EXAMINATION ON ATTITUDE OF BUSINESS OWNERS TOWARDS TAX STAMP
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EXAMINATION ON ATTITUDE OF BUSINESS OWNERS TOWARDS TAX STAMP
Chapter one
INTRODUCTION
1.1 Background of the Study
Governments and rulers have constantly sought ways to collect money from their subjects in the form of taxes throughout history. Other than the right to declare war, none of the responsibilities of government, according to Lamont (1992), have a more direct impact on people’s wellbeing, both personally and economically, than the ability to tax.
Taxation has the effect of forcing individuals to give up their hard-earned money or goods, or, in the early days, even payments in kind, for no tangible benefit in return.
In many ways, raising tax revenue is a state’s most crucial responsibility. Fundamentally, tax revenue is what keeps the state running, funding everything from social programmes to infrastructure upgrades.
Taxation is important in determining how benefits are distributed because it serves as the foundation for redistribution from those with the highest incomes to those in greatest need, and it allows the government to encourage certain activities while discouraging others by changing their relative prices (Prichard, 2009).
The responsibility to pay one’s fair share of taxes when they become due is part of the new morality that democratic governments must foster in their constituents.
Tax evasion and fraud are widely regarded to be among the most harmful forms of crime in Ghanaian society, with tax criminals draining millions of cedis from state revenue on a daily basis (Ayee, 2007)
. In recent years, taxation on small and medium-sized firms (SMEs) has received a lot of attention in both developed and developing countries. The increased emphasis on SMEs reflects a growing realisation of their potentially critical role in supporting innovation, employment, and development, particularly in the service sector, which is expanding in both developed and developing countries.
Privatisation and deregulation have assisted the expansion of small and medium-sized firms, particularly in countries transitioning to market economies (Prichard 2009). Because of their potential economic impact and vibrancy, the tax treatment of SMEs receives far more attention than their income contribution alone would suggest.
Ghana’s informal sector is extensive and diverse. Trading, spare parts, transportation, construction, agriculture, cattle, food preparation, financial facilities, refrigeration, power, dressmaking, footwear distillation, gold and silver mining, and traditional medicine are only a few of the activities covered (Ayee, 2007).
Because of their large size, the Ministry of Finance and Economic Planning and the Statistical Service have been unable to obtain precise data on their membership and operations.
The informal sector in Ghana is regarded as critical to the entire economy’s development since it provides (a) large sources of employment, (b) primary sources of job creation, and (c) primary sources of ongoing job creation.
c)the need for huge corporations to continue to expand;
d)as a foundation for national competitiveness.
(e) sources of entrepreneurship and innovation. It is, however, plagued by a number of issues, including a scarcity of skilled labour, limited access to capital and technology, poor entrepreneurship, small and segmented markets, a lack of record-keeping culture, a very elusive, highly itinerant, unregulated by legislation, and, finally, a very low literacy rate (Ayee, 2007).
The informal sector’s size makes it difficult to collect income taxes. Ghana’s income tax base is extremely narrow. Only about 20% of the workforce works on a wage and salary basis. The others work in the unorganised sector.
Because they are largely self-employed, identifying the income of people in the informal sector might be challenging in some cases. As a result, the vast bulk of their actual income cannot be reliably estimated. As a result, the informal sector has been the most common source of income tax evasion.
Evasion can be classified into three types: non-declaration of income, underdeclaration of income, and inflation of deductions from income. The informal sector accounts for the majority of Ghana’s economy.
The self-employed sector, which primarily operates in informal structures, is estimated to account for 86.3 percent of economic activity (Ghana Living Standard Survey, 2000), despite the fact that many could easily be classified as earning less than the taxable threshold of income liable to tax.
According to the Ghanaian Registrar General’s Department, there are 266,760 self-employed individuals in Ghana’s informal sector. Unfortunately, just 53,352 people have enrolled and are paying taxes (Ghana Revenue Authority [GRA], 2009).
In Ghana, as in any other country, the informal sector includes a diverse spectrum of individuals, businesses, beliefs, and backgrounds. It’s possible that these small business groups’ cultural backgrounds, as well as their political and social histories, have influenced their tax attitudes.
These ideas may influence their attitudes towards tax compliance. If taxpayers’ perspectives on taxes influence their attitudes towards compliance, it is evident that changing taxpayers’ perceptions of taxation is crucial to achieving a more positive attitude towards compliance.
It is vital to understand how taxpayers feel about taxes, not only to influence government policy on the subject, but also to assist the government market itself and its services more effectively to the general public.
There appears to be a considerable tax gap between the tax that is potentially attainable from economically engaged citizens of the country and the tax that is actually collected.
One of the primary reasons of the tax gap is taxpayers’ and potential taxpayers’ failure to comply with tax laws. People’s opinions and ideas have been identified as one of the causes of noncompliance.
1.2 Statement of the Problem
Taxation is a key source of revenue for governments around the world. In Ghana, tax revenue is used for:
a) infrastructural development, such as good roads, schools, portable water, the provision of health and sporting facilities, electricity, and so on;
b) the maintenance of law and order for the security of the state and all individuals; and
c) the payment of salaries to government employees, such as doctors, teachers, and civil servants, to ensure that government operations run smoothly. The Tax Stamp was introduced in 2005 with the goal of increasing the contribution of self-employed tax collection.
This is a quarterly tax levied on small-scale self-employed individuals in the informal economy. The Tax Stamp System categorises business operators in Ghana’s informal sector based on their type of company, such as dressmakers, susu collectors, chop bar owners, butchers, and others.
To determine reasonable rates to be paid based on both kind and size, company types are further defined by class/size (GRA, 2009). The Internal Revenue (Amendment) Regulations of 2004 introduced the Tax Stamp system. Legislative Instrument (LI) 1803 of 2004 established the system on Tuesday, February 1, 2005.
It makes it simple to identify small-scale self-employed people in the informal sector based on their business type, such as those working in kiosks or on table tops; identifiable groups such as hairdressers, dressmakers and tailors; butchers, market traders, chop bar and cooked food sellers; and artisans such as masons, carpenters, welders and mechanics.
Following the successful implementation of the Vehicle Income Tax (VIT) Sticker system for Commercial Vehicle Operators in the third quarter of 2003, the Tax Stamp System was implemented. According to tax authorities, the VIT was a huge success, forcing the development of the Tax Stamp System.
Unfortunately, despite its best intentions, the Tax Stamp was met with opposition from its intended target demographic. The fundamental reason for the original Tax Stamp System’s resistance and seeming failure was due to the sector’s core character.
It is made up of a large number of small-scale operators, each with a low turnover rate, according to Ayee(2007). Many actions occur in private and out of sight, making it difficult to trace them for tax purposes. The entrance obstacles are modest. This causes strong competitiveness, as well as a high amount of volatility and unpredictability.
Existing businesses may cease to exist in the future. Operators in areas like transportation or street selling may be highly mobile. Cash transactions are common because of low literacy and limited access to financial services.
Because of their family-oriented and small-scale nature, most businesses do not keep separate accounts for personal and business activity. Accounting services at reasonable prices are unusual. Despite these obstacles, the tax stamp was relaunched on September 28, 2006, once the flaws that had hampered its operation were rectified.
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