CHAPTER ONE

INTRODUCTION

1.1BACKGROUND OF THE STUDY.

Tax is a major contributor of revenue to the national income of a country. A third world country

as Ghana depends more on tax revenue to finance its expenditure. The country is confronted with

problems of the provision of infrastructure, social amenities and good economy for the benefit of

the citizen hence tax is considered as a major machinery to generate revenue to finance

government activities.

Taxation is fundamental to society. History shows that sometimes people pay willingly, and

sometimes they do not. Raising revenue and regulating the economy are the two main functions

of taxation.

Internal Revenue Service (IRS), which is the main body, mandated by law for the collection of

direct tax encounters a lot of challenges in its collection especially the informal sectors.

It is required that every HND student undertakes a research work at the end of the three years

programme in partial fulfillment of the requirement for the award of the HND. The researcher has

chosen the topic, ‘‘Assessing income tax collection from traders at Agbogbloshie market’’.

Agbogbloshie market is one of the busy markets in the Asiedu-keteke district in Greater Accra

Region. The trader deals in varieties of items such as foodstuff, building materials, provisions,

cloths, meats and drinkables.

1.2STATEMENT OF THE PROBLEM

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 Generally taxation has been one of the major sources of revenue for the economic development

of every country. The role that taxation plays in our Ghanaian economy can not be under

estimated. It is this reason that any problem associated with tax collection in Ghana must be

research into.

Despite the role played by taxation in Ghana, the Internal Revenue Service (IRS), which is the

main body established by law to collect direct taxes, encounters a lot of challenges in its

collection of especially from self-employed persons.

It is for this reason the researcher has undertaken to investigate the assessment of income tax

collection from traders at Agbogbloshie market.

1.3OBJECTIVES OF THE STUDY

The objectives of the study are to:
 Identify the problems of income tax collection from traders in Agbogbloshie market.
 Assess the level of records keeping by traders.
 Assess the level of tax education for traders.

1.4 SIGNIFICANCE OF THE STUDY

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 This research work would be of a great benefit to the government, to know the efficiency and

effective way for the collection of tax. This would help the government to know the loopholes of

tax collection from traders.

It would also serve as a reference document for further research.

Finally, the research work would also broaden the knowledge of the researcher about how to

identify a problem and develop a mechanism to solve it.

1.5 LIMITATION OF THE STUDY

The research work was subjected to many constraints, one of which was finance. The researcher

could not get enough funds to undertake the research work.

There was also a limited time at the disposal of the researcher.
Moreover, the research was combined with academic work which became very difficult to cope

with.
Additionally, the target groups were not willing to release the needed information to the

researcher as they deemed it to be confidential. The researcher had to convince them before the

exact information was given.

The findings are applicable only to traders in the Agbogbloshie market.

1.6 DELIMITATION
The researcher wanted to conduct the research in the whole market and other markets and

interview all the traders in the market, but due to the above cited constraints, the researcher had to

focus on only selected traders in the Agbogbloshie market for the study.

1.7 ORGANISATION OF THE STUDY

The study is organized in five chapters.
The first chapter is about the background of the study, statement of the problem, objectives of the

study, significance of the study, limitations, delimitation and organization of the study.
Chapter two contains a review of literature about the topic.
Chapter three describes how the research was conducted.
The findings are presented in chapter four.
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Chapter five contains the summary, conclusions and recommendations.

CHAPTER TWO

LITERATURE REVIEW

2.1. MEANING OF TAX

Many authors have given various definitions to tax which are directed towards the same meaning

thus collecting funds from the general public. A few of the definitions are brought below.

Powell (1993) defined tax as “a compulsory levy charged by a government or public authority to

pay for its expenditure”.

“A compulsory transfer of money from private individuals, groups or institutions to the

government (Hardwick, Khan and Langmead 1990).

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According to Megginson, Byrd and Scott (1992) tax is defined as “a charge levied by

government on persons and groups subject to its jurisdiction”.

Hancock (1998) explained tax as “a compulsory levy imposed by government on income,

expenditure or capital assets for which the tax payer receives nothing specific in return.

The Oxford Dictionary of Business (1990) defines tax as “a levy on individuals or corporate

bodies by a central or local government in order to finance the expenditure of that government

and also as a means of implementing its fiscal policy”.

Pratt and Kulsrud (1997) quoted the supreme court of the United States definition of tax as “an

exaction of the support of the government”.

Henderson and Poole (1991) expressed their view about tax as “a legislation amount (fraction or

percentage) of the value of items subject to taxation, such as private income, sales or property

that is due the government by owners of factors or business”.

According to Jones (1999) a tax can simply be defined as “a payment to support the cost of

government”. Jones emphasized that a tax differs from a fine or penalty imposed by government

because a tax is not intended to deter or punish unacceptable behaviour. On the other hand, taxes

are compulsory; anyone subject to a tax is not free to choose whether or not to pay.

From the definitions given, it is obvious that, what tax does is to provide a means through which

the government derives a majority of its revenues necessary to keep it in operation.

2.2. CLASSIFICATION OF TAX

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It is possible to classify tax in different ways.

Powell (1993) emphasized on direct and indirect tax.

2.2.1. DIRECT TAX

Powell (1993) defined direct taxes as taxes imposed on the taxpayer’s income and profit from business,

employment, and assets.

The taxpayer is aware of the amount to be paid as tax. Examples of direct taxes are personal income tax,

company tax, poll tax, capital gain tax, property tax and gift tax.

Moynihan and Titley (1989) also defined direct tax as taxes taken directly from incomes and

wealth. A tax is also said to be direct when its impact and incidence do fall on the person paying

it. Incidence in this context means the final bearer of the tax liability.

The main types of direct taxation are income tax, capital gain tax, property tax and gift tax.

Direct tax can also be classified according to their “proportional” effect on income and these are

proportional tax, progressive tax and regressive tax.

