TAXATION AND INFORMAL SECTOR: A CASE STUDY OF BOLGATANGA MUNICIPALITY

By Patrick Somua !PG" #$%&'$()

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COMMON8EALT9 EXECUTI:E MASTERS OF BUSINESS ADMINISTRATION

AUGUST #$;;

DECLARATION I hereby declare that this submission is my own work towards the Commonwealth Executive Masters of Business Administration and that, to the best of my knowledge, it contains no material previously published by another person nor material which has been accepted for the ward of any other degree of the in the text! niversity, except where due acknowledgement has been made

Patrick Somua PG #$%&'$( Stu-*.t Nam* a.- ID

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DEDICATION I dedicate this work to the memory of my late parents, Mad! Mary "benewah and #! $! %ede!

AC2NO8LEDGEMENT

&irst and foremost, I would like to thank the Almighty 'od for giving me the knowledge and strength to come out with this work!

(econdly, my deepest appreciation goes to Mr! 'abriel Ahinful, my supervisor, for his tolerance, understanding, constructive criticisms and useful suggestions which helped me in no small way in coming out with this work! )o my wife and children I say thank you for your prayers, support and encouragement! Also my appreciation goes to Miss Agnes Ayine for typing the whole work!

My apologies are due to any one whose name should have been mentioned but has been unwittingly omitted!

ABSTRACT

Many developing countries including 'hana are faced with the problem of raising the necessary revenues to meet governments* expenditures! 'overnments* budgeted revenues usually fall short of the expected expenditures! "wing to the lack of li+uidity on the international market due to the current financial crisis domestic revenue mobili,ation is seen as the most reliable source of revenue mobili,ation! )axation is therefore seen as the most efficient and effective means of raising revenue domestically for the government! "ne ma-or sector of developing countries that should have contributed greatly to domestic revenue mobili,ation through taxation is the informal sector given its employment si,e and contribution to './ of low0income countries! But the tax inflow from the informal sector relative to its sheer si,e is -ust a drop in the national coffers! "ver the past years almost every aspect of dealing with the informal sector has been a problem which has defied all measures aimed at improving the relative share of taxes of the sector! In this regard, the study sought to find out why non compliance with income tax is high in the informal sector and besides, explore further the challenges in taxing the informal sector in Bolgatanga Municipality! In order to achieve the ob-ectives of the study, a sample si,e of seventy0five 1234, comprising seventy 1254 tax payers and five tax officials in the Bolgatanga Municipality responded to the administered +uestionnaire! At the end of the study, it was established that factors such as application of sanctions, regular tax education, anticipation of benefits, high tax rates, among others affect compliance level of the tax payers while capacity constraints, large si,e of the informal sector, large si,e of the tax district, improper books of accounts were some of the challenges facing the tax district in the Bolgatanga Municipality! Measures such as intensive and regular monitoring6 capacity building6 logistical support6 regular tax education and advertisement6 effective customer relations among others were recommended

as means of raising compliance level of tax payers as well as reducing the challenges in taxing the informal sector in the tax district!

TABLE OF CONTENTS

)I)7E /A'E %EC7A8A)I". %E%ICA)I". AC$."97E%'EME.) AB()8AC) )AB7E "& C".)E.)( 7I() "& )AB7E( 7I() "& &I' 8E( C9APTER ONE INTRODUCTION :!: :!= :!> :!@ :!3 :!B :!2 BAC$'8" .% )" );E () %< ()A)EME.) "& );E /8"B7EM "B#EC)I?E "& );E () %< 8E(EA8C; A E()I". (I'.I&ICA.CE "& );E () %< (C"/E "& );E () %< "8'A.ICA)I". "& );E () %< iii

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C9APTER T8O LITERATURE RE:IE8 =!: =!= =!> =!@ =!3 =!B =!2 =!E =!F =!:5 I.)8"% C)I". %E&I.I)I". "& )ADA)I". / 8/"(E "& )ADA)I". /8I.CI/7E( "& )ADA)I". )ADA)I". &"8 I.?E()ME.) A.% %E?E7"/ME.) )AD E?A(I". A.% )AD A?"I%A.CE %E&I.I)I". "& I.&"8MA7 (EC)"8 C;A8AC)E8I()IC( "& );E I.&"8MA7 (EC)"8 &AC)"8( );A) M")I?A)E )AD C"M/7IA.CE C;A77E.'E( I. )ADI.' );E I.&"8MA7 (EC)"8

C9APTER T9REE MET9ODOLOGY >!: >!= >!> >!@ >!3 >!B >!2 >!E I.)8"% C)I". 8E(EA8C; %E(I'. );E /"/ 7A)I". (AM/7E A.% (AM/7I.' )EC;.IA E( %A)A (" 8CE( %A)A C"77EC)I". /8"CE% 8E A.% )EC;.IA E( %A)A A.A7<(I( 7IMI)A)I".( )" %A)A C"77EC)I".

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C9APTER FOUR DATA PRESENTATION1 DISCUSSION AND ANALYSIS @!: @!= @!> @!@ @!3 I.)8"% C)I". %EM"'8A/;IC C;A8AC)E8I()IC( "& 8E(/".%E.)( 8E(/".(E( &8"M )AD "&&ICIA7( 8E(/".(E( &"8M )AD /A<E8( ( ''E()I".( )" IM/8"?E )AD A%MI.I()8A)I". C9APTER FI:E SUMMARY1 CONCLUSION AND RECOMMENDATIONS 3!: 3!= 3!> 3!@ I.)8"% C)I". ( MMA8< "& &I.%I.'( C".C7 (I". 8EC"MME.%A)I".(

2> 2> 2> 2> 22 2E E: E2 LIST OF TABLES

REFERENCES APPENDIX

)able :G 8espondents %istribution )able =G Ages of 8espondent )able >G <ears with I8( )able @G 7evel of Education )able 3G )ypes of Business )able BG (anctions for .on0payment of )axes )able 2G Assessment of Existing )ax 8ates )able EG Compliance 7evel of (elf0employed )able FG 8anked Challenges )able :5G Collection %ifficulty )able ::G Anticipation of Benefits from 'overnment )able :=G 7evel of (atisfaction with the use of )axes by 'overnment )able :>G /articipation Making Influences )ax Compliance )able :@G Business 7ocation )able :3G <ears of Business "perations )able :BG Medium of ;earing about Income )ax

@B @E @F 35 3: 3> 3@ 33 3B B5 B= B>

B3 B2 BE BF

LIS T OF FIG UR ES &igu re :G 8es pon dent s %ist ribu tion &igu re =G 'en der 8ati o &igu re >G Age @E @2 @B

s of 8es pon dent &igu re @G <ea rs with I8( &igu re 3G )yp es of Busi ness &igu re BG (an ctio ns for 3> 3: @F

.on 0 pay men t of )ax es &igu re 2G Ass ess men t of Exis ting )ax 8ate s &igu re EG Co mpli ance 33 3@

7ev el of (elf 0 emp loye d &igu re FG8 ank ed Cha llen ges &igu re :5G Coll ecti on %iff icult B5 32

y &igu re ::G Anti cipa tion of Ben efits fro m 'ov ern men t &igu re :=G 7ev el of (ati sfac B@ B>

tion with the use of )ax es by 'ov ern men t &igu re :>G /art icip atio n %ec isio n Mak BB

ing Infl uen ces )ax Co mpli ance &igu re :@G Busi ness 7oc atio n &igu re :3G <ea rs of Busi ness BE B2

"pe ratio ns &igu re :BG Med ium of ;ea ring abo ut Inco me )ax ;"; BAC2GROUND TO T9E STUDY C9APTER ONE INTRODUCTION 25

Many developing countries including 'hana are faced with the problem of raising the necessary revenues to meet governments* expenditures! 'overnments* budgeted revenues usually fall short of the expected expenditures! )his was

acknowledged by the =552 budget statement of 'hana when the Minister of &inance mentioned that Hgiven the revenues and expenditures outlined above, the =552 budget is expected to result in an overall budget deficit e+uivalent to >!=I of '%/ 1Budget of 'hana, =5524! "ver the past two decades, the government of 'hana has consistently spent more than it is able to generate as revenue and the gap is often financed with foreign aid which has perpetuated the country*s aid dependency 1"sei and Auartey, =5534!

)he current financial crisis has created financial difficulties for many developing countries that depend mainly on external source for public finance, given the lack of li+uidity on the international market, putting into +uestion the robustness of their development 1%rine, =55F4! )o avoid excessive foreign financing which may in the long run lead to problem of debt sustainability, developing countries need to rely substantially on domestic revenue mobili,ation 1'upta, =5524! )o strengthen domestic resource mobili,ation developing countries have to rely on taxation and seek to raise additional revenue by expanding the tax base and strengthening revenue administration! )axation is the most efficient and effective means of raising revenue for the government 1'beregbe, =5524! )he 'hanaian economy is divided into formal and informal sectors! 9hile the formal sector employs about :@I of the labour force, the informal sector 1including agricultural sector4 is the source of livelihood for the remaining EBI of the working population 1') C, =55@4! According to 9orld Bank estimates, the informal sector accounts for @5I of './ of low0income countries 1&arrell, =55@ cited by <adav, =55F4! %espite the significant contribution of the informal sector to the economies of developing countries, they are the least taxed! According to the Commissioner of Internal 8evenue (ervice 1I8(4, Ma-or 18td4 %aniel Ablorh J Auarcoo records at the 8egistrar 'eneral %epartment of 'hana show that there are ==B,2B5 self0employed registered in the informal sector, but only 3>,>3= are registered with I8( and are being assessed to tax 1'.A, =55F4!

%espite the low tax revenue from the informal sector the 'overnment is still determined to expand the tax base to the informal sector to ensure fairness and e+uity as Baah 9iredu, the former Minister for &inance and Economic /lanning, put it Hthe burden of tax must be shared by all no matter how little one*s contribution is 1'.A, =55B4!

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STATEMENT OF T9E PROBLEM

"ne of the ma-or challenges facing the governments of developing countries is how to tax the informal sector! )his assertion was recogni,ed by #oshi and Ayee 1=55F4, when they did state that Hhow to tax the informal sector remains a pressing +uestion! "ver the past years almost every aspect of dealing with the

informal sector 1self0employed4 has been a problem which has defied all measures aimed at improving the relative share of taxes of the informal sector 1Adom, =5554! )he tax inflow of the informal sector relative to its sheer si,e is -ust a drop in the national coffers! In spite of the low revenue share of the informal sector, the government is still determined to expand the tax base to the informal sector since ignoring the sector*s activities will lower compliance morale and increase the risk of generali,ed non compliance 1)erkper, =55>4! )here are many informal sector operators who either intentionally evade tax payment or are not captured by I8(! )he purpose of this study is therefore to find out the causes of tax non compliance behaviour in the informal sector and besides, explore further the challenges in taxing the informal sector in Bolgatanga Municipality!

;"=

OB>ECTI:E OF T9E STUDY

)he study aims at achieving the followingG 1a4 )o find out why non compliance with income tax is high in the informal sector! 1b4 )o identify the challenges that militate against effective revenue mobili,ation by I8( from the informal sector! 1c4 Making recommendations as to how to incorporate good tax administration principles, procedures and practices in Bolgatanga Municipality I8(!

;"'

RESEARC9 ?UESTIONS

In order to achieve the set ob-ectives of the study the researcher seeks to find answers to the following +uestions! 1a4 9hat factors contribute to the high rate of non compliance among businesses in the informal sector in BolgatangaK 1b4 9hat are the challenges that militate against effective revenue mobili,ation by I8( from the informal sector in BolgatangaK 1c4 ;ow can I8( improve upon their tax collection in the informal sector by incorporating good tax administration principles, procedures and practices in Bolgatanga Municipality I8(K

;"&

SIGNIFICANCE OF T9E STUDY

)he study would help policy makers to be able to understand the factors

underlying the individual*s decision as to whether to pay taxes or not! Also, it would help the self0employed in the informal sector to know their rights as taxpayers and besides, they would be motivated to appreciate the need to pay taxes regularly and on time! Again, since the study would unveil some of the problems associated with tax collection in the informal sector in Bolgatanga Municipality and recommend ways of solving them, it would serve as a guide to management for future policies and programmes relating to tax collection in the informal sector!

In addition, it would provide some directions for future research and serve as source of reference for future research into the sub-ect matter!

;"%

SCOPE OF T9E STUDY

)he study covered businesses in the informal sector such as petty traders, hawkers, hairdressers, dressmakers, artisans and so on in the Bolgatanga Municipality! )he decision of the researcher to use the tax district in Bolgatanga Municipality as a case study was based on the fact that the tax district is full of informal sector operators who are purported to be paying taxes to the state! Besides, the tax district lacks the re+uisite personnel and other resources as compared to other districts of I8( given its area of -urisdiction which covers five %istrict Assemblies in addition to Bolgatanga Municipal Assembly! )he selection

of the tax district was also based on the researcher*s familiarity with the district!

