TAX LITERACY, TRUST IN GOVERNMENT, AND TAX COMPLIANCE IN GHANA’S INFORMAL SECTOR: EVIDENCE FROM URBAN SMEs

Domestic revenue mobilisation remains a persistent challenge in developing economies where large informal sectors hamper the effectiveness of enforcement-based tax strategies. Although tax literacy initiatives are widely promoted to boost voluntary compliance, evidence of their success remains mixed. This study investigates whether trust in government influences the relationship between tax literacy and tax compliance among informal small and medium-sized enterprises (SMEs) in Ghana. Guided by the Theory of Planned Behaviour and Institutional Theory, the study constructs an integrated behavioural–institutional framework. Using firm-level survey data from 384 urban informal SMEs and Partial Least Squares Structural Equation Modelling with moderation analysis, the results demonstrate that both tax literacy and trust in government positively affect compliance. The findings reveal that trust in government enhances the relationship between tax literacy and tax compliance, underlining the importance of context-specific taxpayer education and trust-based tax reform.