The Moderating Effect of Tax Knowledge on the Relationship between Tax Rates and Tax Compliance of MSMES in Nigeria

Abstract

Findings from prior studies have confirmed the inconsistencies and weak relationship that exists between tax rates and tax compliance. This study, therefore, tested the strength of the relationship between tax rates and tax compliance of MSMEs by introducing tax knowledge as the moderating variable. From 500 questionnaires administered, 325 were collected and from data cleansing 304 respondents were tested. Stratified and proportional sampling techniques were used in selecting the samples. The study found that tax knowledge moderated the relationship that exists between the tax rates and tax compliance of MSMEs in Nigeria. Also, the study found that tax rates and tax knowledge have a significant effect on the tax compliance of MSMEs in Nigeria. Tax literacy is important in improving the basic tax education of the citizens and trust in government. The study, therefore, recommended that the government should include taxation in the curriculum of elementary classes in Nigeria.