;"@

ORGANISATION OF T9E STUDY

)he study consists of five chapters! Chapter one deals with the background of the study, the statement of the problem, the ob-ective of the study and research +uestions! "ther aspects of the chapter are significance and scope of the study!

Chapter two focuses on the review of related literature! In this chapter, books, -ournals, articles, published and unpublished research works relating to the study have been reviewed! )he methodology of the study is the sub-ect of chapter three! It describes the research design, the population, sample and sampling procedures of the study! Also covered in the chapter are the variables of the study, methods of data analysis and limitations to data collection! In chapter four, results and discussion of the findings are presented! &inally, the summary of findings,

conclusions and recommendations form the concluding chapter of the study that is chapter five!

C9APTER T8O
LITERATURE RE:IE8

#";

INTRODUCTION

)his chapter discusses the relevant literature on concepts in taxation, characteristics of informal sector, causes of non compliance behaviour of the informal sector, and challenges in taxing the informal sector!

#"#

DEFINITION OF TAXATION

"ne of the most flexible ways to raise per capita income and to support increases

in real '%/ growth rates is through taxation! )axation is a sovereign right of the state used to transfer resources from private to public use in order to achieve the economic and political goals of society 1Bird, :FF=4! According to Bannock et al!, 1:FFE4 taxation is a compulsory transfer of money 1or occasionally of goods and services4 from private individuals, institutions or groups to the government! )he ( )reasury %epartment also defined it as a compulsory payment for which

no specific benefit is received in return 1(lavin, :FFF4! )ax policy is concerned with the reasoning behind how much revenue the government is collecting, what the revenue is being used for, and whether the government is collecting revenue in the most appropriate way! )herefore, the above definition by the study! ( )reasury %epartment is adopted for this

#"=

PURPOSE OF TAXATION

)he imposition and collection of taxes is simply one of the fundamental policy instruments use to achieve governmental social and economic goals! )he

ob-ectives of tax policy are similar to those of public policy in developing countries and overlap with the purposes of the tax system or the purpose of most governments! Edgar and (andler 1=5534 revealed that there are five purposes for collecting revenue through taxesG to give government power to allocate resources6 to enable

government to provideLsupport social development6 to stabili,e the economy6 to constitute and define the market place6 and to encourage optimal economic growth! &urthermore, three of these are of greatest urgency in developing countriesG economic growth6 internal and external stability6 and ensuring that incomes are distributed appropriately!

#"=";

ECONOMIC GRO8T9

Most developing countries are extremely focused on economic growth in both the private and public sectors! Even in primarily market based economies,

governments need to ac+uire assets for public sector capital formation and development related expenditures 1Bird, :FF=4! )here appears to be no limit to

the tax gadgetry used in different countries to stimulate economic growth!

Most developing countries encourage foreign direct investment to stimulate economic growth through the use of tax incentives and many developing countries impose higher taxes on retained profits than on distributed profit in order to encourage distribution! ;owever, the effectiveness of some of the policies especially of incentives remains uncertain because there is still insufficient data to link such policies with growth performance 1(hihata, :FF:4!

#"="#

STABILIAATION

)he use of tax instrument to enhance economic stability is important in developing countries because this enable them to ensure elasticity with respect to changes in the value of money and income levels! If tax yields rise when national income rises, governments have less need to rely on deficit financing to maintain and expand the level of public J sector activity in a growing economy 1Bird, :FF=4!

#"="=

DISTRIBUTION OF INCOME

)he distributional role of taxes in developing countries is another important purpose of tax system! %isparities in income can block development and increase demands for government social spending! )he main redistributive tax in most tax systems is personal income tax 1Cee, =5534! In practice, the personal income tax in developing countries is far from being progressive due to large disparities in incomes! )hese disparities are compounded by the influence of the rich, who may end up paying fewer taxes due to numerous exemptions or favours from the government 1ibid4!

#"'

PRINCIPLES OF TAXATION

A good tax system should possess some principles or +ualities! In his book, the 9ealth of .ations Adam (mith stated four principles which he called Hthe canons of taxation 1;ardwick et al!, :FF@4! )hese includeG

#"'";

E?UITY PRINCIPLE

)his principle has been sub-ected to two interpretations by Modern Economists J the benefit principle and ability0to0pay principle! )he benefit principle is based on

the idea that people should be taxed in proportion to benefit they receive from the government 1goods and services provided by that tax4 1(trafford and 7oCascio, :FF34! )hus, the amount of tax paid by an individual should be directly related to the benefits, which that individual derives from government expenditure!

)he ability0to0 pay principle on the other hand, is based on the idea that people who are better able to pay taxes should pay a larger proportion of their income or wealth than people who are less able to pay 1(trafford and 7oCascio, :FF34! )his means that taxes should be imposed on people according to what they can afford to pay! )hus, the amount of tax paid should correlate the income available to the taxpayer! In modern day taxation progressive taxation supports this principle!

#"'"#

CERTAINTY PRINCIPLE

)his principle means that the payment of taxes should be clear and certain to the taxpayer and the tax collector! )hus, both the taxpayer and the tax collecting

agency should be certain about how much, when and where to pay the tax! In this direction, tax laws must be made available to the citi,ens so that they will know their rights and obligations with regard to tax!

#"'"=

CON:ENIENCE PRINCIPLE

)his principle means that the method, manner, and time of payment should be convenient to the tax payer! &or instance the location of the tax offices must be at

the convenience of the tax payer as well as the forms to be completed must be simple for the tax payer! )hus, taxes should be enforced in a manner that facilitates voluntary compliance to the maximum extent possible

#"'"'

T9E PRINCIPLE OF ECONOMY

)his principle means that the cost of collection in relation to the tax yield should be minimal! )he cost of collecting taxes falls on two partiesG the government, which takes on administration costs and the taxpayer who bears the cost of compliance 19ilkinson, :FF=4! )he administration cost includes principally the cost of running the tax authority6 the largest being the salaries of all the employees! Compliance costs, on the other hand, include time spent on tax affairs, keeping records, filling in forms, money spent on professional advisers among others by the taxpayer!

#"'"& OT9ER PRINCIPLES OF TAXATION .evertheless, www!Business%ictionary!com 1=5::4 has given additional

principles to guide a government in designing and implementing an e+uitable taxation regime! )hese includeG0 Ade+uacyG taxes should be -ust0enough to generate revenue re+uired for provision of essential public services! Broad BasingG taxes should be spread over as wide as possible section of the

population, or sectors of economy, to minimi,e the individual tax burden! CompatibilityG taxes should be coordinated to ensure tax neutrality and overall ob-ectives of good governance! EarmarkingG tax revenue from a specific source should be dedicated to a specific purpose only when there is a direct cost0and0benefit link between the tax source and the expenditure, such as use of motor fuel tax for road maintenance! .eutralityG taxes should not favour any one group or sector over another, and should not be designed to interfere0with or influence individual decisions0 making! 8estricted exemptionsG tax exemptions must only be for specific purposes 1such as to encourage investment4 and for a limited period! (implicityG tax assessment and determination should be easy to understand by an average taxpayer!

7ivingstone et al!, 1:FE24 indicated that generally a good tax system may be -udged by the following criteriaG0 i! ii! iii! iv! Its effect on the supply and allocation of resources! Its effect on the distribution of income and employment! Its effect on the stability and growth of aggregate income and employment! Administrative efficiency and convenience to the taxpayer!

nfortunately, a tax which is good in one direction is often poor in another, so that

in practice tax system tend to be a compromise between these economic and social ob-ectives, and incorporate a combination of various forms of taxation 1ibid, :FE24!

#"&

TAXATION FOR IN:ESTMENT AND DE:ELOPMENT

)axation is an integral part of countries* development policies, interwoven with numerous other areas, from good governance and formali,ing the economy, to spurring growth through, for example, promoting small and medium si,ed enterprises 1(MEs4 and stimulating export activities! Among other things, taxationG /rovides governments with the funding re+uired to build the infrastructure on which economic development and growth are based6 Creates an environment in which business is conducted and wealth is created6 (hapes the way government activities are undertaken6 and /lays a central role in domestic resource mobili,ation!

)axation provides a predictable and stable flow of revenue to finance development ob-ectives! In fact, the =55= Monterrey Consensus recogni,ed taxation*s key role in domestic resource mobili,ation, an acknowledgement sentiment echoed at the =55E nited .ations %oha conference on Financing for Development! 9hile this overview note considers issues of social development in Africa, it also focuses on the tax policy challenges with regards to promoting a business and investment friendly climate on the continent!

It therefore considers the following issues to be addressed to make tax work in favour of investment and developmentG %omestic resource mobili,ation and broadening the tax base6 )ax evasion6 Investment climate and enterprise development6 and 'ood 'overnance!

&inally, this note will highlight how the "rgani,ation for Economic Co0operation and %evelopment 1"EC%4 can support African countries in tackling these challenges!

#"&";

CURRENT C9ALLENGES FOR TAX POLICY IN AFRICA

The African context African countries are facing a series of challenges when it comes to optimi,ing taxation while aiming to reach development targets! /erhaps the most inherently difficult challenge is how to find the optimal balance between a tax regime that is business and investment friendly, while at the same time leveraging enough revenue for public service delivery 1which, in turn, makes economies more attractive to investors4!

After a period of flat growth between the early :FF5s and early =555s, total government revenue as a share of '%/ has steadily increased in most African countries! %omestic revenue M defined as tax and non0tax public revenues

excluding grants M increased by almost four percentage points of '%/ between =55= and =552, reaching an average of over =3I in =552 for the whole of sub0 (aharan Africa! Excluding .igeria and (outh Africa, government revenue as a share of '%/ rose even more in the continent, increasing from an average of :E!EI for :FF20=55= to =3!@I in =552 1"EC%, =55E4!

;owever, a significant share of the increase in tax revenue in the region came from natural resource taxes! )his included income from production sharing, royalties, and corporate income tax on oil and mining companies! .on0resource related revenue increased by less than :I of '%/ over =3 years 1'upta, =55E4! )his becomes even more concerning when one considers the impact the crisis has had on the continent, with economic growth in Africa expected to be only =!EI in =55F, less than half of the 3!2I estimated for =55E 1&igure A4, and an important drop of export revenues, as well as a slowdown of investment in oil and mineral production 1"EC%, =55F4! "verall, when compared to the >BI of tax0to0'%/ ratio of the "EC% countries 1=55B un0weighted average4 1"EC%, =55B4, it is evident that African governments suffer from a large revenue gap!

Figure A: Real GDP Growth

Domestic resource mobilization and broadening the tax base &or tax policy makers, it is essential to strike the right balance between designing an attractive tax regime for investment and growth, and securing the necessary revenues for public spending! )ax policy is central to domestic resource mobili,ation! 9hen transparently and effectively designed and implemented, it provides an essential financial platform for sustainable development!

As mentioned earlier, the ratio of tax to '%/ in poor countries is only about half of what it is in the developed world! %eveloping countries typically have a narrow tax base, with a relatively small part of the population sub-ect to personal income tax! )ax reform needs to be promoted to widen the tax base and bring a larger part of the population into the formal economy!

Also, effective taxation reduces excessive reliance on aid and mineral rents and

offers a path away from unsustainable revenue streams for many African economies! "ne of the most pressing challenges facing the continent is to embark on a path to free African countries from an over0dependence on external and volatile capital inflows, such as foreign assistance! In order to do so, African governments need to strengthen their capacities to mobili,e domestic resources! Because of its sustainability, domestic revenue should be one of the main sources for fiscal space expansion, thereby reducing dependence on donor assistance 1"EC%, =55F4!

&urthermore, many African countries rely on tariffs for an important share of government revenue! 9hile opening up trade is expected to bolster long0term economic growth, countries participating in trade negotiations, such as the %oha 8ound and the Economic /artnership Agreements 1E/As4, are re+uired to cut their tariffs and are thus likely to collect less revenue! )oday, in some African countries, up to >5I of non0resource tax revenue 1@I of '%/4 is raised through tariffs and trade related taxes! 7osing this source as a result of trade liberali,ation is likely to have significant budgetary conse+uences 1www!africa0pay0more0 attention0to0tax0imf!html, =55E4!

As &igure B below illustrates, recent trends of decreases in revenues from trade taxes could be indicative of such trade liberali,ation effects! )his obviously presents a ma-or challenge to maintaining current revenue bases, let alone increasing them! Alternative revenue sources need to be available before tariffs are

phased out! )his is especially true for Africa in the context of the E/As with the European nion, as exchanges with the latter traditionally represent roughly two0thirds of African external trade! Cross border trade with neighbouring countries is much less significant, as intra0regional trade only amounts to :5I of Africa*s total external trade!

