The study investigated the impacts of tax payers� knowledge and penalties on tax compliance\namongst small and medium enterprises in Nigeria using a survey research design. The data obtained\nfrom questionnaire were analyzed using the Ordinary Least Square regression method. The\nresults showed that tax knowledge had a positive significant impact on tax compliance while tax\npenalty had insignificant positive impact on tax compliance. Thus, the study shows that tax knowledge\nhas a higher tendency to promote tax compliance than tax penalty. Government should\ntherefore do everything possible to increase public knowledge on tax matters and tax education\nshould be included in school curricula at all times. Small and medium scale business owners\nshould also seek to advance their tax knowledge and awareness for the mutual benefits of the\ngovernments and taxpayers.
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