Taxation in Ghana: a Fiscal Policy Tool for Development: 75 Years Research

By Dr. George Appiah-Sokye

The first edition of this book-Taxation in Ghana: A Fiscal Policy Tool for Development- is the product of considerable tax research from 1943 to 2018, spanning a period of 75 years and grounded in knowledge and concepts; as well as, applications through an extended period of tax practice, teaching and learning; combined with international exposure. A lot of insights have been illuminated based on lessons learned and drawn from other countries, including the United States of America to enrich the contents.
Against the backdrop of the dynamic nature of taxation and fiscal policy. Most of the existing taxation books in Ghana focused on tax practice. So, the purpose of this book is to bridge the taxation scholarship gap. In addition to traditionally-treated topics in most taxation books in Ghana, the novelty in this book is the inclusion of important topics on tax planning, tax reforms, and tax administration, and many more. As a result, specific recommendations have been proffered for the consideration of policy makers in developing countries.
References and Acts of Parliament; supported by appendices have been provided for further studies on the subject.
A true story of the first major oil discovery in Ghana by Mr. George Yaw Owusu with M. Rutledge McCall published 2017 in the United States of America: In Pursuit of JUBILEE was used to enrich the discussion on petroleum (Oil and Gas) in Chapter 48 of this textbook. Additionally, Apostle Professor Opoku Onyinah of the Church of Pentecost has been presented for his phenomenal transformational leadership in Africa in Chapter 66.
The book has been designed for: (1) Individual study, (2) Group study, (3) Lecture material, (4) Policy Manual, and (5) library or reference.

• Language: English
• Publisher: AuthorHouse
• Release date: Jul 1, 2021
• ISBN: 9781665528313

Dr. George Appiah-Sokye

Dr. George Appiah-Sokye is an accounting professional, scholar, author, and adjunct professor; with over 35 years of working experience in accounting, auditing, teaching, property management, taxation and fiscal policy. Graduating with a DBA degree in Advanced Accounting from the Northcentral University in Arizona in 2016, he had earlier on graduated from the University of Ghana Business School with an MBA and BSc degrees, with a concentration in Accounting in 2001 and 1989 respectively. At the professional level, Dr. George Appiah-Sokye holds CPA, CA, CICA, and FCITG certifications; as well as, a membership of the AICPA, ICAG, CITG, and IIC from both Ghana and the United States of America. He belongs to the Delta Mu Delta Honor Society and Golden Key International Honour Society. He has taught in Ghana at the undergraduate, graduate, and professional levels in-Corporate Financial Management, Taxation and Fiscal Policy, Public Sector Accounting, Performance Management, Corporate Reporting Strategy, and Financial Accounting Foundation. Currently, he works as a Fiscal Compliance Auditor with the Youth Connection Charter School, providing second and best chance to at-risk students in the Southern Chicago area. He is an adjunct professor of the Graduate School of the Southern New Hampshire University, with departmental approval to teach: Tax research methodology: Practice and procedure; Federal taxation of individuals, Managerial accounting, Advanced auditing, and Capital budgeting and financing. He has received continuous professional education as a facilitator and/or participant in short courses, workshops and seminars. Dr. Appiah-Sokye has served on a number of Boards and Committees and serves as an Elder of the Church of Pentecost. Awards include a Fellowship by the Chartered Institute of Taxation, Ghana; Credit Union Sterling Management Award, Supervisory Committee, and other awards. He enjoys reading, writing, listening to music, correspondence, and social work. Dr. George Appiah-Sokye is married with a daughter and three sons.

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© 2021 Dr. George Appiah-Sokye. All rights reserved.

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Published by AuthorHouse 06/29/2021

ISBN: 978-1-6655-2832-0 (sc)

ISBN: 978-1-6655-2831-3 (e)

Library of Congress Control Number: 2021911515

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CONTENTS

Preface

About The Book

Dedication

About The Author

Acknowledgment

List Of Abbreviations

Introduction

Chapter 1     Theoretical Framework

Types of Taxes

Modern Concepts of Taxation

The Role of Taxation in the Economy

Argument Against Taxation

IEA’s Living Conditions Survey: 2014-2015

Elements of Taxation

Basic Classification of Taxes

Conditions for Income Taxation as a Major Source of Revenue

Chapter 2     History Of Taxation In Ghana

The Introduction of Taxation in the United Kingdom

The History of Tax Administration in Ghana

Sir Allan Burns’ Address to the Legislative Council

Taxation in Perspective

Chapter 3     Concept Of Income

Reasons for the Imposition of Taxes

Chapter 4     Economic Policies

Revenue Collection

State of the Ghanaian Economy: 2011 to 2016

Economic Policy-Industrialization Vs. Service

Chapter 5     Fiscal Policy

Growth of Government Expenditure

Source of Government Accounts

Fiscal Slippage

Fiscal Data of the Ministry of Finance: 2014-2016

Chapter 6     Monetary Policy

Exchange Rate Regime

Chapter 7     Monetary Vs Fiscal Policies

Chapter 8     The Development Of Taxation In Ghana 1800 – 2018

Classical (Colonial) Era:1800-1960

Neo-Classical (Post-Independence) Era: 1961-1980

Radical Era: 1981-2000

New Era: 2001-2011

Contemporary Era: 2012-2018

Chapter 9     The Concept Of Value For Money

Qualities of a Good Tax System

Chapter 10   Rights And Responsibilities Of The Taxpayer

Rights of the Taxpayer

Responsibilities of the Taxpayer

Chapter 11   Residence Of Persons

Resident Individual

Residence of a Company

Resident Bodies of Persons

Resident Partnership

Non-Residents

Permanent Establishment

Chapter 12   Year Of Assessment And Basis Period

Year of Assessment

Basis Period

Chapter 13   Government’s Alternative Revenue Sources

Economic Effects of Fiscal Policy

Methods of Government Funding

Sources of Revenue to the Central Government (MDAs)

Sources of Revenue to the Local Government (MMDAs)

Chapter 14   Public Debt-Alternative Revenue Source To Government

Public Debt Analysis

Domestic Borrowing

External Borrowing

Debt Service Capacity

The Debt Burden

The Debt Burden and Inter-Generational Equity

Chapter 15   Employment Income Taxation

Types of Reliefs

Employment Income Taxation Under Act 896 of 2015

Up-front Granting of Tax Reliefs to Employees

PAYE (Pay-As-You-Earn) System

Guaranteed Tax- Free Salary

Taxation of Overtime (2001-2005)

