AN EXAMINATION OF BUSINESS OWNERS’ ATTITUDE TOWARDS TAX STAMPS (A CASE STUDY OF TAXPAYERS IN SEKONDI, GHANA)
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CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Throughout the whole of human history, governments and rulers have sought means to levy taxes on their subjects. Lamont (1992) asserts that, other than the ability to declare war, none of the government’s functions has a greater impact on the well-being of individuals and their economic activities than the capacity to levy taxes. Taxation has the consequence of compelling individuals to surrender their hard-earned money or property, or, in earlier times, even contributions in kind, without receiving any real benefits in exchange. In many ways, raising tax revenue is a state’s most crucial responsibility. Fundamentally, tax revenue sustains the state, funding everything from social services to infrastructural upgrades. It serves as the basis for redistribution from those with the highest earnings to those with the greatest need, and it enables the government to support certain activities while discouraging others by modifying their relative values (Prichard, 2009). As part of the new morality that democratic government must teach in all individuals, the need to pay one’s fair portion of taxes when due is included. Tax evasion and fraud are often regarded as two of the most harmful crimes that plague Ghanaian society, with tax offenders stealing millions of cedis every day from the public coffers (Ayee, 2007). In recent years, taxation on small and medium-sized enterprises (SMEs) has received considerable attention in both developed and developing nations. The increased focus on small and medium-sized enterprises reflects a growing realization of their potentially crucial role in supporting innovation, employment, and growth, especially in the service sector, which is gaining importance in both developed and developing countries. Privatization and deregulatory policies have facilitated the expansion of small and medium-sized firms, especially in countries transitioning to market economies (Prichard, 2009). Due to their potential economic significance and vitality, the tax treatment of small and medium-sized enterprises is accorded far more weight than their income contribution would imply. The informal economy of Ghana is broad and diverse. Trading, spare parts, transportation, construction, agriculture, cattle, food preparation, financial facilities, refrigeration, power, clothing, footwear distillation, gold and silver smiting, and traditional medicine are among the activities mentioned (Ayee, 2007). Due of their immense size, the Ministry of Finance and Economic Planning and the Statistical Service have been unable to get precise information on their membership and activities. Since it offers (a)major sources of employment, (b)primary sources of job creation, and (c)primary sources of continuous job creation, the informal sector in Ghana is seen as crucial to the overall economic growth.
c)necessity for large corporations to continue expanding;
d)to support national competitiveness and
(e)innovation and entrepreneurship sources It is, however, plagued by a number of problems, including a shortage of skilled labor, limited access to capital and technology, poor entrepreneurship, small and segmented markets, a lack of a culture of record-keeping, a very elusive, highly itinerant, unregulated by legislation, and a very low literacy rate (Ayee, 2007). The size of the informal sector makes it difficult to collect income taxes. The income tax base in Ghana is quite narrow. Approximately twenty percent of the labor force is wage-and-salary based. The remaining are employed in the informal economy. In many situations, it may be difficult to ascertain the income of persons in the informal sector due to the fact that they are mostly self-employed. The bulk of their real income, therefore, cannot be fairly estimated. Therefore, the informal sector has been the leading source of income tax evasion. There are three forms of evasion: non-declaration of income, under-declaration of income, and inflation of deductions (Ayee, 2007). The activities of informal sector firms dominate the Ghanaian economy. The self-employed sector, which runs primarily informal structures, is projected to account for 86,3 percent of economic activity (Ghana Living Standard Survey, 2000), despite the fact that a sizable proportion might easily be categorized as earning below the taxable income level. According to the Ghanaian Registrar General’s Department, in Ghana’s informal sector there are 266,760 registered self-employed individuals. It is terrible that just 53,352 individuals have registered and are being taxed (Ghana Revenue Authority [GRA], 2009). In Ghana, like in any other nation, the informal sector comprises a diverse assortment of individuals, businesses, beliefs, and origins. It is probable that the cultural roots and political and social histories of these small business associations have impacted their attitudes on taxation. Their perspectives on tax compliance may be affected by these beliefs. Clearly, since taxpayers’ perceptions of taxation influence their attitudes toward compliance, modifying taxpayers’ perceptions of taxation is essential to establishing a more positive attitude toward compliance. It is crucial to determine how taxpayers feel about taxes, not only to influence government policy on the issue but also to assist the government in more effectively marketing itself and its services to the general public. There seems to be a considerable tax gap between the tax that is potentially receivable from economically engaged citizens and the tax that is actually collected. Noncompliance with tax legislation by taxpayers and potential taxpayers is one of the primary drivers of the tax gap. It has been shown that attitudes and perspectives are one of the causes of noncompliance.
