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Taxation is one of the important elements in managing national income, especially in developed countries and has played an important role in civilized societies since their birth thousands years ago. Tax compliance is an important issue in every economy recognizing the role revenue from tax play in national development. This study aimed at investigating the tax compliance level among traders in the Accra Metropolis and to determine the factors that influence tax compliance among traders.

Data was gathered by interviews with the use of structured questionnaires and interview guides. Tables, graphs and charts were used to present the result of the analysis. Logistic regression model was used to determine the factors that influence tax compliance. Simplicity of tax returns and administration has positive and significant relationship with VAT compliance (p= 0.0001). The results also indicate that tax education also has a positive and significant relation with VAT compliance (p=0.0023).

This study contributes to current global literature in this field of the relative importance of tax knowledge in affecting tax compliance, as well as exploring the factors that make people pay taxes, and discusses methods of increasing tax compliance among traders.





1.1.1  Introduction

Questions about tax compliance are as old as taxes themselves and will remain an area of discovery as long as taxes exist. There is almost no civilization that did not tax. Six thousand years ago, tax history started with records on clay cones in Sumer, with the inscription, "There were the tax collectors" (Adams, 1993). History has shown that there has always been a reluctance to pay tax. A major reason for this attitude is that the taxpayer does not always perceive that he receives any benefits from parting with his hard earned cash.

Most citizens, however, realize that state expenditure for the purpose of creating or maintaining national infrastructures, such as services and roads, is a necessity. But, citizens object to having to finance unnecessary state expenditure. In this regard, everyone has his own understanding of what is unnecessary. Taxpayers feel that whatever is contributed by way of tax is mostly squandered away and the social responsibilities the government is expected to discharge get neglected. The government's bad image because of its failure to discharge functions is a great disincentive for paying taxes. Most people feel that tax is a burden and should be avoided. Taxpayers feel that they are being treated harshly and the punitive provisions in the tax laws are applied ruthlessly against them. Hence, it is better to be away from the tax department and the number of non-filers of tax returns is increasing (Coetzee, 1996).


Tax evasion is a universal phenomenon that takes place in all societies and economic systems including both developed and developing countries. In the US, it is estimated that the extent of tax gap (the difference between taxes owed and taxed filed) for 2001 were US$ 353 billion (IRS, 2006). This concern is particularly severe for developing countries given the rapid growth of investment in their economies and their lack of adequate experience in dealing with this problem. In China, the tax evasion by multinationals resulted in revenue loss amounting to US$ 3.88 billion each year (Asia Times, 2007). In Hong Kong, the Inland Revenue department reported that about US $ 1.15 billion was collected between 2003 and 2007 as back tax and penalties (IRD, 2007). Thus, tax compliance is a growing international concern for tax authorities and public policy makers as tax evasion seriously threatens the capacity of governments to raise public revenue.

Revenue authorities have a central role (vested interest) in ensuring that taxpayers and other parties understand their obligations under the revenue laws. For their part, taxpayers and others have an important role to play in meeting their obligations as, in many situations, it is only they who are in a position to know that they may have an obligation under the law. While the exact obligations placed on a taxpayer are going to vary from one taxation role to another and from one jurisdiction to the next, four broad categories of obligation are likely to exist for almost all taxpayers, irrespective of jurisdiction. ‘Compliance’ will essentially relate to the extent to which a taxpayer meets these obligations.

These broad categories of taxpayer obligation are:

• Registration in the system;


•       Timely filing or lodgment of requisite taxation information;

•       Reporting of complete and accurate information (incorporating good record keeping); and

•       Payment of taxation obligations on time.

If a taxpayer fails to meet any of the above obligations then they may be considered to be non-compliant. However, there are clearly different degrees of non-compliance. For example, under the definition given above, non-compliance may be due to unintentional error as well as intentional fraud — and might include overpayment of tax. In addition, a taxpayer may technically meet their obligations but compliance may be in question due to interpretational differences of the law. In such circumstances, clarity of the taxation law represents a category of risk to be addressed — either by changing the law or changing the way in which it is administered.

Ghana has a relatively long history of tax administration. The first customs law was passed under colonial rule in 1855 and later replaced in 1876 by a customs law based on the U.K. Customs Consolidated Act, 1876. Income tax was introduced in Ghana under the Income Tax Ordinance in 1943 (GoG, 1997). As noted above, the two main revenue institutions currently are the CEPS and the IRS. It is proposed to establish a third service with the introduction of VAT in 1995 to consolidate domestic tax administration in the country.

Until 1986, both the 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


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