Taxation of Bonuses

The Hardship Rule

Chapter 16   Business Income Taxation

Trade

Disallowable Deductions

Allowable Deductions

Chapter 17   Corporation Income Taxation

Allowable Deductions

Disallowable Deductions

Reduction in Corporate Tax Rates

Chapter 18   Partnership Taxation

Principles of Taxation for Partnerships

Taxation of Partners

Treatment of Capital Allowance

Personal Allowance and Deductions

Chapter 19   Networth Statements

Direct Method

Indirect Method

Chapter 20   Investment Income Taxation

Exempted Income

Chapter 21   Rent Income Taxation

Chapter 22   Capital Allowance

Conditions for Granting Capital Allowance

Capital Allowance Under Act 896 of 2015

The Straight-Line Method

The Reducing Balance

Chapter 23   Insurance Taxation

Principles of Insurance

Legal Framework

Types of Insurance Business

Margin of Solvency

Reserve Requirement

Taxation of General Insurance Business

Taxation of Life Insurance Business

Chapter 24   Capital Gains Taxation

Historical Development

Highlights of Capital Gains Tax Law of 1975 (NRCD 347)

Highlights of the Internal Revenue Act of 2000 (Act 592)

Exemption from Capital Gains Tax

Chapter 25   Roll Over Relief

Chapter 26   Gift Taxation

Chapter 27   The Customs Excise & Preventive Service Law

Main Operational Part

Duty Drawback Schemes

Chapter 28   Value-Added Taxation

How VAT Works?

Relief Supply

Exempt Supplies

Chapter 29   Tax Administration

Conceptual Framework of Tax Administration

Ghana Revenue Authority (GRA)

Appointment and Powers of the Commissioner-General (CG) of the GRA

Chapter 30   Tax Audit

Types of Tax Audit

Financial Statement Assertions and Auditing Procedure

Tools for Financial Statement Analysis

Chapter 31   Investigations

The Conduct of an Investigation

Tax (Back Duty) Investigations

Chapter 32   Tax Examinations

Financial Statement Elements Review

Occupational Issues

Chapter 33   Compliance And Non-Compliance

Compliance Cost

Chapter 34   Voluntary Compliance

Research Findings

Working Typology of Tax Compliance

A Typology of Non-Compliance

Difficulties Associated with Tax Payment

Voluntary Compliance and Taxpayer Relations

The Underground Economy

Tax Gaps

Tax Evasion

Revenue Loss

Chapter 35   Tax Research In Ghana

Discussion of Research Data

Discussion and Summary of Conclusions

Research Findings

Chapter 36   Taxpayer Identification Number (TIN)

Chapter 37   Withholding Tax

Wage Withholding

Withholding Tax Regime in Ghana

European Union Withholding

United States Withholding

Chapter 38   Tax Implication Of The New Pensions Act

Three-Tier System of Pension

Important Features of the Act

Duties of Employers Under Act 766

Offences, Penalties, and Enforcements

Chapter 39   Self-Assessment

Types of Assessments

Chapter 40   Double Taxation Agreements (DTAs)

Double Taxation Treaties Approaches

Chapter 41   Transfer Pricing

Fundamentals of Transfer Pricing

External Market-Based Transfer Pricing

Negotiated Transfer Pricing

Cost-Based Transfer Pricing

International Dimension of Transfer Pricing

Arms-Length Standard

Transfer Pricing Rules

Transfer Pricing Handbook for Developing Countries

Transfer Pricing Manual for Developing Countries

Transfer Pricing Under Act 896 (2015)

Chapter 42   National Income Analysis

National Income Approaches

National Income Determination

Chapter 43   Income Tax And Case Law

The Scope of the Charge

Trade, Businesses, Professions, and Vocations

Tax Cases on Isolated Transactions

Tax Cases on Betting and Gambling

Illegal Profits

Mutual Transactions

Non-Profit Making Orientation

Profit or Gains

Capital Assets

Trade Agreements

Residence of a Company

Agency

Popular Decided Tax Cases

Chapter 44   Overview Of Major Tax Law Provisions

General Changes Under the Income Tax Act 896

Specific Changes Under Act 896

Overview of the Internal Revenue Act 592

Chapter 45   Tax Legislation

Proposed Consolidation of Tax Laws

Chapter 46   Infractions Of Tax Laws

Offences and Penalties Under Act 896

Offences and Penalties Under Act 592

Direct Tax Offences

Offences and Penalties Under Value-Added Tax

Offences and Penalties Under CEPS Law

Customs-Coasting Trade

Chapter 47   Mineral And Mining Law

Minerals and Mining Law of 1986 (PNDC Law 153)

Mineral Royalties Regulation 1987- L.I 1349

Consequences of Tax Incentives

Scholarship on Mining and Petroleum

Chapter 48   Petroleum (Oil And Gas) Industry

Fiscal Regime

Petroleum Law and Legislation

Steps Towards the Execution of Petroleum Agreements

Joint Operating Agreement

Ghana’s Petroleum Agreements

Ghana’s Oil Discovery Highlights

Ownership Structure

Ghana’s Maritime Dispute with Neighbouring Countries

Chapter 49   Patriotic Taxpayer Behavior

Chapter 50   Voters Guide To The Tax Policy Debate

Chapter 51   Corruption In Tax Administration

Reasons for Corruption

Conceptual Framework of Taxation and Corruption

Forms of Corruption in Tax Administration

Extent of Corruption in the Tax System

Suggested Solutions to Corruption

The Office of Special Prosecutor

Chapter 52   Smuggling

The Legal Framework

Causes of Smuggling

Effects of Smuggling

Chapter 53   Investment Climate In Ghana

Investment Opportunities

Theoritical Framework for FDI

Ghana Investment Promotion Centre

Investment Procedures

Tax Incentives for Some Activity Variables

The Ghana Free Zones Board (GFZB)

Chapter 54   Tax Planning

Why Tax Planning?

Tax Evasion Vs. Tax Avoidance

Tools for Tax Planning

Recent Lessons on Tax Planning

Chapter 55   Budgeting In The Public Sector

Annual Budget Preparation

The Budget Cycle In The USA

Source of Government Accounts

The Structure of Government Budget

Medium-Term Expenditure Framework

Zero-Based Budgeting

Planning Programming Budgeting Systems

Chapter 56   Financial Accountability In The Public Sector

Revenue Controls

Expenditure Controls

Chapter 57   Tax Reform

Tax Reforms- Priorities

Tax Reforms- Policy

Tax Reforms- Politics

Tax Reforms- Process

Chapter 58   Taxation Of The Dead

Taxation of Body of Persons

Lessons from Other Jurisdictions

Chapter 59   Informal Sector (SMEs)