1.2 Statement of the problem
Taxation is a major source of revenue for governments across the world. Tax revenue in Ghana is used for: a) infrastructural development, such as good roads, schools, portable water, provision of health and sporting facilities, electricity, etc.; 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, in order to maintain government operations. The Tax Stamp was created in 2005 in an effort to increase the contribution of self-employed tax collection. This is a quarterly tax collected from informal economy small-scale self-employed individuals. The Tax Stamp System classifies business operators in Ghana’s informal sector by kind of operation, such as dressmakers, susu collectors, chop bar owners, etc. To determine reasonable rates to be paid based on both kind and size, the business types are further defined by class/size (GRA, 2009). The Tax Stamp system was created by the Internal Revenue (Amendment) Regulations of 2004. On February 1, 2005, Legislative Instrument (LI) 1803 of 2004 put the system into effect. It enables simple identification of small-scale self-employed people in the informal sector based on their business type, including 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, artisans such as masons, carpenters, welders, and mechanics, and artisans such as masons, carpenters, welders, and mechanics. In the third quarter of 2003, after the successful implementation of the Vehicle Income Tax (VIT) Sticker system for Commercial Vehicle Operators, the Tax Stamp System was implemented. According to tax officials, the VIT was a remarkable success, mandating that the Tax Stamp System be modeled after it. Unfortunately, while having the greatest intentions, the targeted target group opposed the Tax Stamp. The initial Tax Stamp System encountered opposition and seemed to fail primarily due to the sector’s inherent characteristics. According to Ayee, it is comprised of a large number of small-scale operators, each with a low turnover rate (2007). Numerous acts take done in secret, making it impossible to trace them for tax purposes. The entry obstacles are minimal. This leads in strong competition and a great degree of change and unpredictability. Currently existing businesses may cease to exist in the future. In businesses such as transportation and street vending, operators may be very mobile. Due to low levels of literacy and lack of access to financial institutions, cash transactions are common. Due to their family-oriented, small-scale nature, the majority of enterprises lack separate accounting for personal and commercial operations. Accounting services that are affordably priced are rare. Despite these obstacles, the tax stamp was reintroduced on September 28, 2006, when the problems that impeded its operation were rectified.
1.3 Objective of the study
The study’s principal goal is as follows:
Examine the amount of tax payment compliance via the Tax Stamp
To Identify Major Obstacles Business Owners Face in Paying Taxes iii. To Evaluate the Effectiveness of Measures to Encourage Tax Stamp Compliance
To provide suggestions for the enhancement of Tax Stamp
1.4 Research Questions
In what manner do company owners comply with tax agency regarding the acquisition of tax stamps?
What difficulties do company owners experience while paying their taxes?
Are the steps taken to ensure Tax Stamp compliance effective?
Exist remedies for the enhancement of Tax Stamp compliance rates?
1.5 Significance of the study
This kind of study will be beneficial in several ways. First, the research will enable an evaluation of the Tax Stamp System in the study area five years after its reinstatement; second, the study’s findings will assist revenue officers and other business owners in identifying taxing issues in the informal sector. In addition to attempting to provide information to improve tax collection and compliance in Sekondi, the inquiry may find crucial data demonstrating the informal sector’s capacity to contribute to the national treasury. Finally, the researcher will have practical experience investigating the informal economy as a result of this research.
1.6 Scope of the study
This research investigates the perspectives of company owners on tax stamps.
Additionally, examine the extent of tax payment compliance with the Tax Stamp.
Moreover, to identify significant obstacles that company owners experience while paying their taxes. In addition, evaluate the efficacy of strategies to elicit compliance with the Tax Stamp, and then provide suggestions for improving compliance levels with the Tax Stamp. Thus, Taxpayers of chosen firms in Sekondi, Ghana, will be restricted.
1.7 Limitation of the study
This investigation was limited by a variety of issues, which are as follows:
Similar to other types of research, ranging from the absence of required correct resources on the issue being studied to the difficulty to get data.
The researcher was hampered by a lack of funds while acquiring pertinent resources and printing and collating surveys.
Having to switch between writing the study and participating in other academic activity, which makes it difficult for the researcher, is a further limitation posed by the time element.
1.8 Definition of terms
Attitude is a consistent style of thinking or feeling about a subject.
A tax stamp is a stamp that is placed to an object as confirmation that a tax has been paid.
AN EXAMINATION OF BUSINESS OWNERS’ ATTITUDE TOWARDS TAX STAMPS (A CASE STUDY OF TAXPAYERS IN SEKONDI, GHANA)
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