Figure B: Trade tax in Africa as % of GDP

(ourceG "EC% %evelopment Centre )here are avenues for expanding the tax base, which go beyond traditional structural reforms in tax policy! &or instance, the growing mobile telephone sector in many African countries presents an opportunity for increasing revenue and broadening the tax base for governments! In fact, a review of :3 countries 1&igure C4 shows mobile operators contributed more than EI of government tax revenues in seven of the countries, with Chad providing about ::I 1"EC%, =55F4! )he revenue comes from licensing and taxing communication services!

)hese capital streams can be used to improve basic backbone infrastructure for the IC) industry! )he same reasoning applies to other infrastructure sub0sectors as well!

Figure C: Mobile o erators! contributions to go"ern#ent tax re"enues $in %%

It is clear that expanding the tax base as an avenue for increasing revenue collection, and hence domestic resource mobili,ation, is a difficult challenge! Issues such as formali,ing the economy rely on numerous measures that have to be coordinated and se+uenced to ensure that it is actually worthwhile for businesses and individuals to leave the informal sector! #ust as important are measures that tackle tax evasion and which can limit capital flight from Africa!

#"%

TAX E:ASION AND TAX A:OIDANCE"

)ax evasion may be defined as any action that results in the concealment of all or part of a person*s legitimate or illegal economic activities from the tax authorities in order to escape or dodge the payment of tax! It is the willful attempt to In short, it is an

circumvent the tax laws through misrepresentation or deceit!

intentional and illegal avoidance of paying mandatory taxes to the government 1CA)A Annual Conference, =5534! )ax evasion takes three forms, namely, non0 declaration of income, under0declaration of income and inflation of deductions from income 1Aryee, =5524!

In =55E, a

( senate subcommittee issued a report highlighting that banks located (% :55 billion a year in lost revenue! )his

in tax havens cost ( taxpayers some leakage occurred despite solid

( laws, institutions and other mechanisms to help

control tax evasion! If such capital flight is occurring with regulatory frameworks commonly perceived as sound, one can imagine how many more opportunities exist for evasive practices in countries with weak regulatory and legal environments!

%eveloping countries lose vital revenue through tax evasion and the siphoning of money to tax havens! According to the 9orld Bank, illicit flows of cash from developing countries amount to between (% 355 0 E55 billion a year! )hese are

funds that could otherwise have been used to fund development priorities! Countering the loss of revenue caused by tax havens is a vital element of the '=5*s and 'E*s global responses to the current economic crisis! ;undreds of billions of dollars per year have left the African continent between :FF: and =55@! )hese outflows are estimated at 2!BI of the annual '%/ of the region and, in effect, make African countries net creditors of donor countries! )hey also undermine African countries* tax bases 1/retoria Communi+uN4! )ax avoidance, on the other hand, is used to describe tax reductions achieved through artificial but permissible arrangements of personal or business affairs! It refers to the legitimate use of loopholes in the tax laws in order to minimi,e one*s tax burden! In short, tax avoidance is the legal planning to minimi,e one*s tax liability 1CA)A Annual Conference, =5534! )herefore, there is nothing illegal

about it and it is every person*s right! Both tax evasion and avoidance result in loss of national revenue and are therefore undesirable to tax administration!

#"@

DEFINITION OF INFORMAL SECTOR

8esearchers who are concerned with the informal sector or economy face difficulties in defining it! )his is reflected in the variety of names used to identify it J the shadow, hidden, black, underground, gray, clandestine, illegal, unreported, non0cash and parallel economy 1&eige, :FF56 )homas, :FF=4! (everal definitions have emerged some of which are as followsG 1a4 All currently unregistered economic activities that contribute to the officially calculated 1or observed4 'ross .ational /roduct 1&eige, :FEF4!

1b4

Market J based production of goods and services, whether legal or illegal, which escapes detection in the official estimates of 'ross %omestic /roduct 1(mith, :FF@4!

1c4

)hose economic activities and the income derived from them that circumvent or otherwise escape government regulation, taxation or observation 1(chneider, =5534! It is important to note that the informal sector as

understood here does not include illegitimate activities such as smuggling, drug dealing or armed robbery6 those illegal activities may provide an income to those who engage in them, but add little value to the society and the economy 1&ambon, =55B4!

)he informal sector ac+uired a proper definition based on production units, both in conceptual and statistical terms only in #anuary, :FF> during the :3 International Conference of 7abour (tatisticians 1IC7(4! According to the :3 IC7( informal sector may be broadly characteri,ed as consisting of units engaged in the production of goods or services with the primary ob-ective of generating employment and incomes to the persons concerned! )hese units typically operate at a low level of organi,ation, with little or no division between labour and capital as factors of production and on a small scale! 7abour relations0where they exist0 are based mostly on casual employment, kinship or personal and social relations rather than contractual arrangements with formal guarantees 1IC7(, :FF>4! &or this study, the researcher adopted &eige*s definition as the working definition!
th th

#"(

C9ARACTERISTICS OF T9E INFORMAL SECTOR

According to Amin 1:FEF4 the informal sector has basically four distinguishing characteristics which have been grouped as followsG0

Enterprise Characteristics of the activities in the informal sector (Enterprise) nregulated and competitive markets (mall scale operation with individual or family ownership Ease of entry 8eliance on locally available resources &amily ownership of enterprise 7abour intensive and adapted technology Absence of access to institutional credits and other similar supports!

Employment Characteristics of the people engaged in the informal sector (Employment) Absence of official protection and recognition .on coverage by minimum wage legislation and social security system /redominance of own0account and self0employment work Absence of trade union organi,ation 7ow income and wages 7ittle -ob security .o fringe benefits from institutional sources!

Credit Characteristics of the informal sector credit market (Credit) nregulated and non0stabili,ed Easy accessibility 7oan availability in very small si,e and for short terms 1periods4 7ow administrative and procedural costs 7ittle or no collateral re+uirements &lexible interest rates 1from very high to no interest at all4 ;ighly flexible transactions and repayments tailored to individual needs

abitat Characteristics of the informal sector land and housing ( abitat) nauthori,ed use of vacant public or private land Illegal subdivision andLor rental of land nauthori,ed construction of structures and buildings 8eliance on low cost and locally available scrap construction materials Absence of restrictive standards and regulations 8eliance on family labour and artisanal techni+ues for construction .on0availability of mortgage or any other subsidi,ed finance

)he characteristics mentioned above are explained as followsG0 #"("; C9ARACTERISTICS OF ACTI:ITIES IN T9E INFORMAL

SECTOR !ENTERPRISE) )he economic activities taking place in the informal sector exhibit certain uni+ue features! )hese includeG0 #"(";"; Sma55 +ca5* o6*ratio. 3it i.-i4i-ua5 or /ami5y o3.*r+ i6 ! )he typical informal sector enterprise is individually owned and operated, generally for less than five years duration 1<ankson, :FF=4! &amily ownership dominates the ownership of the informal sector businesses because family provides cheap source of labour! 7ack of trust on the part of individual does not promote the formation of partnerships and -oint ventures! Most often than not, the si,e of such enterprises are determined by the capital invested and the number of employees! )he average number of employees may be four even though this

number may vary with the nature of operation0 from sole proprietorship to partnerships and family ventures and cooperatives!

#"(";"# Ea+* o/ *.try (etting a business in the informal sector is very easy since the capital re+uirement, technology and regulatory re+uirements are very low and so any body at a point in

time can set up business in the informal sector! Capital intensity in this sector is low0 most of the entrepreneurs use labour intensive technology J with the targets units having the most fixed capital per employee 1ibid, :FF=4!

#"(";"= R*5ia.c* o. 5oca55y a4ai5a,5* r*+ourc*+ )he informal sector businesses lack the capacity to do off0 shore ac+uisition of resources be it material, financial or human since normally such business are small in si,e! ;ence the informal sector businesses tend to rely more on local resources! )hese resources are ac+uired from various sources, some times new, second J hand and or self constructed but rarely imported 1Barwa, :FF34!

#"(";"' La,our i.t*.+i4* a.- a-o6t*- t*c .o5o0y <ankson 1:FF=4 postulated that the operators of informal sector businesses mostly lack ade+uate financial resources to import more advanced technology so the sector heavily relies on labour for its production! )he e+uipments used by the informal sector entrepreneurs are mostly bought locally with subse+uent improvements made on those e+uipments! )he level of technology employed in the informal sector in 'hana was low and in poor condition!

#"(";"& U.r*0u5at*- a.- com6*titi4* mark*t .ot even the combine effort of the government and individuals is able to regulate the activities of the informal sector properly! )he cost of regulating the informal sector will far exceed the benefits and in fact such an attempt will be a Hwild0

goose chase! More so, the market works on the premise of Hsurvival of the fittest, due to the presence of many operators in the sector, the informal sectors* business environment is highly competitive as competitors make all attempts to outdo one another for customers 1&arrell et al!, =5554! #"("# C9ARACTERISTICS OF PEOPLE ENGAGED IN T9E INFORMAL SECTOR !EMPLOYMENT)

/ersons operating in the informal sector do exhibit certain characteristics which either militate against their progress or favour them! explained below! )hese characteristics are

#"("#"; Litt5* or .o Bo, +*curity Employees in the informal sector can lose their -obs at any time at the will of their employers! Employees cannot take any actions for such unfair dismissals as

usually there are no binding contracts! .o compensation is usually paid for such dismissals 1ibid, =5554!

#"("#"# A,+*.c* o/ tra-* u.io. or0a.iCatio.+ )he informal sector operators have wide range of activities which makes it extremely difficult for the formation of trade union which is necessary for protecting the interest of individual members! Again, most of informal sector operators presume the formali,ation of activities of their operators may expose them and eventually attract tax payment hence prefer to operate individually instead of coming together under one umbrella in the name of trade union!

#"("#"= A,+*.c* o/ o//icia5 6rot*ctio. a.- r*co0.itio. )he informal sector operators do not en-oy protection from state machinery in the form of legislations against unscrupulous fraudsters who may defraud such entrepreneurs in the course of business dealings! Because the operators in the

informal sector do not want to be identified for fear of being taxed avoid being recogni,ed and hence do not en-oy the protection that may be available to them from the state 1ibid, =5554!

#"("#"' Lo3 i.com* a.- 3a0*+ Entrepreneurs get low return on their investment as a result of keen competition in the sector! )he people employed in the informal sector are generally paid low wages due to the existence of excess labour supply and lack of skills that may attract high wages 1ibid, =5554!

#"("#"& No. co4*ra0* ,y mi.imum 3a0*+ 5*0i+5atio. a.- +ocia5 +*curity Most employees in the informal sector are often paid below the national minimum wages! )he employers also fail to contribute to the social security and pension scheme on behalf of the employees! )hese employees fail to report their

employers for fear of being sacked or out of total ignorance of the law! And as such, these employers escape appropriate sanctions as their illegal activities are hidden from the law enforcement agencies 1ibid, =5554!

#"("#"% Pr*-omi.a.c* o/ +*5/ D *m65oym*.t 3ork Most operators in the informal sector are mostly self employed who either work alone or with the assistance of family members! According to &arrell et al!, 1=5554, there is no gainsaying the fact that operators in the informal sector are self employed operating from their homes most often, with others using any available public space! 9ith a table and a chair one can easily start up own business with family assistance!

#"("= C9ARACTERISTICS OF T9E INFORMAL SECTOR LAND AND 9OUSING !9ABITAT) )hese characteristics have to do with the use of land and housing by the informal sector! )hese characteristics are considered below!

#"("="; U.aut oriC*- u+* o/ 4aca.t 6u,5ic or 6ri4at* 5a.Informal sector operators usually function from clusters closer to cities, especially those engaged in auto repairs and metal works! Barwa 1:FF34 reiterated that in developing countries kiosks and small containers owned by the informal sector operators litter every conceivable nook and cranny in the cities and towns!

#"("="# U.aut oriC*- co.+tructio. o/ +tructur*+ a.- ,ui5-i.0 Informal sector operators tend to put up either kiosk or permanent structures on any piece of land at their disposal either personally owned or rented! Informal

sector operators tend to put up houses on the land from where they operate their businesses! )hey have no legal title to the land on which they construct such structures! )his in some cases has resulted in environmental disaster such as O(odom and 'omorrah* in Accra 1ibid4! #"("' C9ARACTERISTICS OF T9E INFORMAL SECTOR CREDIT MAR2ETS !CREDIT) #"("'"; Ea+y acc*++i,i5ity Credit is an inevitable practice for success in the informal sector! (ome if not most of the informal sector operators thrive on giving credit to their clients! sually, informal sector goods are patroni,ed by the low income earners group and credit is an inevitable practice 1ibid4!

