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.
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.
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.
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).
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
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:
- 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 district offices.
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
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
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
- 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 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
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, 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.