Proportional tax

This is the type in which the proportion of income being paid as tax remains the same whatever

the income. A tax fixed at 10% of income, whatever the level of income, is an example.

Progressive tax

This is where the amount of tax paid increase as income rises. For instance, if income is levied at

nil rates on small incomes, 25% on mid-level incomes and 50% on high level incomes, then it is

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a progressive tax in which not only the amount of tax paid, but also the proportion of income

being paid in tax rises with income.

Regressive tax

This means that as income rises, the proportion paid as tax falls. The fee for a driving license is a

pertinent example. Since the amount is for everyone, it takes much larger proportion of a poor

man’s income than that of rich man’s.

2.2.2. INDIRECT TAX

According to Powell (1993), indirect taxes are taxes imposed on goods and services. They are taxes

indirectly from the tax payers through purchases or sales of goods and services. Indirect taxes are made

up of import duties, excise duties, export duties, purchases taxes, and sales taxes.

Beardshaw (1992) also explained indirect tax as taxes usually on expenditure. They are levied on

goods and services. An indirect tax is collected from an intermediary (a supplier) who then

attempts to pass on the tax to consumers in the price of goods they sells.

Indirect taxes include value added tax, customs and excise duties. Indirect taxes tend to be

regressive (unless they are charged exclusively on luxury items).

They are also usually avoidable which means that people can choose not to pay the tax, by not

buying the goods or services on which the taxes are levied.

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2.3. PRINCIPLES OF TAXATION

Even though tax payers commonly view all taxes as “bad”, in the sense that they do not enjoy

paying them, nevertheless most tax payers also realize its importance in providing for useful

goods and services provided by the government.

A tax is said to be good when it meets the following principles, Powell (1993) explained the

principles of tax as follows:

 Equity
This state that a tax system should be fair, even though opinions about what constitutes equitable

taxation differ. This difference is made from one of the two perspectives thus the benefit

principle or the ability-to-pay principle.

 Economic
A tax should be easy to administer and cheap to collect so that the yield is maximized in relative

to the cost of collection. This result in efficiency in taxation

 Convenience

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The method of payment should be convenient to the tax payer. Tax must be easy to pay, so must

it be equally easy to understand by the taxpayer. This means that the taxpayer must not find it so

difficult to fulfill his/her tax obligation.

 Certainty
The taxpayer should know what, where, when and how to pay, in such manner tax evasion is

difficult. In other words taxpayer without doubt should be able to calculate or determine his/her

tax liability.

 Efficiency
This means that a tax should achieve it intended aim or aims with minimum undesired distortion

or side effect, since it is almost always impossible to avoid all the undesirable side effect and

distortions resulting from taxation.

 Flexibility

This means that the tax system must be easy to be altered. It must not be too rigid. It should be

flexible.

2.4. REASONS FOR TAXATION

Taxes play an important role in fulfilling government objectives.

Turner (1994) identified taxes as the major source of government revenue which brings in large

sums of money relatively easily, quickly and cheaply.

This is because it is the government who usually provides social amenities in almost every

country and for this to be done, funds can be raised through the imposition of tax. Taxes help in

financing the expenditure of the government and implementation of the fiscal policy.

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Tax also helps the redistribution of income and wealth. The higher rates of income tax are

designed to transfer wealth from the better off in the state. The state will then in theory use the

tax revenue to pay higher social security benefits.

Also tax serves as a tool for protecting infant industries from foreign competition. If the

government levies a duty on all imported goods, much of the duty will be passed on to customers

in the form of high prices, making imported goods more expensive.

The effect is that, consumers may shift their demand from the imported to domestically

manufactured goods which may have competitive prices.

Taxation as a fiscal policy prevents or reduces the consumption of certain commodities. The

consumption of harmful goods like alcohol, cigarette can be discouraged by imposing high taxes

on such goods.

Taxation can also be used to prevent or cure inflation. During periods of inflation, the

government can levy high tax so that the aggregate demand will fall to match supply.

In addition taxes help to correct balance of payment deficits. By imposing high taxes on

imported goods, there will be a cut on the demand of such imported goods as their prices will be

high. This decrease the amount of foreign exchange paid to import such goods.

Furthermore, taxes bridge the gap between the rich and the poor when levies progressive. It is so

because the rich pays more than the poor.

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2.5. BRIEF HISTORY OF TAXATION IN GHANA

According to the Internal Revenue Service training manual (1998, unpublished), taxation in

Ghana started in the form of customs duty imposed by the British colonial administration on

imported goods at the rate of ½% on valerem. Lack of co-operation by the Dutch who owned

settlements along the coats led to the failure of the scheme.

Governor Major S.J Hill introduced the poll tax in 1952. The rate was one shilling per head for

every man, woman and child living in the British protected areas. By 1862, due to growing

opposition to the tax, collection ceased.

The most serious attempt to introduced income taxation into Gold Coast was made by Governor

Sir Ranford Slater in September 1931. There were protest throughout the country and the income

taxation idea was rejected.

In February 1943, Governor Sir Allan Burns made the second attempt of introducing income

taxation into the country. There was no opposition during this time. As a result the, Income Tax

Ordinance No of 1943 was passed. The Income Tax Department was created and charged with

the administration of the tax.

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Stamp Duty was introduced in 1951 and Casino Revenue Tax in 1959. On 1 st July 1961, Pay As

You Earn (PAYE) was introduced. The name of Income Tax Department was changed to Central

Revenue Department from 1st July 1963. Some other taxes such as Gambling Machine Tax 1963

Gift Tax, 1985 were introduced.

The Central Revenue Department was renamed Internal Revenue Service from 1 st July 1986. The

current enactment on Income Tax, Capital Gain Tax and Gift Tax is the Internal Revenue Act,

2000 (Act 592).

According to Customs Guide (2002) the history of Customs and Excise Prevention Service

(CEPS) dates back to 1839. It was called Department of Customs and was headed by a principal

collector. The service came under Ministry of Finance for assessment and revenue collection.