Reasons for Taxing the Informal Sector

Chapter 60   Property Taxation

Chapter 61   Flat Rate Taxation

Arguments against the Flat Rate Value-Added Taxation

Chapter 62   Tax Practice

Tax Research

Tax Compliance

Tax Planning and Consulting

Financial Planning

Incorporating Taxation into Capital Budgeting Decisions

Chapter 63   Information Technology

Custom-Built Solutions

Commercial Off-the-Site Solutions

Cyber Crimes

Cost-Benefit Analysis

Lessons from Other Countries

Chapter 64   Tax Protesters

Common Fallacies and Arguments of Tax Protesters

Chapter 65   Financial Reporting In The Public Sector Of Ghana

The Governmental Reporting Model-USA

Chapter 66   Phenomenal Transformation

The Case of The Church of Pentecost

Transformation Agenda in Ghana

Institutional Development

Chapter 67   Fiscal Councils

Chapter 68   Economic Policy-Education In Ghana

Chapter 69   Economic Policy- Health Insurance In Ghana

Chapter 70   Conclusion-Additional Policy Considerations

References

Supplementary Sources

CONTENTS

Table 1: Collection Performance by Tax Types-2011

Table 2: Sources of Government Revenue in OECD-2014

Table 3: Structure of Tax in Ghana

Table 4: Percentage Growth of Total Tax Revenue and Contribution to GDP: 2007-2011

Table 5: Actual Collection Trend by Tax Types-2008-2011

Table 6: The Ratio of Tax Revenue To GDP: Selected Years-1956-2010

Table 7: Tax Revenue as a Percentage of GDP: 1975 and 2006

Table 8: Major Tax Types Percentage (%) Contribution to GDP

Table 9: Central Government Accounts- Total Recurrent and Capital Expenditure

Table 10: Report of the Auditor-General on Components of Public Expenditure-2006

Table 11: The Sources of Government Revenue:1992-1996

Table 12: Provisional Budget Outturn (Actual) for 2014-2016

Table 13: Expenditure Outturn for 2014-2016

Table 14: Extracts of Components of Expenditure Outturn for 2014-2016

Table 15: Non-Tax Revenue Outturn for 2014-2016

Table 16: Other Revenue Outturn for 2016

Table 17: Percentage of Revenue and Grant Outturn for 2016

Table 18: Total Income, Total Expenses, and Net Profit

Table 19: Canons of Taxation and Criteria for A Tax Structure

Table 20: Alternative sources of revenue available the Government of Ghana

Table 21: Alternative sources of revenue available to the local government of Ghana

Table 22: Sources of local government revenue

Table 23: Trends Analysis in Revenue Generation: 2003- 2007

Table 24: The Gross Public Debt Development:2012-2016

Table 25: Holding Structure of Domestic Debt:2015-2016.

Table 26: Local vs. Foreign Participation in Government Bonds:2016

Table 27: New On-Lent Facilities to SOEs

Table 28: Outstanding Amount for On-Lent Facilities to SOEs

Table 29: External Debt Service:2015-2016

Table 30: The quantum of mineral deposits in Ghana

Table 31: Corporate Tax Rates: 2004-2008

Table 32: Withholding Taxes for Investment Income

Table 33: Classes of Assets for Capital Allowance (under Act 592)

Table 34: Classes of Assets for Capital Allowance (under Act 896)

Table 35: Non-life Insurance in Japan

Table 36: Part IV of the Income Tax Act of 2015 (Act 896)-Assets and Liabilities

Table 37: Conceptual framework of tax administration

Table 38: SSNIT Statistical and Investment Data 1995-1999

Table 39: Weaknesses of the Tax System

Table 40: Financial Statement Assertion and Auditing Procedures

Table 41: Determinants of Taxpayer Compliance and Non-Compliance

Table 42: Working Typology of Tax Compliance and Non-compliance

Table 43: Tax Payable by Withholding

Table 44: Output-Expenditure Approaches of National Income Computation

Table 45: Practice Notes as of November 28, 2017

Table 46: US Internal Revenue Code-USC Title 26

Table 47: Proposed Ghana Consolidated (Combined) Revenue Code

Table 48: Offences and Penalties Under Acts 896 and 592

Table 49: Provisions of Offences and Penalties under GRA Domestic Division

Table 50: Provisions of Offences and Penalties under Customs Administration

Table 51: Contribution of the Mining Sector to GRA’s Collection

Table 52: Financial Terms of Ghanaian Deepwater Petroleum Agreements (Ghana’s Executed Petroleum Agreements)

Table 53: The Structure of Ownership of Ghana Oil

Table 54: Some Campaign Promises of 2016 Presidential Primary Candidates

Table 55: 40 Reasons Why Ghana Is Corrupt

Table 56: Fiscal year 2017-Budget fast facts

Table 57: Improving Tax System of Ghana

Table 58: Ghana Population History-1952-2018

Table 59: Project Analysis Incorporating Inflation and Taxation

Table 60: Breakdown of Educational Institutions in Ghana

LIST OF FIGURES

Figure A: Word Cloud of this textbook as of February 10, 2018.

Figure B: Conceptual Framework of Compliance and Non-Compliance

Figure C: Tax Reform Cycle

Figure D: WORD CLOUD

PREFACE

The study of Taxation as a tool for fiscal policy in a developing country such as Ghana cannot be neglected because of its prominence in the study of accountancy in Ghana. Taxation has become an independent discipline in recent times, even though it used to be a segment of the curricula for training of accountants in Ghana. Additionally, the study of Taxation and fiscal policy has been based on integrated body of knowledge from various disciplines such as – History, Public Finance, Economics, Psychology, Public Administration, Accounting, Sociology, Management, Law and so on. To date, there are few literatures that present the conceptual issues that form the basis of the subject matter in Ghana, and for that reason, I have attempted to present the subject-matter of taxation based on knowledge and experiences obtained from other academic and professional work done in Ghana and elsewhere in this textbook: Taxation in Ghana: A Fiscal Tool for Development-75 Year of Tax Research

The book will be helpful to the following categories of persons: (i) Students offering Taxation and Fiscal Policy at the academic and professional level; (ii) Practitioners of Taxation in Ghana would find this book as a source of reference and helpful resource repertoire for updating their knowledge; (iii) Policy makers in Ghana and other countries, including parliamentarians, ministers of state, advocacy groups, civil society organizations, political parties, Ministries, Departments and Agencies (MDAs); and Metropolitan, Municipal, District Assemblies (MMDAs) would also find a worth in the book towards the evolution of fiscal policies in Ghana. (iv) Academia (researchers and scholars) would find this book rewarding as part of the body of knowledge in the development of Taxation and fiscal policy in Ghana; (v) the public would receive insight from the reading of this textbook to broaden the mind and intellect.

I consulted many books, peer-reviewed journals, special reports published by professional bodies and institutions, internet sources, legislations for ideas in bringing about this work, I suggest to the reader to review other textbooks on the subject matter as well.

A Request to User

In approaching this task, conscious efforts has made to cover a wide range of topical areas in Taxation and Fiscal Policy in Ghana. Nevertheless, taxation is a dynamic subject involving new developments, controversies, arguments, and ambiguities; despite all efforts at responding to changes in fiscal policies. It is not possible for all sides of a debate to be considered at all times. I like for the reader to contact me if more expalanation is needed in any areas. In this, we can collectively develop Taxation and Fiscal Policy as a discipline in Ghana.