#"("'"# Litt5* or .o co55at*ra5 r*7uir*m*.t Mostly it is the low income earners that patroni,e products in the informal sector hence such individuals lack collateral! Also because credit granted is very small, no collateral is demanded 1ibid4!

#"("'"= Lo3 a-mi.i+trati4* a.- 6roc*-ura5 co+t Comparatively in the informal sector credit is usually granted to people known to the operators hence no need to assess the individuals being granted credit! )his makes administrative or procedural cost of credit low 1ibid4!

#"E

FACTORS T9AT MOTI:ATE TAX COMPLIANCE

In the standard economic model of taxpayer behaviour, the perceived +uality of government does not influence the level of taxes that are paid! )he basic

behavioural assumption is that people are free ridersG no one will voluntarily contribute to the government unless the threat of punishment makes it sensible 1Allingham and (andmo, :F2=4! But research has shown that the rate of

contribution to a public good is affected by factors such as citi,en*s trust in others and perceptions of the trustworthiness of the government 1(lemrod, =55>4!

According to (chol, 1:FFE4 without trust there is little basis for social co0 operation and voluntary compliance with laws and regulations that could potentially benefit everyone! )hus, without trust coercion provides a reasonable guide for governance! 7evi 1:FFE4 pointed out that citi,ens are likely to trust the government only to the extent that they believe that it will act in their interests, that its procedures are fair and reasonable, and that their trust of the state and others is reciprocated! (he stresses that government trustworthiness coupled with the perception that others are doing their share, can induce people to become Ocontingent consenters* who co0operate even when their short J term interest would make free J riding the individual*s best option! Accordingly, citi,ens*

willingness to pay taxes voluntarily rests on the government*s capacity to provide services and its demonstrated readiness to secure the compliance of the otherwise non0compliant! &rom the above analysis it could be seen that the relationship

between a taxpayer and the government so far as tax compliance is concerned

involves at least three elements namelyG 1a4 1b4 1c4 &iscal exchange Coercion (ocial Influences

#"E";

FISCAL EXC9ANGE

Compliance can be motivated by the presence of government expenditures! Individuals may pay taxes because they value the goods provided by the government, recogni,ing that their payments are necessary both to help finance the goods and services and to make others contribute 1Alm et al!, :FF=6 Andreoni et al!, :FFE6 Cowell and 'ordon, :FEE4! ;ence, a taxpayer may be seen as

exchanging purchasing power in the market in return for government services 17evi, :FEE4! /ositive benefits may increase the probability that taxpayers will comply voluntarily without coercion! 9ithout material benefits, willingness to pay becomes less assured! Although most taxpayers can not assess the exact value of what they receive from government in return for taxes paid, they have general impressions and attitudes concerning their own and others* terms of trade with the government 18ichupan, :FE24! )axpayers* behaviour is therefore affected by their satisfaction or lack of satisfaction with the terms of trade! If the system is

perceived as un-ust, tax evasion may be considered as an attempt to ad-ust the terms of trade with government 1&-eldstad and (embo-a, =55:4! According to

9introbe 1=55:4 as long as individuals 1and firms4 do not believe the government is responsive to their wishes, even if it may be honest, they will attempt to evade

their taxes!

#"E"#

COERCION

According to the classical criminology theorists, crime is an expression of a person*s rational decision making processG before committing a crime, a person would weigh the benefits of the crime against the cost of being apprehended! )herefore, if punishments were stringent enough to outweigh the benefits of crime, they would dissuade people from committing the crime in the first place 1'aines and Miller, =55E4!

In the same way, the classical tax evasion model assumes that the taxpayer*s behaviour is influenced by factors such as the tax rate that determines the benefits of evasion and the probability of detection and penalties for fraud that determine the costs 1Allingham and (andmo, :F2=4! )his implies that, tax evasion like all other crimes, if detection is likely and penalties are severe few people will evade taxes! )herefore to ensure that people pay their taxes voluntarily there should be effective coercion! According to &riedman 1=55>4 we obey the rules when the government does its -ob and ensure that the systems are in place to force us to comply!

#"E"=

SOCIAL INFLUENCES

(ociologists and social psychologists have long stressed the importance of social interaction in forming tastes and actions 1;essing et al!, :FFE4! It is reasonable to

assume that human behaviour in the area of taxation is influenced by social interactions much in the same way as other forms of behaviour 1(navely, :FF54! Compliance behaviour and attitudes towards the tax system may therefore be affected by the behaviour of an individual*s reference group such as relatives, neighbours, and friends and political associations! (ocial norms can affect

compliance because individuals tend to seek the respect of others 1Mc Adams, :FF24! "ne of the most consistent findings in survey research in 9estern

countries about taxpayer attitudes and behaviour is that those who report compliance believe that their peers and friends 1and taxpayers in general4 comply, whereas those who report cheating believe that others cheat 1<ankelovich et al!, :FE@4!

Also, enforcement and the behaviour of others affect taxpayer compliance! Charles 8ossotti, a former ( Commissioner of I8(, once stated that the slide in

audits has raised concern that honesty could suffer as fears of policing declines! If taxpayers begin to believe that others are cheating, the temptations to shave their own tax burdens may become irresistible 19eisman, =55:4! 8ossotti*s comment recogni,es that tax enforcement affects social behaviours and that these behaviours can in turn affect taxpayers* compliance decisions! /rior research has shown that individuals who know evading taxpayers are less likely to comply themselves 1?ogel :F2@, (picer and 7undstedt, :F2B6 'rasmick and (cott, :FE=6 (cott and 'rasmick, :FE:4! 7ikewise, the probability that a taxpayer will evade increases when the taxpayer suspects that his ac+uaintances are evading 19estat,

Inc!, :FE56 'eeroms and 9ilmots, :FE34!

It is against this background that

)erkper 1=55>4 pointed out that if informal sector activities are ignored it would lower compliance morale and increase the risk of generali,ed non0compliance!

Contrary, social relationships may also help to deter non0payment! Individuals can be dissuaded from engaging in evasion out of fear of the social sanctions incurred should their action be discovered and revealed publicly 1'rasmick and 'reen, :FE56 'rasmick and (cott, :FE=4! More so, evidence from behavioural science suggests that the greater the individual participation in decision making process the greater the level of compliance 17ewis et al!, :FF36 ;essing et al!, :FF=4! )his is partly so because participation implies some commitment to the institution and such commitment in turn re+uires behaviour that is consistent in words and actions! )hus, it is expected that compliance level will be higher when taxpayers feel that they have a voice in the way their taxes will be spent!

Moreover, government trustworthiness tends to legitimi,e the public sector and therefore impose some social norm to pay taxes! 9hen government is perceived to be trustworthy, citi,ens are more likely to comply with its demands in general! As long as individuals 1and firms4 do not trust the government they will be unwilling to pay their taxes 19introbe, =55:4! 'overnment trust worthiness is linked to citi,en*s perceptions of the capacity of the government to make credible commitments about the use of their taxes! In the study on citi,ens views on

taxation in local authorities in )an,ania most respondents said that they would be

willing to pay more taxes if public services were improved 1&-eldstad, =55@4! &urther, 9introbe 1=55:4 claims that if individuals 1and firms4 believe that the tax code is fair and is applied fairly, they will be more willing to pay their taxes!

Based on the literature review, one can conclude that indeed fiscal exchange, coercion and social influences motivate people to pay taxes in general and this research is an attempt to establish that the same is true with taxation of the informal sector in Bolgatanga Municipality! #";$ C9ALLENGES IN TAXING T9E INFORMAL SECTOR )here has been a growing interest in taxing the informal sector in most developing countries for a number of reasons which include revenue needs6 the phenomenal si,e and growth of informal sector6 the impact of tax compliance in the formal sector6 state legitimacy6 demands from the informal sector and tax0accountability 1Aryee, =5524!

As a measure to expand the tax base to the informal sector, the 'overnment of 'hana has introduced several taxes to specifically target the informal sector operators! )hese include the vehicle Income )ax 1?I)4 on public transport

operators, the )ax (tamp for collecting income tax from small traders and &lat 8ate (cheme for expanding the reach of the ?A) 1/richard, =55F4! )his has

brought some improvement in the revenue yield but the overall collection from the informal sector has remained small relative to other taxes such as /A<E and Corporate tax! In =552, out of the total collection of ';F:5!=m by the I8(, self0

employed contributed ';@3!Bm as compared to ';>2=!=m and ';@:E!2m from /A<E and Corporate tax respectively 18evenews, =55E4! )he self0employed made a record growth in revenue of about @3I against average of =5I over the past four years! )his great performance was attributed to effective monitoring of withholding tax which contributed about >3I of the revenue 18evenews, =55F4! )his means that the direct payments by the taxpayers themselves were nothing to write home about! 7ike any developing country, taxing the informal sector in 'hana is a herculean task! )his was acknowledged by the =552 Budget (tatement of 'hana when the Minister of &inance and Economic /lanning stated that HP one of the ma-or challenges facing 'hana is how to broaden the tax netP the fact that the vast ma-ority of 'hanaians are in the informal private sector makes revenue generation a daunting task 1Budget of 'hana, =5524! )o enhance revenue collection and bring a fairer distribution of the tax burden which is currently borne by those employed in the formal sector, the Budget proposes that during =552 Hthe government will develop and implement a system to assess and collect income tax using the value of vehicles registeredPbecause a significant percentage of vehicle registrations are from informal sector operators most of whom are not taxpayers 1Budget of 'hana, =5524!

Basically, there are three ma-or reasons why taxation of the informal sector has been almost universally unsuccessful! )he first is capacity constraints! Informal sector operators are actively seeking to avoid taxation and even at the best of times

have limited capacity to keep high +uality financial records for tax purposes 1/richard, =55F4!

Meanwhile tax administrations of many developing country governments do not have the resources or the personnel capacity to implement, monitor, and enforce tax laws 1(tella, :FF>6 $iser and Baver, :FF@ cited by #oshi and Ayee, =55F4! According to #oshi and Ayee, the characteristic of the informal sector exacerbates these problems! )he informal economy is characteri,ed by transience and uncertainty! Cash transactions dominate! )here is indifference to formal

accounting due to high levels of illiteracy and a shortage of affordable accountancy services! In some areas of the informal economy such as

transportation or street vending the mobility of the operators makes it difficult to enforce compliance! )he large number of people engaged in the sector and the relatively small amounts of tax payable pose an additional logistical problem for collection! )hus, taxation based on formal systems of income calculation, accounts, and payment options are not suited to the informal sector!

)he second challenge relates to notions of e+uity! )he vast ma-ority of informal sector operators have very low incomes, and this creates a strong argument for near total exemption from taxation! "n the other hand, many informal sector operators have very substantial income and should rightly be asked to pay significant income taxes! In the absence of effective record keeping, the need for e+uity in the treatment of the low0 income group almost certainly makes it more

difficult to target those with higher incomes 1/richard, =55F4!

)he final challenge is political! (everal observers have suggested that taxing the informal sector is politically problematic because the informal sector forms a substantial vote bank for politicians 1Cross, :FFE cited by #oshi and Ayee, =55F4! (tate officials and politicians turn a blind eye to activities in the informal sector in order to retain their support base6 simultaneously, organised informal sector workers to pressuri,e government officials to reduce enforcement 1#oshi and Ayee, =55F4! In fact, there are often implicit contracts made by politicians that allow tax burdens to be low on informal activities in exchange for political support 1)endler, =55=4! )his is what )endler has termed the Hdevil*s deal!

HIf you vote for me,PI won*t collect taxes from you6 I won*t make you comply with other tax, environmental or labour regulations6 and I will keep the police and inspectors from harassing you 1)endler, =55=4! )his goes a long way to explain the reasons why the smaller formal sector operators are often over burden with taxes!

C9APTER T9REE MET9ODOLOGY ="; INTRODUCTION

Basically this chapter deals with the research design, the population, sample and sampling techni+ues, data collection procedure, the procedure for analy,ing the data collected and limitations to the data collection !

="#

RESEARC9 DESIGN

)he research design includes an outline of what the researcher is writing on including the hypotheses and their operational implications to the final analyses of the data! )his research adopted the case study strategy approach! Among the various research designs, case studies are fre+uently regarded as using both +uantitative and +ualitative research and a combination of both approaches

1Bryman, =55@4! )he researcher used both primary and secondary data sources, which were considered to be more appropriate for this study!

="=

T9E POPULATION

)he target population of this study was the informal sector as well as the staff of I8( in the tax district of Bolgatanga Municipality! )he informal sector operators included hairdressers and beauticians, dressmakers and fashion designers, artisans, food vendors, butchers, contractors and general traders! )he total number of

businesses in the informal sector registered with the 8egistrar 'enerals* %epartment and had one time or the other filed tax returns in the tax district of Bolgatanga Municipality and the staff strength of I8( at the time of the research, that is, =5:5, were six hundred and sixty0nine 1BBF4 and twenty seven 1=24 respectively! (ince it was highly impossible to use the whole population, a sample of the above population was used for this study!