Later in 1993, CEPS management law PNDC law 330 was passed which gave mandate to CEPS

operations.

According to the VAT News (2005), the VAT law in its present form drew inspiration from the

first Sales Tax Act (Act 257). VAT was introduced in March 1995 with the rate pegged at 17.5%.

However, after only three months of its existence in June 1995 VAT Act was withdrawn because

it was not well received. VAT was re-introduced in Ghana in the year 1998 with the passing of

the VAT Act (Act 546). The rate was 10% now 12.5% thus, replacing the 15% Sales and Service

Taxes which had operated in the country since 1965.

2.6. TAX ADMINISTRATION IN GHANA

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Three government agencies administer taxes in the country. These are the Internal Revenue

Service, Customs and Excise Preventive Service and Value Added tax Service. These agencies

are headed by Commissioners.

The Internal Revenue Service is responsible for the assessment and collection of direct taxes

such as Income Tax, Capital Gain Tax and Gift Tax.

The Customs and Excise Preventive Service is responsible for the assessment and collection of

indirect taxes such as excise duties, import duties and export duties.

And the Value Added Tax Service is responsible for the assessment and collection of VAT.

2.7. IMPOSITION OF INCOME TAX

According to the Internal Revenue Act, 2000 (Act 592) Income tax shall be payable upon the

income of a person for each year of assessment from any business, employment or investment.

The tax shall be computed in accordance with the Act.

2.7.1. INCOME FROM A BUSINESS

A person’s income from a business is that person’s gains or profit from any business carried on

for whatever period of time by that person

2.7.2. INCOME FROM INVESTMENT

A person’s income from an investment is that person’s gains or profits from any investment. The

gains or profit from an investment include any dividends from a non-resident company, interest,

charge, annuity royalties, rent, natural resource payment or other income accruing to or derived

13
by that person from the investment other than an amount included in ascertaining that person’s

income from a business or employment.

2.7.3. INCOME FROM EMPLOYMENT

A person’s income from an employment is that person’s gains or profits from that employment.

The person’s income include all emoluments paid plus all allowances and other benefits paid in

cash or given in kind, such as a gain derived from the use of motor vehicle or accommodation

provided by the employers.

2.8 DETERMINATION OF INCOME

Internal Revenue Act 2000(Act 592) specifies the deductions that are allowed in ascertaining the

income of a person for the purposes of tax and the deductions that are not allowed.

Deductions allowed

Subject to section 23, for the purposes of ascertaining the income of a person for a basis period

from any business, employment or investment there shall be deduced

A. All outgoings and expenses wholly, exclusively and necessarily incurred during that period by

that person in the production of the income.

B. Any other deductions as may be prescribed by Regulation made under section 114. Section

114 state that:

a) The Minister responsible for Finance may, by legislative instrument, make regulations to

prescribe any other deductions

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 b) Without prejudice to the general effect of subsection (1), Regulations made under that

subsection may:
I. Require a person to deduct from an amount payable by that person or class of persons to any

other person an amount calculated at the prescribed rate and pay that amount the Commissioner.
II. Require a person or class of persons to pay tax to the Commissioner for any year of

assessment in amounts calculated at the prescribed rate.

III. Provide for the time of payment, manner of ascertaining, and recover of the amounts referred

to in the section 144 and any other matter incidental to the matters referred to the Act.

The Internal Revenue act, 2000, specifies some deductions that are allowed in ascertaining the

income of a person. These include the following:

C. Interest incurred during the period in respect of borrowing employed by that person in the

production of the income.

D. For the purposes of ascertaining the income of a person for a basis period from any business

or investment, there shall be deducted any interest incurred during the period in respect of a

borrowing employed by that person in the production of the income.

E. Repair of any premises, plant, machinery or fixtures, or the renewal, repair or alternation of

any implement, utensil or article employed in the production of the income

F. Deductions in relation to the rental of premises, where an individual receives a rent in respect

of residential or commercial premises which is included in ascertaining that individuals income

from an investment for a basis period, that individual shall be allowed the following deductions

for the period in respect of the premises, to the extent to which the premises are used in the

production of the rent and a standard allowance equal to the thirty percent of the aggregate rent

received.

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 G. Bad debts incurred during the period in the production of the income. The debt claim should

be in respect of advances made by that person in the normal course of business other than

advances made on capital accounts.

H. Research and Development Expenditure: These are outgoing or expenses incurred by a

person for the purpose of development that person’s business and improving business products or

process but does not include any outgoing or expense incurred

I. For the purposes of ascertaining the income of a person for a period from any business, there

shall be deducted the capital allowance for the business calculated in accordance with the third

Schedule.

J. Foreign currency exchange loss incurred in the production of the income during the period in

respect of any debt claim, debt obligation or foreign currency holding of that person other than a

loss that is capital in nature.

K. There shall be deducted a loss of the previous five basis periods incurred by that person in

carrying on that business and where that person has incurred more than one such loss, the losses

shall be deducted in the order in the which they were incurred.

Deductions not allowed

The Internal Revenue Act 2000 section 23 specifies as deductions not allowed in ascertaining the

income of a person for a basis period from any business, employment or investment. These

include the following:

A. Any domestic or private outgoing or expense incurred by that person. Any outgoing or

expenses incurred by that person as domestic or private outgoing are as follows:

i. In travelling between that person’s home and place of business.

ii. In the maintenance of that person or that person’s family or home.

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iii. In acquiring clothing worn to work, other than clothing that is no suitable for wearing outside

work; and.
iv. In the education of that person not directly relevant to that person’s business, and education

leading to a degree, whether or not it is directly relevant to that person’s business.

B. Any outgoing or expense of a capital nature incurred by that person.

C. Any outgoing or expense incurred by that person during a basis period that is recoverable

during the period under any insurance or contact of indemnity.

