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
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.
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
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
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:
- Research, Planning, and Monitoring.
- 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
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:
- To identify the challenges of Income Taxation in Ghana.
- To identify the causes of tax evasion in Ghana.
- 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:
- What are the various challenges facing income taxation in Ghana?
- What are the factors that account for tax evasion in Ghana?
- 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
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.
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,
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.