ABOUT THE BOOK

This book has been prepared as a text and approached in a systematic manner. The topics have been arranged to ensure a better flow of concepts to assist in the appreciation of the discipline. The book has been designed for: (1) Individual study, (2) Group study, (3) Lecture material, (4) Policy Manual, and (5) library (or reference) material.

The conceptual framework has been arranged and deployed in a logical and systematic fashion to assure gradual but steady learning achievement. In addition to traditionally-treated topics in most taxation books in Ghana, novelty has been introduced into this textbook by the inclusion of important topics such as the following: tax planning, tax reforms, tax administration, transfer pricing, taxation of the dead, property taxation, fiscal versus monetary policy debate, informal sector (small medium-sized enterprises-SMEs), corruption, government budgeting, public sector accounting, voters’ guide to taxation, taxpayer behaviour and governance, value for money (VFM), tax protesters, public debt; taxation of funerals, taxation of private universities, economic refugees, and taxation of wedding donations; taxation of self-employed, vehicle income taxation, foreign direct investment (FDI), tax practice, networth, lessons drawn from the introduction of taxes in Ghana in the past, tax practice and research, and many more.

A true story of the first major oil discovery in Ghana by Mr. George Yaw Owusu with M. Rutledge McCall published 2017 in the United States of America: In Pursuit of JUBILEE was used to enrich the discussion on petroleum (Oil and Gas) in Chapter 48 of this textbook. Additionally, Apostle Professor Opoku Onyinah of the Church of Pentecost has been presented for his phenomenal transformational leadership in Africa in Chapter 66.

Specific policy recommendations have been proffered, encompassing the following: Consolidation of tax laws into one enactment; Establishment of fiscal councils; Introduction of rating agencies; Promotion of payroll companies; Certification of tax return preparers; Proper record-keeping; Improvement in tax auditing; Determination of appropriate mix for monetary and fiscal policies; Enriched property taxation; and research into the reasons for corruption in Ghana. Likewise, Tax amnesty, Identifying the key variables affecting FDI-exemptions, tax holidays, and incentives versus other economic factors such as labour force, market, and so on; Financing political parties; Fiscal slippage, and Global jurisdiction versus source jurisdiction. Lastly, Personal Income Tax, Pre-approval of expenditure by Ministers; Deployment of technology in taxation; Treatment of ticket bought for family members as benefits in kind to employees; Promotion of Central Budget Office (CBO); Enhancement in internal auditing function; Tax discretion, Establishment of Presidential Advisory Panel on Tax; International Trade, Value-Added Tax, and many more. The word cloud for the textbook as of February 10, 2018 is provided below:

Figure A: Word Cloud of this textbook as of February 10, 2018.

1-.jpg

Source: Created from QSR International at http://www.qsrinternational.org-created on 02/10/2018

This book is the product of considerable tax research from 1943 to 2018, spanning a period of 75 years and grounded in knowledge and concepts; as well as, applications through an extended period of tax practice, teaching and learning; combined with international exposure. A lot of insights have been illuminated based on lessons learned and drawn from other countries in general and the USA have been included in the textbook to enrich the contents. References (books, special reports, professional publications, journals and scholarly sources, supplementary sources, direct internet sources, and Acts of Parliament); supported by appendices have been provided so that readers may seek further clarification and explanation to deepen their knowledge on the subject matter.

DEDICATION

This book is dedicated to my undergraduate, professional, and graduate students for the motivation to convert my lecture notes, their invaluable research input and contributions; as well as, extensive research work to enrich this textbook. To them this project is dedicated.

ABOUT THE AUTHOR

DR. GEORGE APPIAH-SOKYE

[DBA, FCIT, CICA, CA, CPA]

Dr. George Appiah-Sokye has over thirty-five years of exposure as a Lecturer, Accountant, Auditor in various capacities and organizations in Ghana and USA. Currently, he works for the Youth Connection Charter School in Chicago as fiscal compliance auditor in charge of the SBB/Non-SBB, Facility Supplement, Supplemental Aid funds for the eighteen affiliate campuses. He is also an Adjunct Faculty for the Graduate School of Southern New Hampshire University (SNHU). He worked with the Ghana Institute of Professional Studies (now University of Professional Studies, Accra) from January 2004 to January 2012, where he taught: Public Sector Accounting and Taxation (Undergraduate); Taxation and Fiscal Policy (Graduate); Taxation and Advanced Tax Planning and Fiscal Policy, Corporate Reporting Strategy (ICAG); Corporate Financial Management (ICSA); Performance Management (ACCA), and Financial Accounting Fundamentals (CIMA). Additionally, he was the Head of the Accounting Department in the Accounting Faculty and the ACCA Course Head.

Dr. George Appiah-Sokye holds Doctor of Business Administration (DBA) degree in Advanced Accounting (2016) from the Northcentral University in Arizona, United States of America (USA); Master of Business Administration (MBA) and Bachelor of Science (BSc) degrees in Accounting from the University of Ghana, School of Business Administration in 2001 and 1989 respectively.

Dr. Appiah-Sokye completed the final certificate in Taxation and was admitted into membership of the Chartered Institute of Taxation, Ghana in 1995 and subsequently, awarded fellowship in August 2011. Furthermore, he finished his professional examinations in Accounting with the Institute of Chartered Accountants, Ghana in November 2006 and was admitted into membership in 2008. Similarly, he was admitted into membership of the Institute for Internal Controls in USA in 2009, as well as, completed and passed the Certified Public Accountant (CPA) examinations with the Illinois Board of Examiners in September 2010 and was consequently, admitted into membership of the American Institute of Certified Public Accountants (AICPA) in USA. Dr. Appiah-Sokye is a registered CPA in the State of Illinois, USA.

Dr. George Appiah-Sokye has served on a number of Statutory, and ad hoc committees in the Ghana Institute of Professional Studies, as follows: Member, Academic Board; Member, Time Table Committee; Member, Admissions Committee; Chairman, Student Hostel Outsourcing Committee; Chairman, Provident Fund Drafting Committee; Member, Oversight Committee of Business Development Centre; Member, Academic Planning Committee; Member, IPS-NAPTEX Course Project on Accounting and Finance; Member, Convocation; Member, Senior Members Disciplinary Committee; Member, Committee on IPSTA joining UTAG; Member, Accounting Faculty Board; Member, Sub-committees on Research and Conference, and Exemption from Professional Bodies, etc.

Dr. Appiah-Sokye has attended several courses, conferences, workshops, seminars on: Security Industry, Principles of Management, Strategic Management, Financial Management, Lobbying, Taxation, Oil and Gas Accounting, Christian Leadership, Theology, Shelby, and many more.

Again, he has been involved in the Credit Union Concept from the primary level to the national level. For that matter, he served as Chairman, Board of Directors of the Internal Revenue Service (now Ghana Revenue Authority-GRA) Empoyees Co-operative Credit Union in Cape Coast and the Greater Accra. In addition, he also served as Member, Secretary, and Chairman of the Supervisory Committee of the Ghana Co-operative Credit Unions Association of Ghana for six years. He was Secretary to the National Service Personnel Association in 1985.

