Governance quality and informal sector taxpayers’ compliance behavior in Osun state, Nigeria: A perspective from the theory of planned behavior

Abstract

Type of the article: Research ArticleAbstractMistrust in the social contract between governments and citizens in emerging markets remains a significant topic of scholarly research. Hence, the study examined the influence of governance quality on informal sector tax compliance behavior in Osun State, Nigeria. Primary data were obtained through a structured questionnaire spread among 256 respondents from a total population of 710 small and medium-scale enterprises (SMEs), comprising trading associations, petty traders, and market traders, in three major commercial cities from each of the three senatorial districts in the State: Osogbo, Ilesa, and Ede. The data were analyzed using partial least squares structural equation modelling (PLS-SEM). The results revealed that governance quality, measured by factors such as control of corruption (β = 0.36; p = 0.00), regulatory effectiveness (β = 0.663; p = 0.00), and voice and accountability (β = 0.078; p = 0.00), has a positive and significant influence on tax compliance among informal sector taxpayers in Osun State. The study concluded that the pathway from governance quality to informal sector tax compliance behavior in Osun State is the following: governance systems devoid of corruption, fairness of tax regulations, accountability of governance officials in the conduct of public businesses, and free and fair elections of democratically elected government representatives.