="'

SAMPLE AND SAMPLING TEC9NI?UES

(ince the taxpayers were scattered all over the tax district and could not be covered in the study, sampling techni+ues were mainly used to determine the sample si,e! According to /unch 1:FFE4, one cannot study everyone, everywhere, doing everything and so sampling decisions are re+uired not only about which people to interview or which events to observe, but also about settings and processes!

In view of this, randomly selected taxpayers within the Bolgatanga Municipal tax district were used for the study!

A sample si,e of seventy five 1234 respondents was selected for the study! )he respondents consisted of seventy 1254 taxpayers and five 134 tax officials! )he stratified and simple random sampling techni+ues were used to select the respondents from the informal sector due to the heterogeneous nature of the informal sector!

In the case of the respondents from I8(, purposive sampling techni+ue was used! All the five 134 tax officials were purposively selected from the operations department since they deal directly with taxpayers so far as assessment and collection of taxes are concerned! )he five 134 respondents were made up of three 1>4 senior and two 1=4 -unior staff members!

A number of both published and unpublished materials on taxpayers and taxation in general from -ournals and articles as much as possible were used!

="& DATA SOURCES )he study made an extensive use of both primary and secondary sources of information from the I8( and the selected taxpayers! )he primary sources of data include information that was gathered from the +uestionnaires that were

administered to the respondents! )he advantage of using primary data is that, they are more reliable since they come from the original sources and are collected especially for the purpose of the study! )he secondary sources of data included annual reports, brochures and manuals!

="%

DATA COLLECTION PROCEDURE AND TEC9NI?UES

)he study was largely based on primary data!?aluable information was collected through +uestionnaire and direct interview! )he +uestionnaire was structured with open and closed0 ended +uestions!

Most of the +uestions in the +uestionnaire were closedJended +uestions! )he closed ended +uestions enabled the researcher to obtain the exact information being sought for while the few open J ended +uestions were used to elicit information on opinions, attitudes and beliefs of the respondents towards taxation in the informal sector! )hose who could neither read nor write were assisted to complete the +uestionnaire!"ther information was brought up by the respondents themselves and the researcher took note of them!

="@

DATA ANALYSIS

)he raw data obtained from a study is useless unless it is transformed into information for the purpose of decision making 1Emory and Cooper, :FF:4! )he data analysis involves reducing the raw data into a manageable si,e, developing summaries and applying statistical inferences! Conse+uently, the following steps

were taken to analy,e the data for the study! )he data was edited to detect and correct, possible errors and omissions that were likely to occur, to ensure consistency across respondents!

)he data was then coded to enable the responses

to be grouped into limited

number of categories! )he Microsoft Excel software was used for this analysis! )he data was presented in tabular, graphical and narrative forms! In analy,ing the data, descriptive statistical tools such as bar graph, pie charts complemented with mean and mode were used!

="(

LIMITATIONS TO DATA COLLECTION

)he ma-or limitation of the study was that, due to ignorance and fear of being taxed the respondents were not co0operative initially! ;owever, they were made to understand that the study was -ust meant for academic purpose and not to collect information for the government for the purpose of increasing their taxes!

Besides, some of the respondents considered the exercise as a waste of time and for that matter were not prepared to spend a few minutes of their precious time to answer the +uestions! )he research was also limited by financial constraints taking cogni,ance of the extent of the scope of the study and period of investigation!

Another area of limitation to this study came from the inability of respondents to complete and submit +uestionnaire on time for data to be analy,ed! More so, it

must be accepted that the outcome of the study may not be generali,ed to all self0 employed businesses in the country since the outcome of the study might have been influenced by the norms and traditions of the people, economic conditions among others of Bolgatanga Municipality!

C9APTER FOUR

DATA PRESENTATION1 DISCUSSION AND ANALYSIS '"; INTRODUCTION

)he chapter presents the data gathered from the field! )he data were represented by graphs, charts and tables! %ata were also presented in relation to the literature review and compared to the data collected from the field!

'"#

DEMOGRAP9IC C9ARACTERISTICS OF RESPONDENTS

'"#";

R*+6o.-*.t+ Di+tri,utio.

(amples were selected based on targeted units using the non0probability sampling method of random sampling, specifically the purposive sampling techni+ue! )his method ensured that representative samples of all the known elements of the population were covered in the sample!

A sample si,e of seventy0five 1234, comprising seventy 1254 taxpayers and five 134 tax officials of the target population in the Bolgatanga Municipality responded to the administered +uestionnaire! respondents for the study! )he break down in )able : shows the distribution of

Ta,5* ;: R*+6o.-*.t+ Di+tri,utio. R*+6o.-*.t+ Di+tri,utio. Ma5* TaG O//icia5+ TaG6ay*r+ Tota5 @ >5 =' F*ma5* : @5 '; &'"%@F Tota5 & @$ @& ;$$"$$F !F) %"%@F E="==F ;$$"$$F

!F) '&"==F Source: Field Survey December, 2010

Fi0ur* ;: R*+6o.-*.t Di+tri,utio.

Respondent Distribution

Taxpayer s

93.33%

Tax Officials

6.67%

Source: Field Survey December, 2010 As indicated in )able : and &igure : above, B!B2I of the respondents were tax officials of the Bolgatanga Municipality I8(, while the taxpayers registered the remaining F>!>>I! )he research further revealed a ratio of :G:!= with regard to male and female distribution as illustrated in &igure = below! )he ratio indicated enough evidence of 33I of slight female dominance, thus, lays credence to the assertion that there is a fair gender balance in the tax industry, with the male population coming up strongly! )his emphasi,es the point that the informal sector has a much higher female population as compared to the male!

Fi0ur* #: G*.-*r Ratio

Gender Ratio

Female 55%

Male 45%

Source: Field Survey, December, 2010

'"#"#

T * A0*+ o/ R*+6o.-*.t+

)he ages of the respondents were within the range of :B and 3E years for both staff and taxpayers! )he study exhibited the age group >: J @3 years as the modal class of the respondents with 3BI representation 1@= in absolute terms46 and closely followed by age group @B J B5 years which attained @:!>>I 1i!e! >: respondents46 however, tax official representation was bi0modal for :B J >5 years and >: J @3 years, with each showing a value of = respondents! )here were no representations for the age group B5Q years for staff and taxpayers as shown in )able = and &igure > below!

Ta,5* #: A0*+ o/ R*+6o.-*.t A0* Grou6 ;% H =$ y*ar+ Fr*7u*.cy TaG TaG6ay*r O//icia5+ + # $ P*rc*.ta0 * !F) #"%@F

Tota5 #

=; H '& y*ar+ '% H %$ y*ar+ %;I y*ar+ Tota5 Source: Field Survey December, 2010

# ; $ &

'$ =$ $ @$

'# =; $ @&

&%"$$F ';"==F $"$$F ;$$"$$F

Fi0ur* =: A0*+ o/ R*+6o.-*.t+

56.00 %

41.33 %

2.67%

0.00% 31 - 45 years 46 - 60 years 61+ years

16 - 30 years

Source: Field Survey, December, 2010 In summary, the study illustrated that over 25I strong representations of youthful and energetic respondents with about >5I more belonging to the middle age class!

'"#"=

Num,*r o/ y*ar+ 3it IRS

As illustrated in )able > and &igure @ below, B5I of the staff respondents had served the organi,ation 1I8(4 within a period of B and :5 years while @5I had chalked more than ten years of service with I8(! By virtue of the results, it could be easily explained that the Bolgatanga Municipality tax district of the I8( could boast of well experienced and knowledgeable tax officials!

Ta,5* =: Y*ar+ 3it IRS TaG O//icia5+ Y*ar+ Fr*7" 7ess than 3 years 5 B 0:5 years > More than :5 years = Tota5 & Source: Field Survey December, 2010 Fi0ur* ': Y*ar+ 3it IRS Years with IRS P*rc*.t !F) 5I B5I @5I ;$$F

More tha 10 years

4 %

6 -10 years

! %

!ess tha 5 years

Source: Field Survey, December, 2010

'"#"'

E-ucatio.a5 L*4*5 o/ R*+6o.-*.t+

)he research revealed that aggregately, over >>I of the entire respondents had only Basic education, while the university graduates 1i!e! both first and second degrees4 made up =5I6 albeit, this group formed the modal level of education for all tax officials 1i!e! B5I4! It was again observed that as much as :=I 1i!e! F persons in absolute terms4 has not ac+uired any form of formal education6 and they were basically found within the domain of taxpayers! /rofessionals on the other hand cumulatively represented :>!>>I 1and were

only found in taxpayers* domain4!

As illustrated in )able @, the research brought to the fore, over E5I of taxpayers were educated one way or the other6 thus, it was assumed that the respondents had a perfect appreciation of the importance of taxation and their respective tax obligations to the state!

Ta,5* ': L*4*5 o/ E-ucatio. L*4*5 Ba+ic S9SJComm*rcia5 Di65oma Fir+t a.-Jor S*co.D*0r** Pro/*++io.a5 No /orma5 *-ucatio. Ot *r+ !KAK L*4*5) Tota5 TaG O//icia5+ &re+! : 5 5 > 5 5 : & 1I4 =5!55 5!55 5!55 B5!55 5!55 5!55 =5!55 ;$$"$$ TaG6ay*r+ &re+! =@ E 2 := :5 F 5 @$ 1I4 >@!=F ::!@> :5!55 :2!:@ :@!=F :=!EB 5!55 ;$$"$$ Tota5 &re+! =3 E 2 :3 :5 F : @& 1I4 >>!>> :5!B2 F!>> =5!55 :>!>> :=!55 :!>> ;$$"$$

Source: Field Survey, December, 2010

'"#"&

Ty6*+ o/ ,u+i.*++

)he study classified the respondents into six main types of business in the informal sector within the Bolgatanga Municipality6 namely, ;airdressers and Beauticians, %ressmakers and &ashion %esigners, Artisans, Contractors, &ood ?endors and 'eneral )raders ! )heir representation as per the responses are shown in )able 3 and &igure 3 below! Ta,5* &: Ty6*+ o/ Bu+i.*++ Ty6* 9air-r*++*r+ a.- B*auticia.+ Fr*7" :: P*rc*.t !F) :3!2:I

Dr*++mak*r+ a.- Fa+ io. D*+i0.*r+ Arti+a.+ Co.tractor+ Foo- :*.-or+ G*.*ra5 Tra-*r+ Tota5 Source: Field Survey, December, 2010

F 2 3 :> =3 @$

:=!EBI :5!55I 2!:@I :E!32I >3!2:I ;$$"$$F

Fi0ur* &: Ty6*+ o/ Bu+i.*++*+

25

11 " 7 5

13

#air$ressers 'ress(a)ers a $ a $ %ea&ticia *ashio s 'esi+ ers

,rtisa s /e eral Tra$e

-o tractors

*oo$ .e $ors

Source: Field Survey, December, 2010 As indicated in )able 3 and &igure 3 above, 'eneral )raders registered >3!2:I 1i!e! =3 in absolute terms4 which apparently represented the modal class of the tax payers6 followed by &ood ?endors, which chalked :E!32 1:> in abolute terms4! )he ;airdressers and beauticians class attracted :: respondents 1representing :3!2:I46 :=!EBI 1F persons in absolute terms4 was attained by %ressmmakers and fashion designners, while :5I

12persons in absolute terms4 was recorded for artisans and the remaining 2!:@I 13 respondents4 went to contractors!

In view of these findings, I8( could easily target the 'eneral traders, most of whom operates on table tops and food venders, many of whom could be located at the permanent locations they ply their trade while other are hawkers who are constantly in mobility! )he localised food venders could only be tracked when their wares are still on sale but leaves their premises the moment their produce finishes!

Apart from the two classes of business mentioned earlier on, O;airdressers and beauticians* and %ressmakers and O&ashion %esigners* are the next class of business dominant in the municipality! )he latter, -ust like the OArtisans* and O contractors* could be targeted by using the Associational strategy!

'"=

RESPONSES FROM TAX OFFICIALS

'"="; Factor+ a//*cti.0 com65ia.c* 5*4*5 '"=";"; A665icatio. o/ +a.ctio.+ /or .ot o.ouri.0 taG o,5i0atio. ,y taG 6ay*r+ )he study indicated as shown in )able B and diagramatically represented in &igure B below that on the issue of applying all the approved sanctions for not honouring tax obligations by tax payers, @5I respondents of the tax officials of I8( responded in the affirmative while as much as B5I dissented!

