages the growth of SME S . SME S perception on tax policies may not only stem on the imposition of taxes but also the rate of illiteracy of the SME S. It can be noted that most owners of SME S in Ghana are mostly market women who may have little or no

Fig. 1. Conceptual framework
Source: Authors' Construct knowledge on tax policies. Therefore, it is important to address SME S perception of tax policies in Ghana. Based on this, we derive our third hypothesis as: H 3 : There is a bad perception by SME S on tax policies in Ghana.

CONCEPTUAL FRAMEWORK
The conceptual framework of this study is illustrated in Fig. 1 above. According to the conceptual framework, we seek to analyze the perception of SME S on tax policies as well as analyzing whether tax policies lead to the compliance of taxes. Lastly we seek to conclude on whether or not tax policies have a significant impact on SME S.

Research Design
In analysing the research questions, qualitative and quantitative method was employed in both data collection and hypothesis testing to ensure the effective interpretation of the data by using SPSS version 21.

Research Population
The population comprises of SME S owners from Kantamanto, Makola, Malata and Dome market.
Taxpayers in each selected market were asked to provide an evidence of tax payment receipts. This enabled us to identify SME S owners who pay taxes to the GRA. Purposive sampling method was used to identify respondents to aid in our research.

Sample Size
A sample of 200 respondents was selected from four markets of the Tema Metropolitan Assembly of which 50 respondents were selected from each of the four market. This sample size was selected from each market because it is enough to generate and generalize the findings of a bigger population. Purposive and judgemental sampling techniques were employed in this research because respondents have information that is vital to this research process.

Data Source
The collection of data was done through primary sources. Primary data was obtained from SME owners by the administering of questionnaire and interview guide.

Data Collection Instruments and Procedures for Data Analysis
Unstructured interview lasting for 30 minutes was used for the collection of qualitative data whereas questionnaire was used to collect quantitative data from respondents. A 5 point Likert-scale was employed in the administration of questionnaire with scales ranging from "Strongly Disagree" denoted by 1 to "Strongly Agree" represented by 5 with neutral scores amid the two extremes. Regression analysis was used for the analysis of the data obtained from the survey.

STATISTICAL FINDINGS
The following interpretations and discussions were based on the analysis and findings of the study.

Determining the Regression Equation
From    6. CONCLUSION AND RECOMMEN-DATION SME S will be excited in an ideal world for the instigation of tax policies only if there is a realisation that tax policies will positively impact their operations. However, in Ghana, the introduction of tax policies poses a serious threat to SME S in relation to payment of taxes which concurrently affect the profitability of SME business operations. The study was conducted to depict whether or not there is a significant relationship between tax policies and SME S compliance, growth and perception in Ghana. Interestingly, all the three objectives developed to aid in our research proved significant. It is evident from the hypothesis that all the three predictors satisfies the regression model: Y = 0.005 + 0.376X 1 -0.096X 2 + 0.586X 3 The research portrayed that tax policies impact SME S growth negatively. Additionally, tax policies were found to affect tax compliance by SME S whereas a conclusion was drawn that SME S perception on tax policies look unappealing. It is very imperative for governments, policy makers and institutions in Ghana and the world at large to come out with pragmatic measures to design tax policies to protect the growth of SME S as well as increase the revenue mobilisation of taxes by the government. Therefore, the following recommendations are made in order to improve SME S growth as well as government revenue mobilisation on taxes to an appreciable level.
Tax systems governing SME S should be simplified to encourage compliance to taxes. For example technology can be introduced in the filing of taxes to ease the cumbersome processes in the payment of taxes. Also clear and simple tax regulations should be instigated. SME S should be educated on issues concerning taxes such as enlightening their expected tax incentives and tax exemptions that they are liable for. Also tax administrators should improve upon their duties efficiently with integrity in order to help eradicate the issue of multiple taxes.
The government of Ghana should harmonise the payment of taxes by defining sanctions for the non-compliance of taxes by SME S as well as reviewing the cost of legislative compliance which imposes more burden on SME S. Government should appropriately define in simple and clear sentences the usage of tax revenue in order to eradicate the unappealing perception about SME S on matters relating to taxes.
A well-defined strategy should also be adopted by government to aim at the development of SME S as well as increase the mobilisation of tax revenues to help fund government expenditures.