Dr. Appiah-Sokye’s professional interests cover: Accounting, Finance, Taxation, Auditing, and General Management. Above all, enjoys reading and writing, travelling, driving, listening to music, social work, and correspondence. He is married with three sons and a daughter; an elder of The Church of Pentecost both in Ghana and USA and has served the church in various capacities such as: Registrar, Pentecost Biblical Seminary; Member, National and Regional Audit Committees, Member, Regional Executive Committee, Member, District Executive Committee (Chicago and Romeoville), Presiding Elder, PIWC- Chicago; Local Secretary; Member, District Finance Committee; Assistant District PENTYEM Leader, Assistant District Financial Secretary, Elder for Special Duties, Bible Study Teacher, Cell Groups Co-ordinator, and Sunday School Teacher, and so on.

Dr. Appiah-Sokye has mentored a lot of students and accountants and looks forward to having a meaningful and purposeful interaction with you.

TO GOD BE THE GLORY

ACKNOWLEDGMENT

There are several personalities who have been helpful to me in this project. I thank them for their contributions and help. I would attempt to identify some of them. I would like to register my sincerest thanks to Mr. Samuel Tsahey who taught me Taxation at the undergraduate level and Mr. James Otieku who taught me Advanced Taxation at the Graduate level; as well as, Dr. Ransome Kuipo who supervised my dissertation on taxation at the Graduate level at the University of Ghana Business School, Legon. I thank Dr. J. M. Onumah, my Public-Sector Accounting lecturer for teaching a course in Public Sector Accounting, which was not well developed in Ghana at the time. I am indebted to Professor John B. K. Aheto for teaching me Financial reporting (I, II), Accounting theory (I, II), and Investment Management at the Graduate School. It was refreshing to study under them. Indeed, they have made a significant impression on my mind and that has helped in no small measure in bringing this book about. I am indebted to all the lecturers of the University of Ghana Business School who imparted knowledge to my thought and helped in shaping my conceptual and analytical skills which have been brought to bear on this task.

In approaching this work, I referred to several literatures and I would like to recognize the contribution to this work especially the pioneering works of my good friend Dr. Ali -Nakyeah Abdallah and Mr. Randolph Nsor Ambala, who gave me complimentary copies of their textbooks to be used as a Taxation lecturer in Ghana; as well as, Mr. G. C. Aryee, Mr. Sefa-Adjabeng, Professor Edward Duah Agyemang (former Auditor-General of Ghana), Dr. Benjamin Kumbour (Tax Expert on DTAs), and Dr. Isaac Nyame (Co-lecturer in Advanced Taxation and Fiscal Policy at the School of Research and Graduate Studies-SORAGS).

I acknowledge the perspective on reviews and guidance presented on taxation issues by the major accounting firms, including- Ernst and Young (EY), PriceWaterHouseCoopers(PwC), Deloitte Ghana, Pannel Kerr Foster (PKF), and KPMG. The names of professional accounting bodies cannot be spared mentioning, encompassing the Chartered Institute of Taxation (Ghana), the Institute of Chartered Accountants (Ghana), The Institute for Internal Controls (USA), and the AICPA (USA). I thank them for their publications, reports, reviews, and professional examination questions.

I thank Mrs. Adelaide Serwaa Bonsu Appiah (USA). She facilitated my meeting with her brother, Mr. George Yaw Owusu, who graciously gave me a copy of his newly-published book: In Pursuit of JUBILEE-A true story of the first major oil discovery in Ghana to be used for this project. I remain grateful to Mr. Owusu for this unique gesture for permitting his insights to be used in writing Chapter 48 on Petroleum (Oil and Gas).

I thank Apostle Professor Opoku Onyinah (The Immediate Past Chairman of the Church of Pentecost) for permitting me to include a piece about him in Chapter 66 to showcase transformational leadership in Africa. I am grateful to you-Papa.

I acknowledge with thanks the morale support received from friends – Evans Kofi Acheampong Boakye (Norway), Berko Boampong (Norway), Daniel Dwamena (Timber Merchant), Stephen Antwi Asimeng (former CEO, Fidelity Capital Partners and UT Bank), Professor Stephen Owusu Ansah (former Accounting Department Chair of Houston Baptist University-USA), Charles Owusu Boamah-CA (Accountant), Dr. Adu Anane Antwi-CA (former Director-General of the SEC, Ghana), and Dr. Emmanuel A. Appiah-CPA (Office of Inspector General).

Others include: Fred A. Addo-CFE, Dr. Eric Kwarteng Osei, Kwame Yankyera Wiafe, Juliana Kennedy-CPA, Daniel Ohemeng, CFE; Robert Ocran, Edward Obeng, Nana Kwakye Marfoh, Kwame Apau Atakora, Dr. Albert A. Buabeng-CPA, Patrick Manu Asamoah, Dr. Bright Asante Appiah-CPA, Oti Akenteng, CPA; Joseph Oppong-CPA (Partner, Ernst and Young), and Robert Nyarko.

Others include- Albert Abaaho, Dr. Prince Johnson Adjei, Noah Gyimah (JP Morgan), Samuel Addubaffoe Sintim, CPA; Prince Osei, Dr. Kwabena Owusu Banahene, Christian Bimpong, Ntiri Nyarkoh, Amos Martey, Victoria Amiah, Richard Osei-CPA (all of USA). Others include: Darko Baffour Asamoah, Professor K. B. Omane-Antwi (PUC), Professor Peter and Dr. (Mrs.) Abigail Ohene Kyei (formerly of PUC), Harry Obeng, CPA; Francis Ofori Mintah, Elder James McKeown (Brother James), Anthony Kobina Ampofo (Manager, Project Finance, GNPC), and Reverend Ogbamey-Tetteh (Director-General, SEC).

The moral support received from the family of the late Lawrence Baidoo Larbi cannot be spared mentioning. The names of the following persons cannot be left out: Alex Cofie, (former Head of Finance (UCEW-K), David Ofantse (formerly of GRA), Henry Acquah-CA (GRA), Sheiley Seidu Jiagge (VRA), Dede (Ghana Air Force). Also to be remembered are Sulemana Zakari-CA (World Bank), the late Assan Yakub-CA (Controller and Accountant- General Department), they have been a source of inspiration to me in my work.