Ta,5* %: Sa.ctio.+ /or .o.H6aym*.t o/ taG*+ Fr*7" P*rc*.t !F)

<es .o Tota5

= > &

@5I B5I ;$$F

Source: Field Survey, December, 2010

Fi0ur* %: Sa.ctio.+ /or .o.H6aym*.t o/ taG*+

60% 40%

0es

1o

Source: Field Survey, December, 2010 )he notable reasons portrayed by the +uestionnaire for the inertia suffered by officials of I8( to apply the re+usite sanctions were lack of the will to apply the sanctions by tax officials and the sanctions involve long and cumbersome procedures!

'"=";"# R*0u5ar taG *-ucatio. )here was :55I dissent to the issue of I8( in the Bolgatanga Municipality to organi,e tax education programmes to enlighten tax payers on the need to pay taxes and file returns on time! )he reasons for which I8( in the municipality was unable to organi,e education

programmes were given as Ocapacity constraints* and Olack of resources such as funds and educational materials*!

'"=";"= A++*++m*.t o/ *Gi+ti.0 taG rat*+ In course of the research it came to light that the respondents believed that the existing tax rates are Ofair* by the E5I representation of affirmatiom, while =5I indicated that they are inade+uate and none stood for Otoo high* as shown in )able 2 and &igure 2 below! Ta,5* @: A++*++m*.t o/ *Gi+ti.0 taG rat*+ Fr*7" Fair @ Too 9i0 5 I.a-*7uat* : 3 Source: Field Survey, December, 2010 Fi0ur* @: A++*++m*.t o/ *Gi+ti.0 taG rat*+

P*rc*.t" !F) E5I 5I =5I :55I

2 a$e3&at e

" %

Too #i+h

*air

# %

Source: Field Survey, December, 2010 8espondents were of the view that by virtue of the 'hanaian 7egal system on taxation which adovcates the priniciple of e+uity 1i!e! benefit principle and ability0to0pay principle4, certainty principle 1taxes should be clear and certain to the taxpayer and the tax

collector4, convenience principle 1the method, manner, and time of payment should be convenient to the tax payer4 and economy principle 1cost of collection in relation to the tax yield should be minimal46 the study had only amplified its fairness and further maintained that the rates should not be changed!

'"=";"' Com65ia.c* 5*4*5 o/ +*5/H*m65oy*)he study revealed that the tax officials are not highly satisfied with the extent of compliance level of self0employed, though, a B5I representation indicated an averagely satisfied staff and @5I not satisfied! )able E and &igure E below provide the details! Ta,5* (: Com65ia.c* 5*4*5 o/ +*5/H*m65oy*Fr*7" ;ighly (atisfied Averagely (atisfied .ot (atisfied Tota5 Source: Field Survey, December, 2010 Fi0ur* (: Com65ia.c* 5*4*5 o/ +*5/H*m65oy*! % ! % 5 % 4 % 3 % " % $ % % %i&hl' Satis(ied )*era&el' Satis(ied +ot Satis(ied % 4 %

P*rc*.t" !F) 5I B5I @5I ;$$F

5 > = &

Source: Field Survey, December, 2010

)he study brought to the fore the need to do more work on taxpayers to ensure an increase in their complaince level taking into consideration the statistics of the respondents! If @5I of the staff were not satisfied then it indicates that there are lapses in the tax administration6 hence the need to intensify tax awareness programmes and most importantly enforcing the law!

Again, if non of the staff is highly satisfied, an averagely satisfied staff still believes that I8( has not achieve the vision of ensuring that taxpayers level of compliance is highly satisfying!

'"="#

C9ALLENGES IN TAX COLLECTION

'"="#"; C a55*.0*+ /ac*- i. t * 5i.* o/ -uty It was detected that an overwhelming :55I respondents agreed that there exist challenges starring at I8( in the face! )he five ma-or challenges identified, ranked and provided with a value for each coordinate as in &irst J 3, (econd J @, )hird J >, &ourth J = and &ifth J :! Each of the five tax official respondents* responses were summed and finally ranked to arrive at )able F and &igure F below! Ta,5* E: Ra.k*- C a55*.0*+ C a55*.0* Ca6acity Co.+trai.t+ Lar0* +iC* o/ i./orma5 +*ctor Lar0* +iC* o/ taG -i+trict Notio.+ o/ *7uity Po5itica5 I.t*r/*r*.c*

Mark+ 3 3 > 3 : @ @ : @ 5 > > : > 5 = : > = 5 : = @ 5 5

Tota5 :F :> :5 E 2

Ra.k :st =nd >rd @th 3th

!Ot *r+) Co.+ta.t mo,i5ity o/ o6*rator+ Source: Field Survey, December, 2010 Fi0ur* E: Ra.k*- C a55*.0*+
!ar+e si4e of tax $istrict 17% 1otio s of e3&ity 13%

: : : 5 5

>

Bth

!ar+e si4e of i for(al sector 22%

Other 16% -apacit y -o strai t s 32%

5olitica l 2 terfere ce 11%

6Others7 -o sta t (o8ility of operators 5%

Source: Field Survey, December, 2010 As shown in )able F and &igure F above, tax official considered capacity contraints as the foremost challenge in the collection of taxes in the Bolgatanga Municipaility6 followed by Olarge si,e of informal sector*, Olarge si,e of tax district*, Onotions of e+uity*, Opolitical interference* and Oconstant mobility of operators* in that order as per the ranking!

In view of the fact that the study indicated that OCapacity constraints* was most ranked, with >=I of respondents, the I8( need to take steps to rectify it within the shortest

possible time! I8( at the moment is in dire need for effective and efficient tax administration for monitoring and enforcement6 but it lacks the re+uisite capacity to deliver on government set targets! )he ;uman 8esource %epartment and the )raining %ivision of the I8( should develop a comprehensive training programme that would sharpen the technical and managerial competencies of the employees and adopt strategic customer care systems and programmes by ensuring that the right personnel and

approaches are used in all its endeavours within the Bolgatanga Municipality involving all

stakeholders!

)he study portrayed that ==I of Olarge si,e of informal sector* was the next most challenged factor in the services* operations, followed closely by the :2I Olarge si,e of the tax district*! )he I8( could adopt a strategy of segmentation of the district for efficient tax administration! &urther prying revealed that I8( has already initiated what they term Associational taxation meant to address some of this problem by using informal sector associations as agents for income tax collection! )he associations had intimate knowledge of the activities of their members and could collect taxes without much additional effort! )he taxes were collected daily at first, and later weekly to reduce the high costs of printing and monitoring daily receipts, making the payments small and affordable to most members! It is only prudent for I8( to intensify this strategy by encouraging and

providing incentives to the associations!

In the area of political interferences, government officials and opposition members alike need to be circumspect with their interferences into the activities of I8(! By virtue of their positions6 their interferences may lead to a shortfall in the collection of taxes in the Bolgatanga Municipality!

'"="#"# Co.t*.t 3it .um,*r o/ taG 6ay*r+ 3it ,ook+ o/ accou.t+ )he research revealed that :55I of the respondents were not content with the number of taxpayers who keep books of accounts6 books of accounts help a tax payer in the determination of income for the purpose of tax!

'"="#"= M*t o- o/ taG -*t*rmi.atio.+ /rom taG 6ay*r+ 3it out 6ro6*r ,ook+ o/ accou.t+ or Su,mit accou.t+" )he study discovered that the only method used in the assessment of one*s tax liability in the absence of books of accounts was .et 9orth Method 17iving Expenses Method4!

'"="#"' TaG 6ay*r+ /i5* t *ir r*tur.+ a..ua55y 3it IRS It came to light that not all taxpayers file their respective returns with the organi,ation annually! In the same vain tax officials encountered several difficulties with tax payers in the process of filing returns! .otable among them were improper completion of returns6 late submission of returns6 non submission of returns6 tax payers not declaring the right income6 and inade+uate information from tax payers!

'"="#"&

M*a+ur*+ to c *ck -i//icu5ty o/ /i5i.0 r*tur.+ a.- .o. +u,mi++io. o/ r*tur.+

)he measures adopted by the tax officials to check the difficulties encountered by the taxpayers in their course of filing returns and non submission of returns as revealed by the research includedG assistance from tax officials and auditors in the completion of tax returns6 imposition of penalties6 and constants education on the need to file returns, the legal implication for failure to file returns as well as the benefits of filing returns!

'"="#"%

C a55*.0*+ *.cou.t*r*- 3it taG 6ay*r+ i. t * 6aym*.t o/ taG*+

)he research revealed an overwhelming affirmation that tax officials encountered on daily basis several challenges in tax collection! .otable among them were tax payers* complains of financial constraints due to poor performance of business and high tax rates!

"ther challenges were ignorance of the need to pay taxes6 late payment of taxes6 high rate of illiteracy and poverty among ma-ority of informal sector operators! '"="#"@ Di//icu5ty o/ taG co55*ctio. i. t * i./orma5 +*ctor )he research used seven pointers to ascertain the most difficult reasons for tax collections in the Bolgatanga Municipality! )he seven points that pose difficulties in tax collections were identified, ranked and provided with a value for each coordinate as in &irst J 2, (econd J B, )hird J 3, &ourth J @, &ifth J >, (ixth J =, (even J :! Each of the five tax official respondents* responses were summed and finally ranked to arrive at )able :5 and &igure :5 below! Ta,5* ;$: Co55*ctio. Di//icu5ty Co55*ctio. Di//icu5ty Di//icu5ty Ca+ Tra.+actio. Co.+ta.t mo,i5ity o/ o6*rator+ I.-i//*r*.c* to /orma5 accou.ti.0 Lar0* +iC* o/ i./orma5 +*ctor Lar0* +iC* o/ taG -i+trict Po5itica5 I.t*r/*r*.c* U.c*rtai.ty Source: Field Survey, December, 2010
!ar+e si4e of i for(al sector 26%

@ 3 = 2 B : >

Mark+ > > 5 3 = 2 = 3 5 2 2 B B : 2 = @ 5 : B 5

5 5 5 5 5 5 5

Tota5 :5 :F F =2 =5 2 :5

Ra.k th @ rd > th 3 st : nd = th B th @

2 $iffere c e to for(al acco& ti + "%

5olitical 2 terfere ce 7%

Other 36% -o sta t (o8ility of operators 1"% -ash Tra sactio 10%

!ar+e si4e tax $istrict 1"%

Fi0ur * ;$: Co55*c tio. Di//ic u5ty

9 certai ty 10%

Source: Field Survey, December, 2010 )he study showed that the Olarge si,e of the informal sector* and the Olarge si,e of the tax district have been the most difficult tasks to overcome in the collection of taxes in the municipality! "ne difficult point that needed consideration was the constant mobility of business operators, thus making it virtually impossible to track them! Issues such as Ocash transactions*, Ouncertainty*, Oindifference to formal accounts* and Opolitical

interference* all played one role or the other in making it difficult to collect taxes! )he informal sector is noted for not keeping proper books of accounts, thereby causing a lot of difficulty in the assessment of their tax liabilities! Accordingly, in appreciation of the difficulties faced by the informal sector operators in complying with the record keeping re+uirements of the standards of I8(, easier to operate and more simplified in its record keeping re+uirements, the agency is currently working feverishly to get the various associations to be trained in the said area! )he study exhibited a strong support to Aryee 1=5524 by reiterating the interference of politicians by stressing that public officials and politicians are willing to turn a blind eye to informal activities in order to retain their support base! )he process of bargaining with the informal sector over the payment of tax

is itself a gesture of concession and accommodative, which is fraught with political overtures and undertones!

Again, looking at Ocash transactions as a difficulty in tax collection official of I8( interviewed explained that most business transactions in 'hana and for that matter Bolgatanga are done in cash and even certain reputable organi,ations are skeptical to accept che+ues as mode of payments! )he officials further explained that transaction of all businesses in cash is one of the means by which a businessman can conceal taxable income6 hence, he is able not only to manipulate his records and turnover figures for tax reduction purposes but he is also able to eliminate all third party information leading to his purchases and sales!

'"'

RESPONSES FROM TAX PAYERS

'"'"; Factor+ a//*cti.0 com65ia.c* 5*4*5 '"'";"; TaG E-ucatio. ,y IRS )here was an overwhelming response of FEI that I8( does not organi,e tax education in the Bolgatanga Municipality! %ue to the capacity constraints in the area of comprehensive )ax /rogramme and staff strength of I8( it did not come as a surprise when the respondents emphasi,ed the low outreach programme and enforcement of the law!

