A STUDY INTO THE IMPACT TAX REFORMS ON INVESTMENT DECISIONS IN GHANA (A CASE STUDY OF GHANA REVENUE AUTHORITY, ACCRA)


A STUDY INTO THE IMPACT TAX REFORMS ON INVESTMENT DECISIONS IN GHANA (A CASE STUDY OF GHANA REVENUE AUTHORITY, ACCRA)

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A STUDY INTO THE IMPACT TAX REFORMS ON INVESTMENT DECISIONS IN GHANA (A CASE STUDY OF GHANA REVENUE AUTHORITY, ACCRA)

Abstract

Governments need to put in more effort in attracting investors into their country through tax reforms if it wants to achieve economic growth and enhance standards of living. The research considered certain variables that affect investor’s decision as to where to invest. These included the location, type of activity and time variables, which were very important due to the fact that, the laws pertaining to each one of them concerning the tax rate to be paid, incentives, exemptions, relief and holidays to be enjoyed varies.

The data for the research were obtained from both primary and secondary data. To obtain first hand information on whether investors in the country did consider the tax system in their investment decision, the study used questionnaires and interviews. The researcher designed 22 questions for the taxpayers and was distributed to 30 companies and individuals.

In the research, it was discovered that tax laws influences investment and location decision and for that matter a very important tool in attracting investors into the country. Again, the tax incentive that has the greatest impact on investment was also the reduction of corporate tax rate. However, certain constraint such as the level of interest rate and uncertainty about the economy were also discovered.

The researcher recommended that there was the need for reforms of the general tax system by creating efficiency and transparency in tax collection and elimination of unnecessary taxes and levies, which adds unnecessary costs to transactions.

KEY WORDS:  TAX REFORMS, INVESTMENT DECISIONS, INCENTIVES, TAX SYSTEM, TAX RELIEF, INTEREST RATE.

 

CHAPTER ONE

1.0 INTRODUCTION

Every government and most especially those in the developing economies are concerned about the economic growth of their nation. As a result, they put in much effort to achieve higher rate of economic growth and raise the standard of living of its citizens.

The critical issue has been how to attract investors and generate the needed resources domestically using tax instruments that are least harmful to both the government and the investors. This will obviously involve reforming the tax system to ensure efficiency by widening the tax net without necessarily increasing the tax rate.

Governments continue to encourage foreign investment as an integral part of its economic policy. Ghana embarked on a privatization program in the early 1990s. The government at one point controlled more than 350 state-owned enterprises but nearly 300 were privatized by the end of 2000 and as at December 31st 2005, 351 had been privatized leaving just a handful of state-owned enterprises. For example, the government’s, stated priority privatization in  the 2007 budget included Ghana Telecom, Western Wireless (Westel), Tema Oil Refinery, Ghana Oil Company and State Insurance Company. They also pursued privatization through selling of State-owned shares on the Ghana Stock Exchange (GSE).

The government recognizes attracting foreign direct investment requires an enabling legal environment and has passed laws that encourage foreign investment and repeated some that has previously stifled it. In the United States for example, there was a decline in investment some years ago. In order to stimulate investment, a new tax Act was introduced in 2002 and 2003. This helped the economy to regain its stand by the late 2003, investment returned to its pre-recession trend and the economy expanded at a healthy rate of 3.9% and despite the dislocations that was as a result of the hurricanes and steep rise in energy prices, registered 3.2%. A research conducted in United States by a Joint Economic Committee presented a case that, “lowering the cost of capital through tax legislation can be both timely and effective in stimulating economic growth”.

Governments need to put in more effort in attracting investors into their country through tax reforms if it wants to achieve economic growth and enhance standards of living.

The most important source of government revenue is from tax. According to the 2006 budget, the government introduced some tax incentives for venture capital investment and reduced tax rate on personal and corporate income in order to strengthen the private sector and enhance the disposable income of householders. Tax rate for companies in categories A and B were lowered, and rate for other categories were abolished with regard to the National Reconstruction Levy.

Various studies have shown that changes in the tax system have great impact in investment decisions. Feldstein (1982) observed that “adverse changes in the tax variables since 1965 have depressed investment by more than 40%” Hassett and Hubbard “recent empirical studies appear to have reached a consensus that the elasticity of investment with respect to the tax-adjusted user cost of capital is between -0.5 and -1.0” Hassett and Hubbard cited other studies that concluded that tax over the last forty years have had a large effect on investment. A research by House and Shapiro showed that temporary investment tax incentives did stimulate investment.

A STUDY INTO THE IMPACT TAX REFORMS ON INVESTMENT DECISIONS IN GHANA (A CASE STUDY OF GHANA REVENUE AUTHORITY, ACCRA)

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Governments need to put in more effort in attracting investors into their country through tax reforms if it wants to achieve economic growth and enhance standards of living. The research considered certain variables that affect investor’s decision as to where to invest. These included the location, type of activity and time variables, which were very important due to the fact that, the laws pertaining to each one of them concerning the tax rate to be paid, incentives, exemptions, relief and holidays to be enjoyed varies... banking and finance project topics

A STUDY INTO THE IMPACT TAX REFORMS ON INVESTMENT DECISIONS IN GHANA (A CASE STUDY OF GHANA REVENUE AUTHORITY, ACCRA)

Project Information

  • CATEGORY : BANKING AND FINANCE
  • TYPE : PROJECT MATERIAL
  • FORMAT : MICROSOFT WORD
  • ATTRIBUTE : Documentation Only
  • PAGES : 54 Pages
  • CHAPTERS : 1 - 5
  • PRICE : ₦ 3,000.00

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