D. Any income tax, profit tax, or other similar tax incurred by that person during the year in

Ghana or elsewhere other than as provided for by subsection (1) of the section 68.

E. The depreciation of any fixed assets.

2.9 PERSONAL TAX REFIEFS

According to the Internal Revenue Act, 2000, tax reliefs are granted by the government in order

to encourage certain forms of behavior and actions, such as the education of children and care for

the aged. This reduces taxpayer’s tax burden.

Reliefs are granted to individuals or entities as a means of reducing their tax burden. This is done through a

reduction in the assessable income of those who qualify.

Personal Reliefs are granted to individuals who satisfy one or more conditions as stated by the

law.
The assessable incomes of employees who qualify are reduced by fixed sums. Personal Reliefs

are of two main categories. Those granted upfront and those granted upon the filing of returns.

Reliefs granted upfront are:

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An individual with a dependent sponge or at least two dependent children is granted a relief of

35 Ghana cedis.
A disable individual is granted 25% of the assessable income.
An individual who is sixty or more years of age is granted the lesser of 30 Ghana cedis or the

assessable income.
An individual sponsoring the education of a maximum of three children or wards in a recognized

institution in Ghana is granted 30 Ghana cedis per child or would for a maximum of three

children or wards.
An individual with a maximum of two dependent relatives other than a child or spouse who is

sixty or more year of age is granted 25 Ghana cedis per dependent relative.
The cost at training of an individual if it is to update the professional, technical or vocational

skills or knowledge of that individual for a maximum of 100 Ghana cedis.

Social Security Fund (SSF) relief granted to those employee contributing towards the SSNIT

scheme or retirement fund.

Life Assurance relief granted to employee who have life assurance policy after satisfying the

condition.

2.10 FURNUISHING OF RETURNS

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According to the Internal Revenue Act, 2000 (Act 592) a person shall furnish a return of income

for a year assessment of that person not later than four months after the end of a basis period of

that person ending within the year.

Also return of income shall be in the form prescribed by the commissioner, shall state the

information required and shall be furnished in the manner prescribed by the commissioner. A

return of income shall include a declaration that the return is complete and accurate, and shall be

signed by the person making the return.

A person carrying on a business shall furnish with that person’s return of income a separate

statement of income and expenditure and a statement of assets and liabilities for each business

undertaking carried on within that business by that person.

2.11 TAX ASSESSMENT

In accordance with the Internal Revenue Act, 2000 section 78, taxes will be assessed as follows:

2.11.1 PROVISIONAL ASSESSMENT

The commissioner, may as soon as may be after the commencement of each basis period of a

person who pays tax by installments, proceed to make a provisional assessment computed

according to the commissioners best judgment on that persons chargeable income.

A provisional assessment shall not affect a liability otherwise incurred by that person by reason

of failure or neglect to deliver a return.

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The provisional assessment shall specify among other the estimated chargeable income, the

estimated tax payable and the amount and timing of tax installment to be paid and the time, place

and manner of the objecting to the assessment.

2.11.2 FINAL ASSESSMENT

Based on a persons of income and on any other information available the commissioner shall

make a find assessment on that person.

The assessment shall specify among other things the amount of chargeable income, the amount

of tax payable and the amount of tax paid, if any and the time place and manner of objecting to

the assessment.

Where a person defaults in furnishing a return of income for a year of assessment or where the

commissioner is not satisfied with a return of income for the a year of assessment furnished by a

person, the commissioner, according to the commissioner’s best judgment make a final

assessment of the income chargeable income of that person and payable on that income for the

year.

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2.12 PAYMENT OF TAX

All tax payers are expected to pay their taxes when they are due. According to the Internal

Revenue Act, 2000, a person who derives or expects to derive an assessable income for a year of

assessment, which is not subject to withholding of tax at source, is liable to tax by quarterly

installments.

In the case of a person whose period is a twelve-month period beginning from at a start of a

calendar month, the installments of tax shall be paid on or before the last day of the 3 rd, 6th, 9th

and 12th month of the basis period.

In any other case the installments of tax shall be paid at the end of each three-month period

commencing at the beginning of the basis period and a final installment on the last day of the

basis period unless it coincide with the end of such a three-month period.

2.13 THE TAX STAMP SYSTEM

The Internal Revenue Act, 2000 (Act 592), charges any persons who earns income from

employment, business and investment to pay tax on a yearly basis. This enables the state to

provide for social service, infrastructure, education and other services for the benefit of all

Ghanaians. The year of assessment is 1st January- 31st December of the same year.

The tax stamp system was introduced by the Internal Revenue (Amendment) Regulation, 2004.

The system came into effect on the Tuesday the 1st of February, 2005.

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 It allows for easy identification of small scale self-employed persons in the informal sectors

example persons operating in kiosks, on table tops, identifiable groups such as hairdressers,

dressmakers and tailors, butchers, market traders, cooked food sellers and others.

Under the tax stamp system, business operators in the informal sector are grouped according to

the business type and volume. The tax is paid quarterly in advance thus 15 th January to 15th April,

15th July and 15th October. Traders are classified according to the size and volume of business as

activates shown in table 2.13.1 below

THE PRICE FOR DETERMINING THE TAX STAMP

TYPE SIZE OF BUNIESS PREMISES AMOUNT

A 40 footer container\ large kiosk 15 Ghana cedis

B 20 footer container\ medium kiosk operators 10 Ghana cedis

C small kiosk\ container operators market stalls and itinerant 5 Ghana cedis

D table top operators\ hawkers 3 Ghana cedis

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2.14 OFFENCES AND PENALTIES.

Internal Revenue Act 2000, specifics some offences and their resulting penalties in order to

ensure compliance with the tax laws. When a person fails to comply with the provision of the

Act, the person commits an offence and is liable on summary conviction.

Tax evasion refers to a method or deliberate attempt to reduce or eliminate ones tax liability.