The entire MBA (Accounting 2001 Class) comprising: Thomas Ameyaw (class captain), Benjamin Amoah, Dr. Amidu Mohammed-CA, Ntoah-Boadi Samuel, Awuttey Seth Selorm-CA, Morrison Alfred Bassaw, Abaka Kobina Evans (deceased), Jacob Benson Aidoo-CA, Akakpo Victor Kodjo-Attah-CA, Siffah Yaw Agyei, Larri Kofi Yumandam, Dzandu John Kwesi, Donkor Enoch Benjamin Amoah, Bleboo Partrick-ACCA, Barneah Collins, and Opoku Nana K. Similarly, the following peoples’ names cannot be spared mentioning: Willie Adjetey-Solomon (Esq), Joseph Bernard Appeah (PENTAX), Dr. Joseph Siaw Agyapong (Jospong Group of Companies), Rosemond Ako-Asante (GTZ), Gifty Andoh Appiah, Willy S. Morny, Group Captain A.A. Awusima, Mr. Mina Donkor, Mr. D.T Acquaye, Mr. Abraham Odoi, Fred T. Nartey, Belinda Duah, Isaac Quaye (KPMG), Emmanuel K. Nyamordey, Aisha Tiwaa Gyasi (PKF), Bartholomew Darko (ADB), William Kyei (formerly of Technoserve), Hayfron Aboagye (PwC), Paul Amponsah (Ernst and Young), and Patrick Acheampong.

I am thankful to Mr. Paul Osei Kwabena-CA (Osei Kwabena and Associates-Chartered Accountants) for his professional training, Mr. Alex Asiedu of Premier Resource Management Limited and Dr. Opoku Adusei of CTI- Tech Limited.

I owe a debt of gratitude to the Vice Chancellor and staff of the Ghana Institute of Professional Studies or University of Professional Studies, Accra-UPSA (now Nana Opoku Ampomah University of Professional Studies) for their continued effort in advancing the course of professional education in Ghana. I am grateful to the Ghana Institute of Professional Studies for giving me the opportunity to lecture students across the tertiary education divide-professional, undergraduate, and graduate levels.

The over one thousand (1,000) students I taught have been a source of inspiration to me. I am appreciative of their motivation. I am thankful to my undergraduate, professional, and graduate students for the motivation to convert my lecture notes and research work into this text and for their invaluable research input and contributions. The graduate students of the School of Research and Graduate Studies (SORAGS) of the University of Professional Studies, Accra (UPSA) formerly Institute of Professional Studies need special mention. Their group work on various topics have added richness to the text. To them I say- more is your due than I can pay.

I am grateful to Messrs Appiah Danquah and Akwasi Akuffoh for helping me with information gathering. All-in-all, I recognize the help and contribution of those who contributed in diverse ways towards the completion of this task, but for the sake of space would not permit their names to be mentioned. To all my friends who have endured patiently my jokes, and overlooked my human weaknesses but have supported me through encouragement to make this dream possible. I say thank you very much. Their support is acknowledged. Above all, I am grateful to the Almighty God for bringing me this far because in Him I live and have my being. I take full responsibility for errors-omission and commission.

LIST OF ABBREVIATIONS

The abbreviations used in this textbook include the following:

INTRODUCTION

The purpose of writing this book is to share my accumulated knowledge and experience from studying taxation as a discipline at the academic and professional levels of education; as well as, a decade exposure while working with the Ghana Internal Revenue Service (now Ghana Revenue Authority). Another extensive teaching of taxation and fiscal policies across the tertiary educational divide covering-.graduate, undergraduate, and professional levels. There has been a lot of developments in the tax regime and fiscal policies domain; presenting both challenges and opportunities to the tax practitioner, the tax administrator, policy maker, scholars, and the general public.

The Ghanaian is not new to taxation because it has existed in one way, shape, or form in the historical past, when traditional rulers-imposed royalties on the utilization of resources such as arable land, water bodies, and minerals. As a result, taxation is old in Ghana and dates to the history of human society. However, taxation has never been accepted because it involves the payment of money without the promise of direct benefits to the payer. Consequently, payment of taxes does not correspond with either a direct or indirect benefit.

Most countries have used taxation as the main revenue generating approach; others, especially, several developing countries have favored more of debt financing because of political cost linked to the imposition of taxes. In a few countries, the emphasis has been placed on the production approach. This is the case for some Oil producing countries which make sufficient revenue from oil sales. There are arguments for and against the use of the approaches namely taxation, debt financing, and production. All the approaches will be explored in the book.

There has been advancement in Ghanaian society in the past century since the imposition of the failed poll tax regime in 1877. The progress that has been experienced in society has come with a price tag because civilization is costly; yet, the issue of how the cost of human sophistication should be met has been a debatable and topical issue to date. Nevertheless, there is convergence on the price attached to development because a lot of people generally agree that the development of society has a cost component, involving the maintenance of government machinery from the local to the national levels, improvement in human settlements such as housing and corresponding amenities; as well as, enriched social and economic structure. Amid the implication for financing the cost of human progress, different countries have experimented with varied approaches such as the use of debt, production, and taxation, or a combination of the approaches in the process.

Successive governments of Ghana have resorted mostly to taxation and debt financing of the budget but in recent times, an attempt has been made to apply the production financing alternative. While a significant number of studies have been conducted on Ghana’s debt financing; a few has been accomplished on taxation. There are not enough studies on the production approach. Perhaps, the approach is quite new to the Ghanaian environment.

Taxation is linked to the fiscal policies of Government through the annual budgetary cycle, where budgeted expenditure is linked to a corresponding budgeted revenue streams to meet those commitments. The overarching role of taxation is the raising of revenue to meet spending. As a result, the anticipated revenue can be mobilized through production, debt financing, and taxation, among others.

Ghana is a secular society with three dominant religions, encompassing: Islam, Christianity, African Traditional Religion (ATR). Interestingly, taxation is associated with these religious groups. While Christian definition of a tithe is one-tenth, the equivalent provision in Islam is one-sixteenth. Nevertheless, history has it that there has been stiff resistance upon the introduction of major taxes in Ghana such that those of 1931 and when Value-added taxation was initially introduced in Ghana.

The aim of tax administration is to achieve voluntary compliance from tax reforms arising out of effective fiscal policies of government; combined with monetary policies of the Central bank to drive economic policies of the day. The negative responses to the taxation debate have centered on tax protests, tax evasion, tax avoidance, smuggling and corruption; as well as, issues of revenue loss, tax gaps, and the underground economy.

As a result, political parties must come clean of how monies will be mobilized through taxation, such that the segment of society that will be taxed should be captured in the Manifestos of political parties and disclosed during electioneering campaigns. This will allow for electorates to make informed decisions because elections have consequences. By this, taxation will become one of the critical decision-making considerations of choosing a political party or a candidate. For that reason, fiscal policies can shape the political discourse to make all the difference.

In these 70 Chapters of this textbook, taxation has been viewed as: (1) an integrated discipline, which has evolved overtime. Some of the issues considered in the discussion, include the following: (i) the multiplicity of taxes and tax laws, (ii) double taxation involving the payment of taxes on dividend and the corporate income taxes, (iii) taxation acting as a disincentive to hard work when extra efforts are unduly taxed; as well as (iv) the dichotomy between the rights and the responsibility of citizens arising out of the non-excludability variable. Where there is a right, there must be a commensurate responsibility.

