A STUDY INTO THE CHALLENGES OF INCOME TAXATION IN GHANA
ABSTRACT:
Revenue from tax which is a big source of revenue to the Government has been a major concern to many developing countries such as Ghana in recent times. This due to the fact that taxation faces a lot of challenges in developing countries, and once these challenges are not properly dealt with, it becomes a big disadvantage to the government and citizens of that country, as enough revenue will not be generated to the government. Various challenges such as complex tax structure, tax evasion, and inadequate logistics are making taxation difficult in Ghana. All these challenges reduce the amount of revenue generated by the Government. The inability of the government to tackle these challenges will encourage economic instability, poor infrastructural development and poor economic growth.
The researcher used Internal Revenue Service Ghana (Eastern Regional Office), as a case study to find out the challenges associated with income taxation in Ghana, as well as solutions to these challenges.
Concerning methodology, data used in compiling this research were gathered from both primary and secondary sources. The management and employees of Internal Revenue Service (Eastern Regional Office) were issued questionnaires. Text Books, Magazines and News Papers on Taxation were also used in compiling this research.
Based on the findings revealed from the data analysis and interpretation, the researcher came up with some suggestions and recommendations. The major findings in this study include: the challenges facing income taxation in Ghana, the causes of tax evasion in Ghana, and ways to properly address the challenges identified. These findings and recommendations, in view of the researcher, will help improve income tax administration in Ghana, if implemented by the government of Ghana, and other tax authorities such as the Internal Revenue Service of Ghana.
TABLE OF CONTENTS
Certificate ……………………………………………………………………………………..…ii
Declaration ………………………………………………………………………………………iii
Acknowledgement …………………………………………………………………….………iv
Dedication ……………………………………………………………………………………….v
Table Contents………………..………………………………………………………………… vi
Abstract………………………………………………………………………………………... viii
CHAPTER I
INTRODUCTION
1.0 Introduction….………………………………………………………………….………..…..1
1.1 Background of the study and profile of the organization........................................................1
1.2 Statement of the problem…………………………..………………………………………...3
1.3 Objectives of the study………………………..……………………………….……….…....4
1.4Research questions…………………………………………………………………………....5
1.5 Significance of study………………………………………………………….…….…….…5
1.6 Scope of the study…………………………………………………………………………...5
1.7 Time frame…………………………………………………………………………………..5
1.8 Limitation of study…………………………………………………………………….…....6
1.9 Chapter Scheme……………………………………………………………….…………….6
CHAPTER II
LITERATURE REVIW
2.0 Introduction…………………………………………………………………………….….8
2.1. Definitions………………………………………………………………………………...8
2.2 Income Tax………………………………………………………………………………...9
2.3 Overview of Income Tax System in Ghana………………………………………………12
2.4 The Role of Taxation in the Economy of Ghana…………………………………………13
2.5 Attributes of a good tax system………………………………………………………...15
2.6 Review of the Challenges of Income Taxation…………………………………………17
2.7 Review of the Causes of Tax Evasion………………………………………………….22
2.8 Ways of properly addressing the challenges of income taxation in Ghana…………….24
2.9 Conclusion……………………………………………………………………………...27
CHAPTER III
RESEARCH METHODOLOGY
3.0 Introduction……………………………………………………………………..…..28
3.1 Study Area…………………………………………………………………….…....28
3.2 Research Design ………………..…………………………………………………..28
3.3 Population of the Study…………………………………….………………………29
3.4 Population size and Technique………………………………………..…………….29
3.5 Data collection method……………………………………………….…………….29
3.6 Data Analysis………………………………………………………….……………30
3.7 Limitation ……………………………………………………………..……………30
CHAPTER IV
DATA PRESENTATION AND ANALYSIS
4.0 Introduction…………………………………………………………………..……...31
4.1 Objective one data analysis………………………………………………………….31
4.2 Objective two data analysis…………………………………………………………37
4.3 Objective three data analysis………………………………………………………..39
CHAPTER 5
FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.0 Introduction…………………………………………………………………..…….44
5.1 Findings..……………………………………………………………………………44
5.2 Conclusion…………………………………………………………………………..46
5.3 Recommendation and Future Research …………………………………………..46
BIBLIOGRAPHY……………………………………………………………………48
APPENDIX I..………………………………………………………………………..50
LIST OF TABLES
Table 4.1.1 Responses on whether Income Tax face challenges or not…………………………32
Table 4.1.2 Responses on whether the challenges reduce revenue to the government……….....33
Table 4.1.3 Responses on the challenges of Income Taxation in Ghana………………………..33
Table 4.1.4 Responses on the biggest challenges facing Income Taxation in Ghana…………...35