These are some of the offences and their penalties:

 Failure to maintain records: A person who deliberately fails to maintain proper records for a

year of assessment is liable to pay a penalty equal to 5% of the amount of the tax payable by

that person for the year.

 Aiding and abetting: A person who aids or abets another person to commit an offence or

counsels or induces another person to commit that offence is liable to a penalty equal to triple

the underpayment of tax which may result if the offence were committed and went unnoticed.
 Failure to pay tax on due date: A person who fails to pay his or her tax liability and an

amount treated in the Act as tax , on or before the due date for payment is liable to pay a

calculated amount from the date on which the tax become payable until the date on which

payment is made.
 Failure to furnish return: A person who fails to furnish a return with in the time required

under this liable to pay a penalty equal to Bank of Ghana rediscount rate plus 5% applied to

the tax outstanding.

 Every small-scale self-employed person is required to buy the Tax Stamp. Any small-scale

self-employed person who fails to pay tax or fail produce Tax Stamp for inspection commits

an offence and is liable on summary conviction to a fine not less than Gh¢20 and not more

than Gh¢50.

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 CHAPTER THREE
Research methodology

3.0. INTRODUCTION
This chapter describes the methods and the instruments employed in conducting the research. It

also contains the research framework, population and sample, sampling technique, data

collection instrument, data collection activities and me

thods of data analysis.

3.1. RESEARCH FRAMEWORK

The research was a case study. A case study type of research gives an opportunity for one aspect

of a problem to be studied on some depth within a limited time. In this study the researcher

identified the assessment of income tax collection from traders at Agbogbloshie market as a

problem.

Data were collected from Internal Revenue Service and trades at Agbogbloshie market by the use

of interviews and questionnaires.

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 The researcher after obtaining the data, analyzed the data and made some findings and

conclusions, and afterwards made recommendations.

III.2 POPULATION AND SAMPLE

The population for the study under consideration comprises all the traders located at

Agbogbloshie market and the staff of Internal Revenue Service at Asiedu-Keteke District.

In all a sample of twenty traders were selected for the study; five each to meat sellers, cloth

sellers, food sellers, and tomatoes sellers respectively.

A senior officer of the Internal Revenue Service at Aseidu-Keteke District was also interviewed.

3.3. SAMPLING TECHNIQUE

The researcher used purposive sampling technique and random sampling technique to select the

sample element.
For the interview, the researcher selected the official of Internal Revenue Service purposively

due to the fact that, the researcher believed he had experience in the field.

The categories of traders were picked with a purpose because the researcher wanted to include

different categories of traders. The actual sample element was selected from each category at

random.

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3.4. DATA COLLECTION INSTRUMENTS
The researcher used both questionnaires and an interview to gather the information needed for

the research.

The questionnaires were designed by the researcher himself and contained mostly closed type

questions and a few open ended type questions.

The questionnaires were used because it is a good way of collecting information of this kind

more quickly and relatively cheaper. Also respondents are given enough time to answer the

questions and make reference where necessary.

A self-designed interview guide was used to make the interview of the Internal Revenue Service

very orderly.

3.5. DATA COLLECTION METHODS

The questionnaires were personally administered by the researcher to the traders so as to save

time and also reduce the level of error in the information require.
Five questionnaires were immediately received after issuing them. It took one week for the

remaining fifteen of the twenty questionnaires to be received.

The interview was conducted at the office of the Internal Revenue Service at Agbogbloshie. It

lasted for about one hour. The researcher recorded the interview with the Internal Revenue

Service official in a note book.

The interview was semi-structured.

3.6. METHOD OF DATA ANALYSIS

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The researcher used largely qualitative approach in analyzing the data. The data were grouped,

into categories analyzed and presented in a narrative form.

However, some quantitative tools such as percentage and averages were used to establish some

relationships. The findings were illustrated by the use of tables and charts

CHAPTER FOUR

FINDINGS

4.0. INTRODUCTION

The purpose of this study is to assess the collection of income tax from the traders at

Agbogbloshie market

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This chapter contains the analysis of data collected. Twenty questionnaires were sent out and all

were completed giving a hundred percent rate of response.

4.1. BACKGROUND OF RESPONDENTS

The respondents are twenty in number out of that seven were male and thirteen were female. All

respondents are above twenty-six years.

Concerning the educational background of the respondents thirteen had basic education and

seven of them were secondary school graduates.

The traders deal in cloth, cooked food, tomatoes, and meat.

Majority of the respondents had been in trade from one to five years and above.

4.2. TAX EDUCATION

It is the responsibility of the Internal Revenue Service to organize programs to educate the

traders on tax.

When respondents were asked whether they heard of tax all of them responded in the

affirmative.

Regarding the forms of tax education, respondent responses are shown in table 4.1 below.

Table 4.1

28
FORMS OF TAX EDUCATION

FORM NO OF RESPONDENTS PERCENTAGE (%)

Symposium 4 20
Giving Of Handouts 5 25
Media 3 15
Face to Face Communication 8 40
Total 20 100
Source: Field Study 2009

The table shows that majority of the respondents receive tax education through face to face

communication.

Regarding the people who give the tax education the respondents stated that the education is

organized by the Internal Revenue Service.

According to the traders the face to face interaction happens quarterly and the symposium

happens once every year. One trader said that the symposium happens on quarterly bases.

Five of the traders who receive education through the giving of handouts stated that the

education happens once every year likewise the traders who receive education through the

media.

Sixteen of the respondents were pleased with the level of education. Four were not pleased with

the level of education. The four were not satisfied due to the language barrier, and the channel of

education. The respondents did not suggest a particular local dialect, or how to improve the

channel.

The Internal Revenue Service official estimated that 75% of the traders at Agbogbloshie market

have registered with the Internal Revenue Service. Internal Revenue Service official further

explained that they normally go on field work to locate the traders for registration.

