Tax compliance: a catalyst for business growth for indigenous contractors

Purpose Tax noncompliance is increasingly becoming a global challenge, and numerous occurrences indicate that economies in sub-Saharan Africa are the greatest hit. In Ghana, only a few people pay direct taxes. The construction sector is critical for paying taxes, but many indigenous contractors usually fail to honor their tax obligations, which ultimately affects their business success. This study examines the link between indigenous contractors’ tax compliance and their business growth (BG). Design/methodology/approach We adopt a quantitative approach and cross-sectional survey design to collect data from construction firms’ employees. We utilize descriptive statistics and hierarchical regression modeling to analyze the data. Findings We discover that indigenous contractors’ tax compliance is above average. Prospects, profit, market share and survival are identified as indicators of BG for construction firms. Furthermore, tax compliance and BG indicators were significantly positively related. However, tax compliance has a stronger effect on BG – prospects than other indicators. We also establish that contractors’ educational level can increase the effect of tax compliance on BG indicators, except that it might not be substantial. Originality/value This study provides empirical evidence that businesses, particularly contractors, with higher tax compliance are more likely to exhibit positive business outcomes and vice versa. This study has important implications for policymakers, business owners and stakeholders, as it highlights the importance of tax compliance in supporting business success. Tax administrators can rely on this study to educate indigenous taxpayers on the value of tax compliance, specifically highlighting how it can benefit their businesses.