Table 4.1.5 Responses on whether targets are met despite challenges………………………….36
Table 4.1.6 Responses on whether the government is aware of the challenges…………….......37
Table 4.2.1 Responses on whether most income earners in Ghana evade tax………………….38
Table 4.2.2 Responses on the causes of tax evasion in Ghana………………………………….38
Table 4.3.1 Opinion of respondents on the possibility of properly addressing the challenges….40
Table 4.3.2 Responses on various ways to properly address the challenges of income taxation..40
Table 4.3.3 Responses on whether the roles have been played by the government……………..42
Table 4.3.4 Responses on whether more income earners have been captured…………………..43
CHAPTER I
INTRODUCTION
The desire to build a civilized country with a strong and sound economy is the desire of every patriotic Ghanaian citizen. Tax payment is the demonstration of such a desire, although most income earners see it as a means of exploitation by the government. Tax payment is a voluntarily contribution imposed by the Government on personal income earners, companies, investors, exporters, importers etc. revenue realised from taxation is a major source of revenue to the Government of Ghana, and as such is an important tool used in the development of Ghana and her economy. However, tax evasion which is the wilful and deliberate violation of the law in order to escape payment of tax, posses a big threat to income taxation in Ghana as it reduces tax revenue to the Government, thereby hampering economic growth and development.
However, this research was undertaken to help increase revenue generated from income tax to the government, by pointing out the challenges faced by tax officials in discharging their lawful duties. Various challenges such as tax evasion on the part of the income taxpayers drastically reduce income tax revenue to the government. This has been a big problem for decades and needs to be properly addressed.
1.1 BACKGROUND OF THE STUDY AND PROFILE OF THE ORGANIZATION
After a thorough research on the revenue structure of Ghana, it became evident that revenue from tax was a big source of income to the government of Ghana, and needed much attention because; taxation in Ghana like most West African Countries faced numerous challenges such as Tax Evasion (which is the biggest challenge of Taxation).
The main reason for initiating this project is to research on the various weaknesses of tax administration in Ghana, throw more light on the weaknesses, and proffer solutions as well as recommendations for government agencies to deliberate upon and make informed decisions.
The study started with casual discussion among tax officials and tax payers concerning their views on taxation in Ghana and their expectations. It later developed into a full research when the researcher developed more interest in the topic, and decided to get more information from tax officials, government agencies, and other secondary documentations.
The Internal Revenue Service (IRS) is under a ministry of Finance and Economical Planning of the Republic of Ghana. It is a public service organization charged with direct tax administration. IRS as a revenue agency is very strategic in the achievement of national goals. It has therefore embarked on a mission of improving the quality of service delivery to taxpayers and the general public through simplifying processes and clarifying roles and procedures.
It has set up time frames for prompt completion of tasks in order to render more transparent services to the public. The objective is to create a customer-oriented revenue collection organization focused on providing quality service to enhance voluntary tax compliance. The IRS is assisted in its endeavour at improved quality service delivery by the Ministry of Public Sector Reform.
The IRS is headed by a commissioner who is responsible for the day-to-day running of the service. He is subject to the directions of the board on matters policy.
He is assisted by five (5) deputy commissioners who head the five(5) main departments:
1. Operations.
2. Research, Planning, and Monitoring.
3. Finance.
4. Administration.
5. Legal services.
IRS of Ghana is located in Accra and implements policies formulated by RAGB. There are two (2) regional offices in Greater Accra region and one each in the remaining nine (9) regions of Ghana. Their core functions are monitoring and supervision of district offices.
There is also a LTU located in the Revenue Towers at Osu. The LTU is a one stop tax office responsible for large taxpayers of the three (3) revenue agencies especially IRS and VAT service. All taxpayers at the LTU are on self assessment.
The service has a total of fifty (50) tax districts, thirty-eight (38) sub offices, and twenty-five (25) collection points located at vantage points for the identification of tax payers, assessment, and collection of direct taxes.
The Vision Statement of Internal Revenue of Ghana is ‘To excel as an effective tax administration agency’.