29
The Internal Revenue Service official however explained that education on tax is being

organized as often as necessary. This is through the dailies, media, open air announcement or

programmes and personal contact.

4.3. RECORD KEEPING

Records keeping is very important since it helps owners to determine their profit or loss and for

future references. It also enables the Internal Revenue Service to determine the amount of tax to

be paid.

As to whether the respondents keep record, all of the respondents replied that they keep records

of their operations. The respondents keep records to determine their profit or loss, and also for

future references.

According to the Internal Revenue Service official, traders keep records of income statement.

4.4. PAYMENT OF TAX

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Tax is a major contributor of revenue to the national income of a country. A third world country

as Ghana depends more on tax revenue to finance its expenditure. Every income earner is

therefore expected to pay.

On the question of whether respondents pay any tax apart from income tax, all of them answered

that they pay do not pay any other tax.

On the reason for the payment of tax their responses are shown in table 4.2 below.

Table 4.2

REASONS FOR WHY RESPONDENTS PAY TAX.

REASON NO OF RESPONDENTS PERCENTAGE (%)

Pressure from IRS 5 25
One’s contribution to government 8 40
Responsibility 4 20
Civil Right 3 15
Total 20 100
Source: Field Study 2009

From the above table, it can be realized that majority of the respondents pay tax as their

contribution to the government.

The Internal Revenue Service official when asked whether staffs are being trained to enhance

effective collection of income tax, he said seminars are organized for their staff. This seminar is

done any time the need arises and when the needed resources are made available.

31
Also there is a cordial relationship between Internal Revenue Service staff and the traders.

4.5. PROBLEMS ENCOUNTERED IN TAX PAYMENT

Regarding the problems encountered in the payment of tax, respondents responses are shown in

table 4.3 below.

Table 4.3

PROBLEMS WITH PAYMENT OF TAX

PROBLEM NO OF RESPONDENTS PERCENTAGE (%)

Bad attitude of IRS staff
Pay point are far away
Long queues at pay point
Others
No problem
Total
Source: Field Study 2009
4 20
6 30
2 10
0 0
8 40
20 100

From the table, it can be seen that majority of the respondents have no problem in the payment of

tax.

As to the difficulties encountered in the collecting of tax from traders in the Asiedu-Keteke

District, the Internal Revenue Service official said that tax stamp are normally collected from

small scale traders and market women most of whom are not educated and this posses a lot of

problem.

32
Concerning the problem of the collection of tax, the Internal Revenue Service official said that

taxpayers look for immediate benefit from taxes they pay. Further more the Internal Revenue

Service official said that taxpayers compare the rates with A.M.A (Accra Metropolitan

Assembly) rate and complain that tax rates are high.

4.6. TAX STAMPS

Tax stamp is a current system adopted by the Internal Revenue Service for the payment of

income tax. The traders are expected to buy this sticker according to the type and size of the

firm.

As to when respondents started using tax stamps nine responded that they started since they

stated trading, three started when it was introduced and eight stated from the period they

registered the business.

As to how often they purchase the tax stamps, all of the respondents replied that they do it on

quarterly basis.

Regarding where they purchased the tax stamps, nine responded that they do so at the Internal

Revenue Service office and eleven responded that they purchase from mobile Internal Revenue

Service Personnel.

The Internal Revenue Service official explained that, with the issue of tax stamps, the Internal

Revenue Service is the sole distributor of stamps.

33
When the Internal Revenue Service official was asked about the basis of assessment of tax, he

said that tax is assessed according to the type and size of the business. The Internal Revenue

Service official further explained that the type and size determine the amount to be paid.

Also the tax stamp is on quarterly basis which every trader is supposed to purchase quarterly

according to the date of commencement. He further expressed the opinion that most of the

traders are complying with the system.

The Internal Revenue Service official explained that, traders have association who purchase the

stamp at Internal Revenue Service office, and personnels also go round collecting tax from those

who cannot buy at the Internal Revenue Service office.

When the Internal Revenue Service official was asked whether the traders complain about

payment and what they complain about, he said they do and they complain about high taxes, but

this is relative. He further explained that discussions are held to see how best they can

understand each other.

Regarding how respondents consider the level of income tax, their responses are shown in table

4.4.below.

Table 4.4 below

HOW RESPONDENTS CONSIDER THE LEVEL OF TAX STAMP

RATING NUMBER OF RESPONDENTS PERCENTAGE (%)

High 10 50
Moderate 9 45
Low 1 5
Total 20 100
Source: Field Study 2009

34
From the above, it is realized that majority of the respondents consider the level of tax stamp as

high.

Three of the respondents suggested an amount of two Ghana cedis per quarter, two suggested

five Ghana cedis, one suggested three and fifteen per quarter respectively. Ten and one hundred

Ghana cedis for the year was suggested by the remaining respondents respectively.

The Internal Revenue Service official when asked about other tax paid by the traders apart from

income tax, he said the traders do not pay any other tax apart from income tax.

4.7. TAX RELIEFS

Tax reliefs are granted by the government in order to encourage certain forms of behavior and

actions, such as the education of children and care for the aged. This reduces taxpayer’s tax

burden.

With respect to whether the traders apply for tax reliefs, the Internal Revenue Service official

said traders do not apply because they don’t submit returns, so it is only those who submit

returns that get the reliefs since the return will enable Internal Revenue Service staff to know the

amount of tax relief.

As to whether the Internal Revenue Service grants tax reliefs to the traders, the official said they

do not because traders do not submit returns to the of Internal Revenue Service.

35
When the respondents were asked whether they know what tax relief is, seven responded

positively and thirteen of the respondents are ignorant about it. All the respondents responded

that they don’t enjoy tax reliefs.

4.8. OFFENCES AND PENALTIES

The Internal Revenue Act has specified some offences and their resulting penalties in order to

ensure compliance with the tax laws. When a person fails to comply with the provision of the

Act, the person commits an offence and is liable to a penalty.

