Investigating the Antecedent of Low Payment of Tax in Ghana Empirical Evidence From Efutu Municipality
CHAPTER ONE
Objective of the study
The objectives of the study are;
- To ascertain the effect of personal income on low payment of tax in Ghana
- To find the effect on low tax payment on Ghana economy
- To find out the strategies in tracking tax revenue in Ghana
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Theoretical Review
Theoretical review
Tax is the amount that is imposed on individual or corporation income or profit or on commodities that has been levied by the government in order to finance the government expenditure. According to James and Nobes (1997), a tax is a compulsory levy made by public authorities for which nothing is received in return.” Taxes are normally classified as direct taxes and indirect taxes. Direct taxes are taxes that are directly on the income of individuals or the profit of companies or on the capital gain or on wealth. Indirect taxes are directly taxes imposed on goods and services that consumers pay. Examples of indirect taxes are value added tax, per unit tax, sales tax, goods and services tax.
Tax non-compliance is an act of not respecting the tax law and rules of a country by not paying the tax or by not declaring the true value of the actual income. This may include tax evaded in an illegally way and legally means, that is, it involves the tax avoidance and the tax evasion. Tax avoidance is performing an act of minimizing the tax liabilities within the law. Tax evasion is performing an illegal act of avoiding paying tax. Kesselman (1997) stated that pure tax evasion (PTE) involves non-reporting, understatement, or misreporting of taxable income, profits, or sales. Some PTE activity is related to extreme financial manipulation that goes beyond the bounds of the legal tax avoidance. Other PTE occurs in conventional, legitimate businesses that underreport their receipts or overstate their expenses”.
As stated by Organization for Economic Co-operation and Development (OECD) the Non Observed Economy (NOE) is an economy where there are some economic transactions which have not been declared and are not added to the GDP. Similar to the OECD report on NOE, Smith (1994) also defined the NOE as an economy where the production of goods and services arising from legal or illegal means are not incorporated in the estimation of the GDP.
In the 1980’s the phenomenon of shadow economy had started and given rise to anxiety within countries.
CHAPTER THREE
Methodology
Research hypothesis
Given the availability of prior literature on the phenomenon of investigating the antecedent of low payment of tax in Ghana which influences the individual’s compliance decision, particularly within the context of a developing country like Ghana, the following tentative hypotheses have been articulated and examined in this study.
Hypotheses 1: there is no effect of personal income on low payment of tax in Ghana. This hypothesis was applied to examine the relationship and for that matter the extent to which the taxpayer’s views about the burden of tax predicts an individual’s taxpaying attitude. Some previous research works for example; Alabede et al., (2011); Diego and Luca, (2011), seem to support the view that, taxpayers have some concern for vertical and horizontal equity and that, some taxpayers compliance levels decreased with high levels of unfairness in the tax system because of the effect of personal income. The findings of Atuguba (2006) that “Ghanaians can be tax loving” is profoundly exciting and thus should be tested empirically.
Hypotheses 2: there is no effect of low tax payment on Ghana economy. Tax cuts boost demand by increasing disposable income and by encouraging businesses to hire and invest more. Tax increases do the reverse. These demand effects can be substantial when the economy is weak but smaller when it is operating near capacity. The second hypothesis is thus meant to test whether there is any significant relationship between levels of low payment of tax and Ghana economy
Hypotheses 3: there are no strategies in tracking tax revenue in Ghana. Underlying this hypothesis is the view that, there are strategies of tax collection methods: road blocking, enforcement of penalty to offenders and public enlightenment). It is thus assumed that, if individuals perceive their government of the day to use strategies to track those that are not comply paying of tax
CHAPTER FOUR
REPRESANTATION AND ANALYSIS OF DATA
PRESENTATION OF DATA
The Spearman Rank correlation coefficient (R) was applied to explain the strength of the relationship between the three main factors in the hypotheses of this research and low payment of tax. Rank correlation is used because of the measurement scale applied in assessing the opinions of respondents regarding their levels of agreement and disagreement. A one-way ANOVA was also applied in testing for significant differences between the means of attitudinal variables and tax compliance. These tools were primarily employed to explain the causal relationship between the three variables namely; effect of personal income, effect of low tax payment, and strategies in tracking tax revenue in Ghana
Socio biographic profile of respondents
A total of 233 respondents were successful. Out of this the male respondents represented 45.06%, and the rest of the 54.94 %( 128) were females. The mean age of business was 5 year (SD = 0.991). More than 61% of these businesses had been in operation above the mean of 5 years. Also 45% of respondents earned below GHȻ6,500 in annual taxable incomes. The mean taxable income was GHȻ9,750 with a standard deviation of 0.991. On the educational profile of respondents, 30.9% were senior high school leavers while only representing 9.7% had post first degree qualifications.
Chapter Five
Summary and recommendation
This study investigating the antecedent of low payment of tax in Ghana empirical evidence from Efutu municipality. Three major factors were hypothesised and tested. These were: effect of personal income on low payment of tax, effect of low tax payment on Ghana economy and strategies in tracking tax revenue in Ghana
Effect of personal income on low payment of tax
Individual taxpayers had concern for the amount of taxes they pay. A strong positive correlation exists between perceived levels of personal income and low payment of tax. The policy implication of this indicates that low payments of tax are because of low salary earning, low interest of goods sold and inflation. Taxpayers perceive on complaining on these factors. They indicated that they may continue to comply with their tax obligations if the all these mentioned factors increased, even though their tax burdens were high. This conclusion was reflected in the inter-item correlation coefficient between low income and low tax payment. The partial correlation coefficient between low income and low tax payment derived (0.325) is significant
Effect of low tax payment on Ghana economy
The study further established that there is effect of low tax payment on Ghana economy. Low tax payment have effect on Ghana economy (Table 2). There was strong agreement that, tax cuts boost demand by increasing disposable income and by encouraging businesses to hire and invest more. Tax increases do the reverse. These demand effects can be substantial when the economy is weak but smaller when it is operating near capacity. These conclusions had been confirms the evidences in extant studies (Alabede et al., 2011; Atubuga, 2006; Everest, 2008).
Strategies in tracking tax revenue in Ghana
This result is very profound given that, blocking of road, enforcement of penalty to tax offenders and public enlightenment will really be strategies to track tax revenue in Ghana An argument could however be made that, this suggestion is very idealistic in assuming that, there is a high level of awareness strategies in tracking tax revenue in Ghana
Recommendation
It is recommended that, the Domestic Tax Division of the Ghana Revenue Authority should revamp and revitalise the taxpayer award scheme. The aim should be to award consistency and faithfulness in income declaration and prompt payment of taxes. This will encourage other taxpayers not to indulge in tax evasion.
Individuals will continue to willingly pay their taxes if they know that their taxes are being put to good use (Atubuga, 2006; Ayee, 2007). It is therefore recommended that the government through the ministry of information should continuously educate the taxpaying public about ongoing projects which are being financed from their taxes. When taxpayers get feedback from their governments in connection with the use to which their taxes are put, their voluntary compliance levels may increase as a result.
The National Board for Small Scale Industries (NBSSI) in collaboration with national bodies such as National Commission for Civic Education, Rural Enterprise Foundation, and other allied bodies to carryout business education fairs with the view to promoting joint venturing. This will likely widen the current envelop of taxable incomes and in consequence increase the amount of tax revenues to be generated by government for development purposes.
References
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