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A STUDY INTO
THE CHALLENGES OF PERSONAL 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.
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 voluntary 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:
Operations.
Research,
Planning, and Monitoring.
Finance.
Administration.
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:
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 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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