'"'";"#

A.tici6atio. o/ ,*.*/it+ /rom 0o4*r.m*.t

)he research revealed that 2FI of tax payers make good their tax obligation with the

anticipation of benefits 1or service4 from the government6 the remaining =:I expects otherwise! %etails are shown in )able :: and &igure :: below! Ta,5* ;;: A.tici6atio. o/ ,*.*/it+ /rom 0o4*r.m*.t Fr*7" <es .o Tota5 33 :3 @$ P*rc*.t !F) 2FI =:I ;$$F

Source: Field Survey, December, 2010 Fi0ur* ;;: A.tici6atio. o/ ,*.*/it+ /rom 0o4*r.m*.t
"0% :0% 70% 60% 50% 40% 30% 20% 10% 0%

,9 % "$%
0es 1o

Source: Field Survey, December, 2010 )he anticipated benefits of the respondents include provision of infrastructure like roads, schools, hospitals to mention but a few! As good citi,ens, the respondents expect government to provide goods and services, and their effective provisions enable citi,ens to pay tax in return for the en-oyment of these goods and services! Also, the respondents believed that paying of tax voluntarily is an act of contributing to government programmes which they support!

'"'";"=

L*4*5 o/ +ati+/actio. 3it t * u+* o/ taG*+ ,y 0o4*r.m*.t

)he research exhibited that B>I of tax payers are Oaveragely satisfied* with the -udicious

use of taxes paid to government6 :@I are Ohighly satisfied* and =>I are Onot satisfied* as illustrated in )able := and &igure := below! Ta,5* ;#: L*4*5 o/ +ati+/actio. 3it u+* o/ taG*+ ,y 0o4*r.m*.t L*4*5 Fr*7" P*rc*.t !F) :5 :@I 9i0 5y Sati+/i*@@ B>I A4*ra0*5y Sati+/i*:B =>I Not Sati+/i*Tota5 @$ ;$$F Source: Field Survey, December, 2010 Fi0ur* ;#: L*4*5 o/ +ati+/actio. 3it u+* o/ taG*+ ,y 0o4*r.m*.t

1ot ;atisfie$

23%

,<era+ely ;atisfie$

63%

#i+hly ;atisfie$

14%

Source: Field Survey, December, 2010 )he research further exposed that tax payers* assessment of the existing tax rates are Otoo high* 1i!e!E3I4 while the remaining :3I had the view that it is Ofair*! It was therefore not surprising that FEI of respondents rooted for a change 1i!e! reduction4 of the existing rate! Among the reasons provided for the tax rate reduction were Oreduce tax burden so as to encourage voluntary compliance*, Ohigh rates of taxes reduce expected net income* and Oindigenous 'hanaian businesses are already suffering from dumping from China and other stiff competitions from expatriates, and to couple it with high tax rate is simply too

much*! Again, respondents overwhelmingly 1FFI4 affirmed to the fact that severe punitive measures would help stem the tide of tax evasion! .otable among the punitive measures suggested were closure of businesses, sei,ure of wares of hawkers and more strict terms prosecution!

'"'";"'

R*a+o.+ /or taG *4a+io.

)he research showed that the four points provided as reasons for tax evasion were very relevant6 @:I chose Otoo high tax rates*, =FI was registered for Oknowing others are not paying*, Ounfair application of tax laws* had :BI, and :@I maintained that Omistrust of government for the use of tax revenue* were strongly affirmed! Also, a respondent provided another reason as, Othe tax net fails to catch all taxable Oinsects*, while the few complying ones are being pressuri,ed and intimidated*!

&urthermore, FFI of tax payers were of the view that social sanctions can deter people from evading taxes because of public ridicules, and the remaining :I obviously dissenting!

'"'";"&

Partici6atio. i. -*ci+io. maki.0 i./5u*.c*+ taG com65ia.c*

)he study indicated by the E:I response that individuals* participation in decision making process in their community serves as a ma-or factor of influencing tax compliance! ;owever, :FI 1i!e! :> in absolute terms4 did not share in that view! )able :> and &igure :> below illustrate the responses! Ta,5* ;=: Partici6atio. i. -*ci+io. maki.0 i./5u*.c*+ taG com65ia.c*

Fr*7" <es .o Tota5 32 :> @$

P*rc*.t !F) E:I :FI ;$$F

(ourceG &ield, (urvey %ecember, =5:5

Fi0ur* ;=: Partici6atio. i. -*ci+io. maki.0 i./5u*.c*+ taG com65ia.c*

+o $9%

Ye s #$%

Source: Field Survey, December, 2010 )he respondents that affirmed the notion had reasons among others as Ocommitment to the institution increases* and Oproud to be heard and probably implementation of one*s counsel*! )he respondent claimed that if they have a voice in the way their taxes are spent they will comply voluntarily! "n the other hand, the dissenting voices believed punitive measures should be enforced rather! According to them, if people know that they would

be prosecuted if caught for evading taxes and the punishment involve is severe then they would comply voluntarily!

'"'"# '"'"#";

C a55*.0*+ i. taG co55*ctio. Bu+i.*++ Locatio.

)he research revealed that the tax payers from the informal sector operated their businesses from six different locations, as in, store, market stalls, table top, hawking, kiosk andLor container! Ma-ority 1@5I, =E in absolute terms4 of the respondents were operating from stores, =FI 1=5 in absolute terms4 operated from market stalls, )able )op operators registering ::I 1E in absolute terms4 and =5I 1:@ in absolute terms4 from kioskLcontainers, albeit, no hawkers are tax payers as shown in )able :@ and &igure :@ below! Ta,5* ;': Bu+i.*++ 5ocatio. Locatio. Fr*7" =E Stor* =5 Mark*t Sta55 E Ta,5* To6 5 9a3ki.0 :@ 2io+kJCo.tai.*r Tota5 @$ Source: Field Survey, December, 2010 P*rc*.t !F) @5I =FI ::I 5I =5I ;$$F

)he reseach findings could be concluded that the hawkers do not pay taxes6 and by virtue of the store operators attaining the modal class, it is understandable since all the business types could operate from stores except food vendors who mostly operate from the market stall and table tops! $ioskLContainer operators on the other hand are featuring strongly since that is most dignified location among the poor since the ac+uisition of stores is +uite exhorbitant!

Fi0ur* ;': Bu+i.*++ Locatio.

40% 2"% 20% 11% 0% ;tore Mar)et ;tall Ta8le Top #a=)i + >ios)?-o tai er

Source: Field Survey, December, 2010

'"'"#"#

Y*ar+ o/ Bu+i.*++ o6*ratio.+

&rom )able :3 and &igure :3 below, it could be seen that tax payers* years of operating their respective businesses span from one 1:4 year to eighteen 1:E4 years! )he modal class for this distribution was B J :5 year, registering >FI 1i!e! =2 in absolute terms46 closely followed by the Above :3 years class which also chalked >2I 1i!e! =B in absolute terms46 and the : J 3 years and :: J :3years classes attaining only :>I and ::I respectively! Ta,5* ;&: Y*ar+ o/ ,u+i.*++ o6*ratio.+ Y*ar+ Fr*7" ; H & y*ar+ % H ;$ y*ar+ ;; H ;& y*ar+ A,o4* ;& y*ar+ F =2 E =B

P*rc*.t !F) :>I >FI ::I >2I ;$$F

Tota5 @$ Source: Field Survey, December, 2010

Fi0ur* ;&: Y*ar+ o/ ,u+i.*++ o6*ratio.+

)bo*e $5 'ears

3,%

$$ - $5 'ears

$$%

!-$ 'ears

39%

$-5 'ears

$3%

Source: Field Survey, December, 2010

)he research portrayed that over E5I of respondents have been in operation for over a period of 3 years! )his stands to reason that individual business operators have attained a favourable experience curves, taking their excellent competencies and skills into consideration6 otherwise they should be out of business by now! )he relative high number 1>@, representing @EI4 of business operators who have been in their various businesses for over one decade also reveals that they are people who tax evasion should be made very unattractive, hence the need to be pursued to meet all tax liabilities as they fall due! Again, tax officials need to intensify their education programmes using the associations* strategies!

'"'"#"=

M*-ium o/ *ari.0 a,out i.com* taG

It was detected that tax payers heard about income tax through the OelectronicLprint

media*, OfriendLcolleague* and an OI8( tax education programme* with representation of >2I, >2I and =BI respectively6 while none of them heard about it either by Obrochure* or Onot heard about it*! )able :B and &igure :B below show the details! Ta,5* ;%: M*-ium o/ *ari.0 a,out i.com* taG M*-ium Fr*7" M*-iaHE5*ctro.ic L Pri.t Fri*.-JCo55*a0u* Broc ur* IRS TaG E-ucatio. Not *arTota5 Source: Field Survey, December, 2010 =B =B 5 :E 5 @$ P*rc*.t !F) >2I >2I 5I =BI 5I ;$$F

Fi0ur* ;%: M*-ium o/ *ari.0 a,out i.com* taG

+ot heard % IRS 0a1 2du/atio n "!%

.ro/hure %

Media2le/troni/ 5 6rint 3,%

Friend34olle a& ue 3,%

Source: Field Survey, December, 2010

)he I8( in Bolgatanga needs to double its outreach programmes if the research results is

anything to go by! )his is evident by 5I on the effect of brochures as a medium for tax payers to hear about income tax! It is also of much concern if friendsLcolleagues could register >2I of the distribution6 which is even higher than I8(*s own tax education which attained only =BI! ;owever, the >2I for both electronic and print media is +uite appreciable, indicating the extent to which I8( places premium on the media as a tool of tax education!

'"'"#"'

Paym*.t /or 0oo-+ a.- +*r4ic*+

)he study showed that payments of goods and services are made mostly 1B5I4 by cash while @5I only settles with both cash and che+ue! 9ith such a cash dominated economy it clearly shows that I8( cannot depend on the bank statements of tax payers to cross check information presented in their financial statements! )his gives the taxpayers the chance to hide valuable information with the intention of reducing their taxable incomes hence taxes!

'"'"#"&

Pro6*r ,ook+ o/ accou.t+

It was detected that 22I 1i!e! 3@ in absolute terms4 of respondents do not keep proper books of accounts6 =>I 1i!e! :B in absolute terms4 have proper books for accounting purposes! 8easons provided for not keeping proper books of accounts are O7ack of knowledge in bookkeeping* and OInability to engage an accounts officer due to low income earned by business operator*! Besides, respondentsR level of knowledge in accounting are either 1i!e! 35I each4 lowLpoor or averageLmedium! .one admitted high level of knowledge in accounting! It was further noticed that in spite of the poor

knowledge in proper accounting, F5I of respondents are not engaging the services of an accountant with the reason that they simply could not afford the Ohigh service fees* charged by these professionals!

'"'"#"%

Fi5i.0 o/ r*tur.+

It was discovered that B@I 1@3 in absolute terms4 of respondents do not regularly file returns at I8(! 8easons provided were O7ack of bookkeeping and accounting knowledge* and OCumbersome procedure of filing 1i!e! difficulty in fillingLcompleting forms4*!

'"&

SUGGESTIONS TO IMPRO:E TAX ADMINISTRATION

)he respondents provided suggestions with the intent of improving tax collection in the informal sector in the tax district of Bolgatanga! Among the suggestions were regular and intensive field operations! )ax officials are expected to seek to increase contact with the )rade and Business Associations especially in the informal sector within the Bolgatanga Municipality through fre+uent meetings to identify and address policy, operation and other related issues for the improvement of their understanding of tax procedures!

(econdly, as an added advantage to the above point, there should be regular and sustained monitoring by tax officials!

)hirdly, more tax officials should be employed to augment the staff strength of Bolgatanga I8(, since the large tax district and the large si,e of the informal sector have always been the bane of I8( to cover many potential taxpayers! &ourthly, it is important that tax officials are provided with the re+uisite logistics for efficient and effective

discharge of their duties! &inally, I8( should ensure that tax education programmes are sustainable and cost effective!

C9APTER FI:E

SUMMARY1 CONCLUSIONS AND RECOMMENDATIONS &"; INTRODUCTION"

)his chapter presents the summary of the research findings, conclusion drawn from the study and recommendations!

&"#

SUMMARY OF FINDINGS!

)he aim of this research was to find out the causes of tax non compliance behaviour in the informal sector and besides, explore further the challenges in taxing the informal sector in Bolgatanga Municipality6 with specific research ob-ectives beingG to find out why non compliance of income tax is high in the informal sector6 to identify the challenges that militate against effective revenue mobili,ation by I8( from the informal sector!

)he following summaries are presented based on the findings in chapter four of this study! A665icatio. o/ +a.ctio.+ /or .ot o.ouri.0 taG o,5i0atio. ,y taG 6ay*r+ It was found out that the I 8 ( in Bolgatanga Municipality do not apply all the approved sanctions for not honouring tax obligations by tax payers !)his was affirmed by B5I of the respondents from the I 8 ( !)he reasons given were lack of the will to apply the sanctions on the part of the tax officials and besides, the sanctions involve long and cumbersome procedures!

R*0u5ar taG *-ucatio. )here was :55I affirmations that owing to capacity constraints and lack of resources the I 8 ( in the municipality do not organi,e tax education programmes regularly to educate the public and for that matter the tax payers on the need to pay taxes and file returns on time! )his was also confirmed by the tax payers with FEI responses!