When respondents were asked whether they have been penalized before sixteen of them

responded negatively, while four stated they have been penalized before. Their offence was

inability to pay.

The penalty paid was twenty Ghana cedis, fifty Ghana cedis, one hundred Ghana cedis, and ten

Ghana cedis depending on the offence committed.

According to the Internal Revenue Service official, traders commit offences such as avoidance

and evasion of tax. The Internal Revenue Service official said that, the penalty for such offence is

the normal or usual legal and administrative penalties.

He further explained that, because this is an informal sector it is not usually applied.

4.9. ASSESSMENT OF TAX COLLECTION SYSTEM

36
When asked to rate the income tax collection system, eleven traders responded that it is good.

Seven responded that it is fair, but two persons answered that the system is poor.

Regarding how respondents rate the tax stamp system, their responses are shown in table4.5

below.

Table 4.5

HOW RESPONDENTS RATE THE INCOME TAX COLLECTION SYSTEM

RATING NUMBER OF RESPONDENTS PERCENTAGE (%)

Very Good 0 0
Good 11 55
Fair 7 35
Poor 2 10
Total 20 100
Source Field Study 2009

From the above table, it can be realized that majority of the respondents regard the income tax

collection system as good.

On the question of lapses in the income tax system, six of the respondents complain about the

high price of the tax stamp and three out of the six added bad staff attitude, collection period is

too early and far pay point respectively. Four of them lamented about the far pay point and one

out of the four added long queue at the Internal Revenue Service office.

One respondent spoke against the collection period and bad staff behaviour, while two

complained about the long queues in the Internal Revenue Service office. Six of the respondents

were silent about the lapses in the income tax system. One respondent complain about the low

price of the tax stamp.

37
The respondents suggested that the Internal Revenue Service should provide pay point at the

market which will reduce the long queue. Also, they should reduce the price of the tax stamp.

None of them specified any amount. Staff should develop cordial relationship with the traders. A

respondent suggested that the price of the stamp should increase from five Ghana cedis to seven

Ghana cedis.

According to the Internal Revenue Service official, the tax rate should be reduced to make

payment more accommodating.

38
 CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.0 INTRODUCTION

The purpose of this study is to assess the collection of income tax from traders in Agbogbloshie

market.
The chapter contains the summary of the findings, conclusions drawn and recommendations

made by the researcher.

5.1 SUMMARY
The major findings obtain by the researcher have been summarized below:
Concerning tax education all the respondents have knowledge about income tax.
The respondents pay income tax to the Internal Revenue Service. Some are not pleased with the

level of tax education, with the view that the education should be organize very often, also the

channel of education should be improved.

It was realized that most of the respondents keep records of their businesses.
Most of the traders pay tax as their contribution to government.
Majority of the respondents encounter no problem in the payment of tax. Few have problem with

the far pay point and bad staff attitude of the Internal Revenue personnel.

It was found out that, majority of the traders purchase the tax stamp from mobile Internal

Revenue personnel and little purchase from the Internal Revenue Service offices.

All of the respondents purchase the tax stamp on quarterly bases.

39
Majority of the traders are ignorant about tax relief. Furthermore, majority of the traders keep

records of their income and these records are used for references and also to ascertain the profit

or loss of the businesses.

. Most of the respondents claim that the price of the tax stamp is high. Respondents mostly, do

not commit tax offences. Few respondent, have been penalized for tax offences.
Most of the respondents claim that, tax policy on income tax is good.

5.2 CONCLUSIONS

From the above findings, the researcher concluded that:

The traders pay tax as their contribution to the government with the view that it is the

responsibility of every citizen to pay tax. The Internal Revenue Service has contributed greatly to

this success.

Tax education is organised for the traders but not enough to help them know and understand

about tax reliefs. Due to this, many of the traders do not enjoy tax relief.

In addition, due to the far pay points, payment of tax wastes time and this situation can

discourage the traders from paying tax.

The traders keep records of their operations to help them know income generated but they do not

submit returns to the Internal Revenue Service for them to be assessed which also denies them

from enjoying tax reliefs.

Even though the traders complain about the price of the tax stamp, they consider the income tax

system to be good.

40
5.3 RECOMMENDATION

In view of the conclusions drawn from the study, the researcher would like to make the following

recommendations.

Tax education should take the form of local language to enhance the understanding about taxes.

Tax education should be improved in order to enlighten traders about tax reliefs.

Pay points should be increased to avoid long queues at time of payment.

The price of the tax stamp should be affordable or reduce to encourage purchase. Tax stamps

should be made available at any point in time for the payment of income tax.

The traders should be encouraged to keep proper records and submit returns to the Internal

Revenue Service for assessment in order for them to enjoy tax reliefs.

This research work is only applicable to traders at Agbogbloshie market. The researcher would

like to recommend to future researchers to research on similar topic to cover other markets in

other towns in the country.

41
 REFERNCERS
Beardshaw, J (1992) Economics, A Studies Guide. (3rd Ed) London: Pitman

Henderson, J .V. and Poole, W. (1991) Principles of Economics. Toronto: DC health &Co.

Hardwick, P. Khan, B. and Landmead, J. (1990). An Introduction to Modern Economics (3rd ed)
London: EL\BS.

Hancock, D (1998), Taxation Policy and Practice. (6th ed) London: International Business Press.

Internal Revenue Act 2000, (Act 592), Accra Assembly Press.

Jones, M. S. (1999) Principle of Taxation. New York: Irwin.

Megginson, W. L, Byrd, M.J, Scott, C. R and Meggionson, L. C. (1992). Small Business

Management, An Entrepreneur’s Guide to Success. (2nd Ed) London: Rob Zwettler Publishers.

42
Moynihan, D and Titley, B (1989). Economics A Complete Course. London: Oxford University
Press.

Oxford Dictionary Of Business (1990) London: Oxford University Press.