(2) In this textbook- Taxation in Ghana: A fiscal policy tool for development, the author seeks:

(a) To provide the reader with a solid conceptual framework regarding Ghana’s tax system with a view to contributing to the body of knowledge; Permitting the concepts to be applied to other countries of interest.

(b) To advance policy recommendations to improve fiscal policy in particular. The dynamic nature of the subject-matter of taxation makes the literature on taxation outmoded in the shortest possible time because each Annual Budget statement of Government has the potential of making drastic changes to the tax laws; and

(c) To facilitate further exploration of best practices to make the tax system of Ghana more robust. As a result, the knowledge and experience in taxation shared in these contents have been grounded in tax research of 75 years, as of 2018.

Let us dive into the pages of the book.

CHAPTER 1

THEORETICAL FRAMEWORK

Taxation may be viewed as a compulsory payment made by individuals and corporate bodies to the taxing authorities for the common good conferring no direct benefit on the payer. Taxation defies easy definition and there are as many definitions as there are writers. The Organization of Economic Co-operation and Development (OECD) associated taxation with: compulsory, unrequitted payments to the general government’’ However, Taxation has been viewed as the price to be paid for civilization, as postulated by Mr. Justice Wendell Holmes (a famous American judge): Taxation is the price we paid for living in a civilized society" In modern societies, the central governments provide services such as defence, law and order, and infrastructure for the public good; but in the ancient times such services were provided by individuals. However, not all individuals could provide all the needed services.

Nevertheless, taxation has become compulsory payments for which no direct value or services must be rendered in return. Consequently, taxation is based on an arbitrary system of laws passed by the legislature (Parliament) and interpreted by the judiciary to give effect to what must be assumed to be the democratic will of the citizens. Similarly, taxation is also a means by which Governments implement decisions to transfer resources from the private to the public sector and has become a major instrument of social and economic policy.

Taxation is an instrument of fiscal policy from Keynesian macro-economic standpoint because tax systems are primary tools of fiscal policy. According to Keynes, fiscal policy describes the mechanism of government expenditure and income through taxes, as a result, rather than trying to design a neutral tax system, the government should deliberately use taxes to move the economy towards the desired direction. For this reason, if an economy is suffering from sluggish growth and high unemployment, the government could reduce taxes to transfer funds from the public to the private sector.

The tax cut can stimulate demand for consumer goods and services, thereby increasing the level of private investment. This should lead to expansion in the economy through the creation of new jobs. On the contrary, if an economy is overheated such that wages and prices are in an inflationary spiral, the government could raise taxes. This would translate to people having less disposable income to spend to cause the demand for consumer and investment goods to soften to relieve the upward pressure on wages and prices.

Types of Taxes

Imposition of a tax can be done in four ways: (1) Either in the product market or in the factor market, where the product market relates to goods such as tax on shirts and the factor market relates to a tax on say cotton; (2) Either on the seller or buyer; (3) Either on the household or the firm; and (4) Either on the user’s account or the source’s side such as the producer’s account. Tax is intended to be paid by the person or organisation on whom it is levied such that the impact and incidence is on the same person or organisation. There are two (2) types of Taxes - Direct and Indirect Taxes.

Direct Taxes are imposts on income and property. The incidence of the tax payment rests on the taxpayer and so the burden cannot be shifted directly to the third party. Direct taxes tend to be imposed on incomes and property. Examples of direct taxes levied in Ghana include: personal income tax, gift tax, capital gains tax, employees’ taxes, self-employed income tax, company tax, interest and dividend tax, rent income tax and other taxes administered by the Domestic Tax Division of the Ghana Revenue Authority-GRA (formerly Internal Revenue Service). A direct tax is that type of tax whose initial burden falls on the taxpayer and levied on one person in the expectation that the tax will be shifted or passed on to another. Here, the impact and incidence are on different persons.

Indirect Taxes are levies on goods and services. The incidence of the tax payment can easily be shifted to the ultimate consumer depending on the elasticity of demand. Examples of indirect taxes in Ghana encompass: value-added tax (VAT), excise and custom duties, purchase tax, export duties on cocoa, and petroleum taxes. These indirect taxes are administered in Ghana by the GRA’s Domestic Indirect Tax Division (formerly the Value-Added Tax (VAT) Service) and International Customs Division (formerly the Customs, Excise and Prevention Service-CEPS). An indirect tax is that type of tax whose burden can finally be shifted unto other person such as a tax on taxi drivers (Vehicle Income Tax). The driver can shift this burden to the passenger and tax on landlords may be shifted onto tenants. Indirect taxes may take the form of Ad valorem duty, that is, where the rate of duty is a percentage of the value of the goods. For example, wrist watches-50% ad valorem; or they may take the form of specific duty, that is where the rate of duty is based on some physical attribute or a combination of physical attributes of the commodity being taxed such as weight. For example, wheat flour may be dutiable at 100,000 per pound.

Taxation can be used in competitive markets so that if 5 percent is imposed on the seller, it will lead to a rise in the prices of the goods by 5 percent and the same result will be obtained through a purchase tax of 5 percent on the buyer in the competitive market. If it is determined administratively that taxing the seller is difficult; then, the buyer can be taxed and vice versa. The collection performance of the various divisions of the GRA according to the types of taxes administered by the GRA for the year- 2011 is presented in table 1 below.

Table 1 shows revenue collection performance for a typical year (2011). An evaluation of the collection performance is as follows: first, the component of divisional collection is as follows: Domestic tax (direct) was 43%, Domestic tax (Indirect) was 15.7, and Customs was 41.3%. Second, the Domestic direct tax collection for 2011 of 43% fell short of the average percentage for 2008 to 2011 of 50.5% but the collection percentage for Domestic tax (indirect) was consistent (2% positive deviation) with the collection pattern for the period 2008 to 2011; however, the Customs collection of 41.3% in 2011 was an outperformance of the 33.7% collection for 2008 to 2011. Third, while direct taxes (Domestic) fell short of the average (20% positive deviation), the Customs made considerable stride in revenue collection above average (recording a positive deviation of 16%). Lastly, on the Domestic tax (direct) front, National fiscal stabilization levy (NFSL) and Other taxes recorded considerable improvement of 81.2% and 53% positive deviations respectively. Nevertheless, communication service tax (CST) was the worst performer with a negative 15% on the Domestic tax (indirect) front, and petroleum taxes yielded about 30% positive deviation for the Customs division.

Modern Concepts of Taxation

In the modern world, everybody contributes towards the maintenance of the state machinery, such as the provision of education, infrastructure, and defence. Contrarily, during the pre-modern era, the concept of taxation was individually-based because the individual had the responsibility for his own development. As a result, the rich in society did not pay any taxes because they could provide for themselves, yet the poor paid taxes to enable the kings provide services such as security of state. Consequently, the imposition of taxes on the citizens by the sovereign authority is nothing more than wages due for them to hold the sword to defend private men to enagege in their callings and trades. For that reason, the revenues of the state are viewed as part of the property given to enjoy comfort. As a result, the subjects’ contribution to property taxes enable them to enjoy services rendered by the state. With these ideas in mind about taxation, the following definitions are not surprising at all:

"the imposition on the people by sovereign powers are nothing else but the wages

due to them that hold the sword to defend private men in the exercise of their several

trades and calling" (Kaldor Nicholars 1955)

"the revenues of the state are a part of his property which the citizen gives on order to

be sure of other part or to enjoy comfort" (Kaldor,1963).

the subject, when properly taxed, contributes only some of his property in order to enjoy the rest (Otieku, 1992).

