University of California
Type of paper: Thesis/Dissertation Chapter
Tax administration attaches great importance to all forms of taxes, in the sense that they aim at reducing tax evasion to its minimum level. Ghana has relatively a long tax history on tax administration. According to the Report of the Tax Review Commission (Parts 1, 2 & 3),” Accra, (1977) the first custom law was first passed under colonial rule in 1855 and later replaced in 1876 by a custom law based in the U.K. With reference to the Report of the Tax Review Commission (Parts 1, 2 & 3), (1977), the customs Consolidated Act, 1876, income tax was introduced in Ghana under the Income Tax Ordinance in 1943. As noted above, the three main revenue institutions are the Value Added Tax Service (VATS), Custom Excise and Preventive Service (CEPS), Internal Revenue Service (IRS). The CEPS and VAT service are structured in the same direction. The IRS deals with all direct taxes whilst VATS and CEPS deal with all indirect taxes. Until 1986, both CEPS and the IRS formed part of the civil service.
In 1985, two laws, the customs excise and preventive law (PNDC Law 144) and the internal revenue service law (PNDC law 143), were enacted to grant full operational and practical financial autonomy to these institutions. It is important to note that the provisions of these laws which established the IRS and CEPS as service of the Republic are upheld by the constitution of the fourth Republic. Income tax administration in Ghana begun in the then Gold Coast by the Poll Tax Ordinance in 1943. However, this ordinance has been amended several times. The consolidated edition was first amended in 1961. This was followed by the Income Tax Decree in 1966 (No 78) and the Income Tax Decree SMCD 5 in 1975. However, the first assessment was made in the 1944/1945 year of assessment. During this era, assessment was based on preceding year, in other words, one is assessed in a previous year but was made to pay to the tax in the subsequent year.
The tax year started in May and ended in April the following year until the 1960’s when the year of assessment was changed to July to June the following year. This was still followed by the passing of SMCD 5 (1975) until 1981 when the Provisional National Defense Council (PNDCL) amended part of the SMCD 5 (1975). The SMCD 5 (1975) as amended by Provisional National Defense Council Law (PNDCL) changed a lot of the bases of assessment of tax. That is, the preceding year bases of assessment of income tax was changed to current year bases so that one was assessed in the current year and payment was expected to be made in that same year. This change was made in 1983 and the government statutory year was equated to the year of assessment which begins in January and ends in December the same year. This made sure that all individuals and firms followed the government statutory year until 1986 when the accounting year base was introduced.
According to the report of The Tax Review Commission (part 1, 2 & 3),”Accra, 1977), the entire SMCD 5 (1975) and PNDCL (1981) were replaced with the Internal Revenue Act (592) 2000 which had replaced the VAT law and the CEPS management law. Though the internal revenue act (IRA 592) was passed in the year 2000, the government gave its assessment in February 2001. This Act brought some changes in the assessment of income tax especially in relation to the computation of year of assessment and bases period, capital allowance and capital gains and assessment of partners of partnership firms in the year 2000. Section 71 of the Income Tax Decree 1975 provides for a Commissioner who is responsible for the assessment and collection of income tax.
There are two main forms of taxes in Ghana, which are Direct Taxes and Indirect Taxes. Direct taxes are however administrated by the IRS as noted above. These are classes of taxes levied on income earnings of a taxpayer or individual. Indirect taxes are taxes levied on imports, exports and some locally manufactured goods. The revenue agency governing board is made up of the three major revenue collecting agencies. That is, the Board was established to supervise the administration of the major revenue collecting agencies.
EFFECTIVENESS AND EFFIICIENCY OF TAX ADMINISTRATION
It is accepted that tax is one of the main weapons used by government of Ghana in managing the economy. Therefore the availability of an effective and efficient tax administration encourages taxpayers to comply with the tax laws and this will enable the government of Ghana to achieve his goal.
EFFECTIVENESS OF TAX ADMINISTRATION
Tax laws must be fair and equitable, so that it will encourage taxpayers to comply with the tax laws For tax administration to be effective, the laws should be applied to each and every one in any territory in the same manner so that nobody will feel cheated Again, for tax administration to be effective, it requires a combination of quality customer service to help those who want to comply, and effective enforcement measures against those who do not
EFFECIENCY OF TAX ADMINISTRATION
Tax administration of substantive tax regime should be done in a manner that is no more complicated than is necessary to access and collect tax. All else being equal, simplification should result in lower cost for tax administration and taxpayers. Transparency of tax rules should be an on-going goal. Taxpayers should know the rules of the game under which their transactions are taxed. The international monetary fund defines transparency as follows; Tax laws, regulation and other documents relating to administrative interpretation of tax law should be accessible to the general public. Explanatory material should also be kept up to date. New budget measures should be given sufficient publicity so that taxpayers understand how they might be affected. Training both tax administrative officials and tax professionals to perform their duties efficiently.
The training should permit both parties to operate approximately the same level to tax knowledge. Cost to the tax system will be minimizing if both sides are equally versed in the tax rules. Taxpayers should ensure that books and records are appropriately maintained. The cost of administration increases when taxpayers’ records are inadequate or unavailable. For tax administration to be efficient, tax return information received must be kept confidential. Strict adherence to this standard will facilitate the willingness of taxpayers to provide the information needed to audit tax filling and this will make the administration of tax in Ghana to be more efficient.
STATEMENT OF THE PROBLEM
Since tax administration affects the socio-economic development of the nation, it is imperative that institutions associated with administration and collection of taxes in Ghana is well versed in the tax laws as well as the taxpayers. It implies that when the tax officials are incapable of instituting measures that were imposed, the taxpayers would not see how important it is to pay taxes and the need for such taxes. This calls for effective and efficient tax collection system developed by the agencies responsible for taxes to enhance the quality of the tax administration. The problem at stake is therefore, if tax administration affects the socio-economic development of the nation, how best can taxes be administered so that its importance and effect on the socio-economic development of the nation can be realized? It is this problem the study seeks to solve.