Powell, R. (1993). Economics for Professional and Business studies. London DP Publications
Ltd.

Pratt, F. W. and Kulsrud. W. N. (1997) Individual Taxation New York: IRWIN

TAKORADI POLYTECHNIC

INTERVIEW GUIDE

This interview is designed to aid the researcher acquire information in order to assess the

“problems of income tax collection among selected traders in Tarkwa-Nsueam

Municipality”. It is purely for academic purpose. All information provided will be treated

with utmost confidentiality.

1. In your estimation, what percentages of the traders in Tarkwa-Nseuam Municipality have

registered with the IRS? …………………………………………………………………

2. How do you locate the traders for registration? ………………………………………….

43
3. How often do you educate tax payers on the need to pay tax? …………………………..

4. How do you organise the education for the traders? ……………………………………..

5. Does the staff of IRS undergo any training for effective collection of income tax? …….

6. What is the relationship between IRS staff and the traders? …………………………….

7. Do the traders keep records of their operations? ………………………………………

8. If Yes, what records do they normally keep? ……………………………………………

9. When did you start using tax stamp system for traders? ………………………………..

10. What are the reasons for the introduction? ……………………………………………

…………………………………………………………………………………………………

11. How promptly do the traders buy the tax stamps?……………………………………….

12. Where can one obtain the stamp, if not at the market? ………………………………….

13. Why can’t you make them available at the market? ……………………………………..

14. On what basis do you determine the amount for the stamp? ……………………………

15. How do you enforce purchase of the stamp? .....................................................................

16. Do the traders complain about the payment? .....................................................................

17. What do the traders normally complaints about? ………………………………………..

18. How do you handle the complaints? ……………………………………………………..

19. What are some of the problems with the tax stamp system? …………………………….

…………………………………………………………………………………………………

20. . Is the tax stamp a provisional or final tax? .……………………………………………

21. What are some of the tax offences the traders commit? …………………………………

…………………………………………………………………………………………………

44
 22. How often are the penalties applied? …………………………………………………….

23. What difficulties do you encounter in the process of collecting tax from traders in the

Asiedu-keteke District? …………………………………………………………………..

…………………………………………………………………………………………………

24. What are your suggestions to improve the income tax system for the traders at the market?

…………………………………………………………………………………..

……………………………………………………………………………………………

QUESTIONNAIRE

TOPIC: ASSESSING INCOME TAX COLLECTION FROM TRADERS AT

AGBOBLOSHIE MARKET.

This questionnaire is prepared to aid the researcher acquire information in order to assess the”

income tax collection from traders at Agbogbloshie market”.

It is purely for academic purpose. All information provided will be treated with utmost

confidentiality.

Please, tick [ ] appropriately and supply full responses where necessary

1. Gender: Male [ ] Female [ ]

45
2. Age A. Below 26[ ] B. 26-30[ ] C. 31-35 [ ] D. 36-40 [ ]

E. 41-50 [ ] F. Above 50 [ ]

3 Level of education: Basic [ ] Secondary [ ] Tertiary [ ].

Other ( specify) ………………..

4. Number of years you have been in this business? 1-5 [ ] 6-10 [ ] 11 above [ ]

5. Do you receive education about tax? Yes [ ] No [ ]

6. If Yes, who gives the education?

IRS [ ] Union [ ] Others (specify) ………………

7. What form does it take?

Symposium [ ] Giving of Handouts [ ] Others (specify) ………………

8. How often is the education organized?

Once every month [ ] Quarterly [ ] Once every Year [ ]

9. Are you satisfied with the level of tax education? Yes [ ] No [ ]

10. If No, give suggestions for improvement …………………………………………………..

11. Do you pay any tax apart from income tax? Yes [ ] No [ ]

12 .If Yes, what tax do you pay? Capital Gain Tax [ ] Gift Tax [ ]

Property Tax [ ]

46
13. Why do you pay tax? Because of the pressure from IRS [ ]

Because it is a contribution to government [ ] Others (specify) ………………

14. Do you keep records of your operation? Yes [ ] No [ ]

15. If Yes, why do you keeps the records? …………………………………………………….

16. What are the records used for? …………………………………………………………….

17. Where do you pay your tax? IRS Office [ ] District Assembly [ ]

Kiosk erected by IRS [ ] Mobile IRS personnel [ ]

18. What problems do you encounter in paying income tax?

Bad attitude of IRS Staff [ ] Pay points are far away [ ]

Long queues at pay point [ ] Others (specify) ………………………………...

19. What is the attitude of tax officials? Very Friendly [ ] Friendly [ ] Not Friendly [ ]

If not friendly, give reasons ………………………………………………………………..

20. When did you start using tax stamp? ………………………………………………………

21. How often do you buy tax stamps? Every quarter [ ]

Twice a year [ ] Every year [ ] Other (specify) ………………………

22. Where do you purchase your tax stamps? Union Office [ ]

Internal Revenue Office [ ] Other (specify) …………………………………

47
23. How do you consider the level of income tax stamp?

High [ ] Moderate [ ] Low [ ]

24. If high, suggest the appropriate amount to be levied ...…………………………………

25. Have you been penalized for income tax offence before? Yes [ ] No [ ]

i) If Yes, for what offence? ………………………………………………………………

iii) What penalty did you pay? ……………………………………………………………

26. Do you know what tax relief is? Yes [ ] No [ ]

27. Do you enjoy tax relief? Yes [ ] No [ ]

28. If yes, which of the following? Marriage [ ] Old age [ ] SSF [ ]

Life Assurance [ ] Child Education [ ]

29. How do you rate the income tax collection system?

Very Good [ ] Good [ ] Fair [ ] Poor [ ]

30. Give some lapses that you find in the income tax system. …………………………………

…………………………………………………………………………………………………..

31. Give suggestions to improve the system. …………………………………………………..

…………………………………………………………………………………………………...

48