The modern view of taxation stems from the common premise that no one can be an island for himself. The fight against poverty, crime, economic stagnation, and many more, requires the concerted effort of all and thus all must pay for it. Thus, in modern times taxation is defined as follows:

"taxation is the process whereby a state or government exacts contributions from its citizens or from the residents of its territory for the maintenance of the state machinery (Goldsmith Selma F. 1951).

a tax is a compulsory contribution from the person to government to defray the expenses incurred in the common interest of all without reference to special benefits conferred."

a tax is a contribution from citizens for the support of the state (Guy Hunter 1965)

a tax is a compulsory contribution of the wealth of a person or body of persons for the service of the public powers (Hicks, 1965).

Taxes are now seen as compulsory extractions that involve personal obligations for common public purposes. Harley Lutz highlighted on this point when he noted that:

the modern viewpoint in taxation is a product of the growing social solidarity and sense of common social obligation that have characterized human progress during the last hundred years.The contributory factor in the modern concept emphasizes the greater social unity and the stronger sense of common burden and responsibilities, which are features of modern life.All should therefore contribute to its effective support

In modern times, the payment of taxes is not seen as a bargain that confers a direct benefit to the payer. It is viewed more as one’s contribution towards common good and for his unavoidable dependence on that common good. The essence of taxation is to assist any government to take up socio-economic development in a country. In a speech delivered at a press conference to introduce the Service Tax Amendment Act, 1997, Hon. Deputy Minister of finance, Mr. Victor Selomey (deceased), said that:

the need for taxation in the world over and in particular third World countries has been necessary and will remain so with the increasing dependence of citizenry on the central government for the provision of infrastructure and other necessities of life. Indeed, in Ghana the central government at great cost has provided and will continue to provide such infrastructure as good roads, portable water, schools, etc. however, the indisputable fact is that none of these social and economic needs can be satisfied by any government without adequate revenue. Hence, the need for the government to review, strengthen and widen its tax base

BARGAIN THEORY OF TAXATION

The bargain theory of taxation contemplates that the subjects or citizens pay the tax to the State for services to be rendered. By implication, taxation is a compulsory payment of a sum of money from households and firms to government to finance its projects and programs. It is a complete surrender of individuals’ and firms’ control over private goods and services to enable the government re-channel the inputs of production into public goods and services.

The Role of Taxation in the Economy

Taxation as a fiscal policy has critical role to play in the economy of Ghana and so the functions of taxation must be appreciated to derive its maximum benefits. Rupert, Pope, and Anderson (2015) postulated that the primary objective of the income tax law is to raise revenue for the government machinery but in the United States in recent times, the government has broadened its use of the tax laws to accomplish different economic and social policy objectives such as: encouraging venture capital, for SMEs to reduce corporate income tax rates, encourage social objectives in tax deduction for charitable contributions, stimulating investment through tax credit, encouraging research and development activities to strengthen the competitiveness through research and development (R&D) write-offs for US companies, and preventing taxpayers from paying a higher percentage of their income in personal income taxes due to inflation through bracket creep (p.I-16).

Adeyiga (2013) asserted that Ghana’s tax system plays fundamental role of: (i) redistributing income and wealth, (ii) raising government revenue, (iii) re-pricing of goods and services, (iv) affording citizens the power of representation involving accountability and good governance. Consequently, the first role of taxation is that the government must raise money to pay for the goods that are non-rival and non-restrictive. The Government of Ghana must pay for all bills emanating from compensation to civil and public workers, interests accruing from public debt, construction of infrastructure; maintenance of the police, military, immigration, and fire officers; as well as, maintenance of international diplomacy in the commonwealth of nations. The Central Government must mobilize revenues with a view to allocating such resources among competing claims of state. This is the allocative role of government taxation.

The second role of taxation is the distributive role of government through taxation. Economic theory states that the interplay of market forces of demand and supply are expected to distribute income in the absence of government intervention. Even though, factors of production such as capital, labour, land, and entrepreneurship, as well as, individual endowments, including color and gender could determine income levels; yet considerable income disparities may arise if incomes are established based on individual endowments. To reduce inequalities in the distribution of wealth, it is argued that there is a general agreement among economists that government must intervene in the market forces to redistribute income. Personal reliefs in the tax laws of Ghana are some of the governmental interventions.

The third role of taxation is that of stabilization. Stable economy can hardly be determined by the market forces of households and corporate bodies. The public sector is very large in developing countries for the following reasons: high dependence on the production and export of primary products; widespread poverty, low per capita income and low savings rate, high rates of population growth, higher illiteracy, and poor social infrastructure. The government has no choice but to tax the people including the poor to raise the needed revenue and to stabilize the economy.

The fourth function of taxation is to control certain aspects of the country’s economy. To restrain the production and consumption of harmful goods, based on the elasticity of demand for a given product, taxes are imposed to either encourage or discourage the consumption and production of certain goods and services. For example, taxes are imposed on goods such as cigarettes deemed harmful by health authorities to increase the price to discourage its consumptions in the market place.

The fifth function of taxation is to protect home industries. Local industries are established to transform primary goods into secondary products to add value to agricultural products but these infant industries must compete with imported products despite the inefficiencies in production cycles. Taxation is employed by the government to subject the imported goods to additional tariffs thereby making them expensive. Rational consumers will buy the locally-produced goods because they have become cheaper than their imported counterparts. All else being equal.

Argument Against Taxation

The theoretical argument against taxation is rooted in the development perspective, where people do not want to pay taxes because they do not earn much income or that the per capita income of the country is very low. Additionally, it is argued that when debt is contracted by the country and creditors impose conditionalities through debt covenants to ensure the repayment of debt; then, it will be unfair for people to pay taxes to repay loans when infrastructure cannot be provided from the loans contracted. Likewise, there is lack of basic amenities such as public places of convenience to address the needs of citizens.

In the United States of America, all public places such as Gas (Filling) stations, supermarkets, offices, provide washroom or restrooms or places of convenience free of charge for easy access to the public. In furtherance of this, toiletries are provided in such places and this is viewed as part of the private sector’s support for a just cause. The same case cannot be said for Ghana, where one will find inscription such as Don’t urinate here yet that is the very place you find people doing exactly what they have been advised not to do because places of convenience are not easily accessible for public use.

The average Ghanaian has a higher propensity to consume, involving celebration of funerals, having elaborate weddings and outdooring,