PURPOSE OF THE STUDY
The purpose of the study includes the following:
1. To ascertain whether income earners are well educated in filing tax returns. 2. To evaluate government’s contribution towards the development and improvement of tax revenue collection. 3. To identify problems, suggest solutions and recommend to tax officials certain measures as a remedy to minimize the practice of tax avoidance and tax evasion 4.To evaluate the steps that will lead to improved tax administration taking into consideration the law enforcement, tax audit, mode of collection and accounting for monies collected and the public acceptance of the system. 5. To educate the citizens on the importance and the principles of tax. 6. To determine the benefits gained from proper tax administration towards the socio-economic development of the country.
SIGNIFICANCE OF THE STUDY
The administration of taxes would help create the awareness about revenue obtained from the taxation that helps in the provision of infrastructure for development purposes. Therefore, individuals and organizations must endeavour to honour their tax obligation. More so, the research will help individuals who would study or read taxation as a programme. Also, it is expected that the study will provide tax authorities with in-depth information on administration of tax and tax relief in Ghana. In addition, the study will help the government to determine the causes of tax evasion and tax avoidance in order to put in place measures to curb it if there exist any.
The study will help foster growth in the economy in areas like the Agric sector, Industrial sector etc. Finally, the administration of tax will be of immense importance to the various revenue collection bodies that is internal revenue service (IRS), custom excise and preventive service (CEPS), value added tax service (VATS). This means that at the end of the study on tax administration, taxpayers, the government and the whole public could rely on the findings to enhance national development.
REVIEW OF THE LITERATURE
Because of the importance of this topic to the development of the nation, many authors have made written statements, views and suggestions to the efficient and effective tax administration in the nation. According to Andah (1995), tax is a source of revenue through which government meet its expenditure both current and recurrent. This therefore calls for the need for a better tax administration. This means that tax administration follows a pattern which eliminates misrepresentation of duties. Tax authorities must make available to taxpayers the needed requirements to pay tax. Good structures should be put in place to make the payment of taxes easier. The cost of collection must be minimized so that it does not exceed the amount collected. Taxpayers should be educated in order to know the consequences of tax evasion and tax avoidance. Terkper (1985) stated that, basically, there are three major tax collection agencies in Ghana namely; Internal Revenue Service (IRS)
Value Added Tax Service (VATS)
Custom Excise and Preventive Service (CEPS)
The internal revenue service and the value added tax service are structured almost in the same line. According to Yirenkyi (2010), the internal revenue service (IRS) deals with all direct taxes which include property tax, capital gain tax, company tax, personal income tax etc. He further said that the value added tax service (VATS) and the custom excise and preventive service (CEPS) on the other hand deal with indirect taxes. Some of these indirect taxes collected by the value added tax service (VATS) and custom excise and preventive service (CEPS) include sales tax, export duties, import duties, customs and excise duties etc. Yirenkyi (2010), also pointed out that for the purpose of taxation, all powers are vested in a person known as the commissioner of the internal revenue service (IRS) and assisted by deputy, narrowing down the structure to the tax inspector. According to section 113 of internal revenue act IRA (2000) the commissioner is approved under IRS law, 1986 (PNDC Law 143).
METHODOLOGY OF THE STUDY
The methodology will talk about the techniques and strategies adopted to gather data for the study. This will include the design of the study, population of the study and sampling, the procedure used in the data collection, the statistical tools used in the analysis and handling of the data.
The research design to be adopted will be a survey because for tax administration to be more effective and efficient in Ghana, a survey would be appropriate in this wise as it provides a better insight of the problem identified. Therefore we will embark on a survey study.
The target population of the study will be tax officials and taxpayers in Ghana but the accessible population will be the tax officials and taxpayers of the Kumasi Municipality. The tax officials will include the management and staff of the Domestic Tax Service whilst the taxpayers will be those who are into buying and selling. To achieve the true research target, the population will be divided into two groups.
Purposive sampling will be used to select the Domestic Tax Service of Kumasi municipality as the sample for the study because it is a division of the head office in the municipality. A random sampling technique will be adopted for selection of the departments. This is to ensure that every subject has equal chance of being selected. Much attention will also be given to the departments of the Domestic Tax Service of the Kumasi municipality namely: Statistical Department
Tax Collection Department
General Office Department
Ten respondents will be interviewed whilst twenty will be responding to the
questionnaire. In all the sample size for the study will be thirty (30).
DATA COLLECTIONS TECHNIQUES AND TOOLS
Primary and Secondary data will be used to collect or gather information.
Primary data will be collected through personal interview and a set of questionnaire.
Secondary data will be collected mainly from sources such as published reports, the internet and documented information.
Andah P.O. (1995), Ghana Income Tax Law and Practice.
Pritchard Bill and Murphy David (1988-1989), Income Tax.
Commissioner of Internal Revenue Service (IRS): Income Tax Decree, SMCD (1975). Powell R. (1993): Economics for Professional and Business Studies. Aryee G.C.A (1995): Notes and Excessive on Ghana Income Tax. Terkper E. Seth (1985): an advisor to the National Revenue Secretariat, Ghana and a Research Fellow at the International Tax Program, Harvard University. Paul A.S (1980): Economics, McGraw- Hill Books Company New York. Taylor B. John (1987): Economics, Library Congress Cateloging –in Publication, Page 194. Hyman N. David (1995): Macro Economics, (Fourth Edition), McGraw- Hill, Inc. Wolfson M. and Myron (1985): Taxes and Business Strategy Harper Collins Publishers, London, Page 1434.