The Mission Statement of Internal Revenue Service of Ghana is ‘To effectively and efficiently administer the tax laws through a well-trained and motivated staff in order to promote voluntary compliance for the maximization of tax revenue’.
1.2 STATEMENT OF THE PROBLEM
Based on previous researches conducted on income taxation in Ghana, it is clear that revenue generated from income tax is at a decrease, as the challenges facing income taxation increases. A study conducted in 2008 by Raymond Baker, estimates that developing countries like Ghana loses over $22.4 million in tax revenue annually to tax evasion. Also, a similar study conducted by Internal Revenue Service of Ghana revealed that about 1.5 million of 7 million income earners pay their tax which indicates that 79% of total income earners evade tax. This can be attributed to the numerous challenges facing income taxation in Ghana.
Due to numerous challenges facing income taxation in Ghana, revenue generated from income tax is low as tax evasion in Ghana is at the increase. Challenges such as tax evasion and high poverty rate has made income earners who are eligible to pay tax to keep evading tax for various reasons ranging from insufficient profits on the part of the tax payer to expectations not being met by the government who collect the tax, and at times totally escaping from the tax net. Most personal income earners in Ghana, especially the self employed, business men and women, traders do not often pay their tax liabilities, and those who are captured in the tax net under-state their financial positions by not disclosing their full income, thereby paying less tax. This has been a big problem for long as enough revenue is not being realised to carry out activities that develop the country, and build a strong economy.
1.3 OBJECTIVES OF THE RESEARCH
The main purpose of this research is to identify means of increasing revenue generated from income tax to the government, by finding out the challenges of income taxation in Ghana, and ways all these can be effectively tackled.
In-order to achieve the purpose of this research, the following are the objectives of the research:
1. To identify the challenges of Income Taxation in Ghana.
2. To identify the causes of tax evasion in Ghana.
3. To identify ways of properly addressing the challenges of income taxation in Ghana, in order to capture more income earners into the tax net.
1.4 RESEARCH QUESTIONS
In order to achieve the objectives stated above, the following research questions were used as a guide in achieving the objectives of this research:
1. What are the various challenges facing income taxation in Ghana?
2. What are the factors that account for tax evasion in Ghana?
3. What must be done to address the challenges of income taxation in Ghana properly?
1.5 SIGNIFICANCE OF THE STUDY
This study gives a clear insight into the various ways in which revenue from tax can be increased and how the challenges facing income taxation in Ghana can be properly tackled. The study also gives a clear insight into the various causes of tax evasion-which is a major challenge of the income taxation in Ghana. The findings and recommendations of the researcher will help in building a strong and better income tax system in Ghana, if taken seriously by government and the general public. The challenges of income taxation in Ghana are outlined in-order for drastic measures to be taken to tackle these challenges and meet the prospects of the general public so that revenue from income tax to the government can be increased.
1.6 SCOPE OF THE STUDY
This research focuses mainly on the challenges faced by tax authorities when collecting personal income tax. The study only torches on the challenges tax officials face when collecting tax on income earned, from personal income earners such as the self employed, business men and women, traders, and other forms of sole proprietorship businesses.
Based on the findings of this study other possible researchable areas may include studies on the various challenges of other forms of tax such as the Value Added Tax (VAT), Capital gains tax, Import and Export duties tax. Etc. Further research can also be done on curbing tax evasion in Ghana.
1.7 TIME FRAME
This study lasted for four months before it was complete. The study lasted from January 2011 to April 2011.
1.8 LIMITATION
The only limitation faced by the researcher in the course of carrying out this study was the delay in getting data from the various respondents. Most respondents were reluctant in filling questionnaires administered to them due to their busy schedules and nature of their work. The researcher found it difficult to collect responses from the various respondents, and this almost hampered the success of this study.
1.9 CHAPTER SCHEME
Chapter one of this study includes the general introduction, background information about the study, statement of the problem, objectives of the study, research questions, scope of the study, significance of the study, and the limitation of the study.
Chapter two reviews all relevant literatures relating to the study as well as the researcher’s views concerning previous studies on the challenges of income taxation.
Chapter three includes the methodology applied in collecting and analysing data, population definition, study site, and limitations.
Chapter four presents the results of the study as well as data analysed, and the interpretation of the analysed data.
Chapter five includes a summary of the study, conclusion and recommendations based on the findings from the study.
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