Digital Tax System and Tax Compliance Among Small Businesses in the Cape Coast Metropolis: Role of Digital Literacy

Abstract

This study evaluates the effectiveness of the digital tax system and its influence on tax compliance among small businesses in the Cape Coast Metropolis, with emphasis on the moderating role of digital literacy. Specifically, the study sought to: (1) assess the effectiveness of digital tax systems among small businesses, (2) assess the level of tax compliance among small businesses, (3) examine the effect of the effectiveness of digital tax systems on tax compliance, and (4) examine the moderating role of digital literacy in the relationship between the effectiveness of digital tax systems and tax compliance. The study was anchored in the Technology Acceptance Model and the Theory of Planned Behaviour, within a post-positivist framework. A quantitative design was employed, using a descriptive cross-sectional survey. A total of 331 small business owners and managers were selected through purposive and convenience sampling. Data were analysed using SPSS version 26 and SmartPLS version 4. Findings indicated that participants viewed the digital tax system as beneficial in improving tax administration, particularly by promoting accurate reporting, on-time filing, and making tax obligations easier to manage. Tax compliance rates were reported to be quite high, bolstered by system features that motivate timely payments and reduce penalties. A significant positive relationship was found between the effectiveness of the digital tax system and tax compliance as well as between digital literacy and tax compliance. However, digital literacy did not significantly moderate this relationship.