7ack of regular tax education programmes to a large extent contributed to non submission and incomplete filling of returns as well as nonpayment of taxes as indicated by the tax

officials"

A.tici6atio. o/ ,*.*/it+ a.- t * 5*4*5 o/ +ati+/actio. 3it t * u+* o/ taG*+ ,y 0o4*r.m*.t" )he research showed that while 2FI of the respondents pay their taxes in anticipation of benefits such as provision of infrastructure like schools, hospitals, roads to mention but a few , =:I expects otherwise! Besides, the study showed that B>I, :@I and =>I were averagely satisfied, highly satisfied and not satisfied respectively with the use of tax revenue by the government!

Again, the research revealed that while :3I of the respondents from the informal sector viewed the existing tax rates for the individual tax payers as fair, E3I were of the view that they were not fair and therefore called for a reduction in the current tax rates!

&urther, it came to light that FFI of the respondents were of the view that severe punitive measures could dissuade people from evading taxes and suggested punitive measures such as closure of businesses of defaulters, sei,ure of wares of hawkers and more strict terms prosecution as means of curbing tax evasion in the municipality!

R*a+o.+ /or taG *4a+io. )he four points provided as reasons for tax evasion were strongly affirmed with the following percentagesG too high tax rates*, @:I6 knowing others are not paying, =FI6 unfair application of tax rates, :BI6 and mistrust of government for the use of tax rates, :@I! Besides, a respondent provided additional reason for tax evasion as, Othe tax net fails

to catch all taxable Oinsects*, while the few complying ones are being pressuri,ed and intimidated*!

Partici6atio. i. -*ci+io. maki.0 i./5u*.c*+ taG com65ia.c* )he study further revealed by E:I that participation in decision making process serves as a ma-or factor of influencing compliance level with the reasons that it increases ones commitment to the institution and besides, makes one proud to be heard and probably implementing ones counsel!

C a55*.0*+ i. TaG co55*ctio. )he research showed that there exist challenges starring at I8( in the face6 and tax offcials considered Ocapacity contraints* as the most challenged factor in tax collection in the Bolgatanga Municipaility6 followed by O7arge si,e of informal sector*, Olarge si,e of tax district*, Onotions of e+uity*, Opolitical interference* and Oconstant mobility of operators* in that order as per the ranking!

Tax payers file their returns annually !ith "#$ )he research revealed that not all taxpayers file their respective returns with the organi,ation annually! In the same vain tax officials encountered several difficulties with tax payers in filing returns !)hese included improper completion or filling of returns, late submission of returns, non submission of returns and ignorance of the benefits of filing returns, tax payers not declaring the right income and inade+uate information from tax payers!

Challenges encountered !ith tax payers in the payment of taxes )he research revealed an overwhelming affirmation that tax officials encountered on daily basis several challenges in tax collection! .otable among them were tax payers complains of financial constraints due to poor performance of business and high tax rates, tax payers ignorance of income tax, high rate of illiteracy and poverty among ma-ority of tax payers in the informal sector and late payment of taxes!

Difficulty of taxe collection in the informal sector )he study showed that the Olarge si,e of the informal sector* and the Olarge si,e of the tax district have been the most difficult tasks to overcome in the collection of taxes in the municipality! "ne other difficult point that needed consideration was the constant

mobility of business operators, thus making it virtually impossible to track them! Issues such asOcash transactions*, Ouncertainty*, Oindifference to formal accounts* and Opolitical interference* all played one role or the other in making it difficult to collect taxes!

%roper books of accounts It was detected that 22I 1i!e! 3@ in absolute terms4 of respondents do not keep proper books of accounts6 =>I 1i!e! :B in absolute terms4 have proper books for accounting purposes! It was further noticed that in spite of the poor knowledge in proper accounting, F5I of the respondents were not engaging the services of accountants with the reason that they simply could not afford the Ohigh service fees* charged by these professionals!

&"=

CONCLUSION

)he research revealed that there was lack of tax education in the municipality, ma-ority of the tax payers were either averagely satisfied or not satisfied with the use of tax revenue by the government and the greater percentage of people pay their taxes in anticipation of benefits from government! Also, the I8( were not applying the approved sanctions for failure to pay taxes, the tax net failed to catch all taxable Oinsects* and besides,

participation in decision making process and social sanctions increase compliance level!

In conclusion, taxing the informal sector depends on a combination of approaches and mechanisms! )ax collection is an important governance challenge that depends on a compliance culture, the values and norms of a society, its history and above all the capacity of the government to deliver! )he potential for taxing the informal sector depends upon a4 the degree of pressure on governments to increase revenues and b4 the existence of collective actors in the informal sector having institutionali,ed channels for negotiation with the state 1(tella :FF> cited by Aryee, 1=55244! Above all, there must be a different way of thinking politically about taxation of the informal sector that could lead to a substantial new research agenda! In other words, to make inroads into the difficult problem of taxation of the informal sector we need to think differently about the issue! Maximi,ing voluntary compliance is therefore a must which must be taken seriously by any reform or new research agenda!

&"'

RECOMMENDATIONS

In view of the findings of the research the following were recommendedG

I.t*.+i4* a.- R*0u5ar Mo.itori.0 "fficials of I8( should undertake regular and intensive field operations by ensuring regular monitoring of the operatives within the informal tax net! (ecret personnel or spies should be engaged to download verifiable information about all tax evaders for rewards! &urthermore, tax payers should be encouraged to make use of the che+ue system! )his will enable I8( to cross check informations provided in the financial statements of taxpayers using their bank statements!

Ca6acity Bui5-i.0 More tax officials should be employed to augment the staff strength of Bolgatanga I8(! Also, training and re0training of tax official in modern trends of tax assessment is key! )herefore tax official should be well e+uiped in the area of tax education programmes! Again,as an interim measure to solve the shortage of staff problem the I 8( should use the leaders of identifiable groups such as ;airdressers and Beauticians Association,Butchers Association,%ressmakers and )ailers Association and so on to collect taxes from their members! Lo0i+tica5 Su66ort )ax officials should be provided with the re+uisite logistics for efficient and effective discharge of their duties! )he tax system should be computerised to bring efficiency in the tax administration and a reduction in the cost of tax collection in the district in terms of time and personnel to be employed!

R*0u5ar TaG E-ucatio. a.- A-4*rti+*m*.t )here should be regular tax education for the general public using both the electronic and print media! Billboards should be mounted at vantage points in the district to educate the public about the importance of taxation! )he I8( should organi,e seminars to teach tax payers basic bookkeeping principles!)his will enable them submit accounts for fair assessments!

E//*cti4* Cu+tom*r R*5atio.+ Maintainance of very good customer relations is key6 thus, tax collectors should apply marketing, human resource strategies and a high sense of diplomacy to convince and encourage tax payers to make good their respective tax liabilities! ;owever, when the need arises the rules and regulations governing tax compliance must be applied! Again, tax net should be widened further so as to capture much more lower income earners! Also, involving the tax payers and the general public in decision making processes so far as taxation is concerned will be of great help since it will ensure commitment!

Pru-*.t uti5iCatio. o/ TaG R*4*.u* 'overnments should be seen to be using revenue accrued from taxation prudently without misappropriation and misapplication6 and governments should be accountable and transparent! By so doing the people will have confidence and trust in the government!

R*0u5ar R*4i*3 o/ TaG A-mi.i+tratio. 8esearch should be conducted on personal developments such as 0 buildings of complex nature by individuals, types of cars people use and general life0style! A database should be built on taxpayers and potential ones!

Moti4atio. o/ TaG O//icia5+ )he tax officers should be effectively motivated at various levels like J high salary, high end of service benefit, end of year bonus, housing and car loans payable in at least :5 years period!

R*3ar- Sy+t*m A reward system should be initiated whereby the best small tax payers at the district levels would be awarded annually as in the case of farmers, teachers, health workers among others! )his will serve as incentive for tax compliance among the small taxpayers!

Co55a,oratio.+ )he I8( should collaborate with other institutions, for example, the assemblies to get information on potential tax payers since no person can operate business without license from the assemblies!

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(trafford, A! %! and 7oCascio, C!; 1:FF34! Introduction to Economics! .ew <orkG 'lencoeLMc'raw0;ill! )endler, #! 1=55=4! (mall &irms, the Informal (ector and the %evil*s %eal! I%( Bulletin, ?ol! >>, .o!>GFF! )erkper, (! E! 1=55>4! HManaging (mall and Medium J (i,e )axpayers in %eveloping Economies! )ax .otes International #anuary, :>! )homas, #! #! 1:FF=4! Informal Economic Activity! Ann ArborG niversity of Michigan /ress! )wenty (ixth Commonwealth Association of )ax Administrators 1CA)A4 Annual Conference 1=5534! "hawa, Canada, August =E0 (eptember, =! ?ogel, #! 1:F2@4! )axation and /ublic "pinion in (wedenG An Interpretation of 8ecent (urvey %ata! .ational )ax #ournal =2 1@4G @FF J 3:>! 9eisman, #! 1=55:4! I8( Audit at 8ecord 7owG "fficials Cite %ecade0long (taff %ecrease, "ld Computers, 7aw %efending )axpayers! (A )oday 1&ebruary :B4G A:! 9estat, Inc! 1:FE54! Individual Income )ax Compliance &actor (tudyG Aualitative 8esearch 8esults! 8ockville, M%G 9estat! 9ilkinson, M 1:FF=4! )axation! 7ondonG Macmillan /ress 7td! 9introbe, 8! 1=55:4! )ax Evasion and )rust! 9" %epartment of Economics 9orking /apers =55:::! niversity of 9estern "ntario, %epartment of

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APPENDIX ?UESTIONNAIRE FOR T9E TAX OFFICIALS 28AME N2RUMA9 UNI:ERSITY OF SCIENCE AND TEC9NOLOGY !2NUST) INSTITUTE OF DISTANCE LEARNING !IDL) )he purpose of this +uestionnaire is to gather data for a study on )axation and Informal (ectorG A case study of Bolgatanga Municipality! %ata collected would be used solely for academic purpose and respondents are assured of the confidentiality of information provided! A! PERSONAL INFORMATION :! =! 'enderG Age 'roupG :B J >5 years >: J @3 years @B J B5 years 1 4 1 4 1 4 Male 1 4 &emale 1 4

B: years and above1 4 >! 7evel of education Basic 1 4 1 4 (;(L Commercial 1 4 4 "thers4 %iploma 1 4 1 4 : andLor = %egree
st nd

/rofessional 1

(pecifyPPPPPPPPPPPPPPPP @! ;ow long have you been with I8(K 7ess than 3 years 1 4

Between B and F years 1 4 :5 years and more 1 4 3! 8ankG #unior staff 1 4 (enior level 1 4 Management (taff 1 4

B" FACTORS AFFECTING COMPLIANCE LE:EL B! %o you apply all the sanctions for not honouring taxes by individual tax payersK A! <es 1 4 B! .o 1 4

2! If no what are the reasons for not applying the sanctions for failing to pay taxesK !!!!!!!!!!!!!!!!!!PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPP!!PPPPPPPPPPPPPPPPP E! %o you regularly organi,e tax education programmes to educate tax payers on the need to pay taxes and file returns on timeK A! <es 1 If no give reasons !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP F! ;ow do you assess the existing tax rates to individual taxpayersK &air 1 4 )oo ;igh 1 4 Inade+uate 1 4 4 B! .o 1 4 Expatiate 4 B! .o 1 4

:5! Is there the need to change the existing tax ratesK A! <es 1 your choice of answer!

PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP ::! )o what extent are you satisfied with the compliance level of the self employed businesses in your tax districtK A! ;ighly satisfied 1 4 B! Averagely (atisfied 1 4 C! .ot satisfied 1 4

C" C9ALLENGES IN TAX COLLECTION :=! %o you face any challenge while discharging your duties as a tax officerK A! <es 1 4 B! .o 1 4

:>! If yes, what are some of the challengesK /lease tick more than one answer and rank them in order of most prevalent! Rank A! Capacity constraints B! .otions of e+uity C! /olitical interference %! 7arge si,e of the tax district E! 7arge si,e of the informal sector 1 4 1 4 1 4 1 4 1 4 PPPPPPPPP! PPPPPPPPP! PPPPPPPPP! PPPPPPPPP! PPPPPPPPP! PPPPPPPPP

&! /lease specify if any otherPPPPPPP

:@! Are you content with the number of tax payers who keep books of accountsK A! <es 1 4 B! .o 1 4

:3! ;ow do you determine the taxes of those who do not keep proper books of accounts or submit accountsK !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!PPPP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!PPPP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!PPPP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! :B! %o all taxpayers file their returns with you annuallyK A! <es 1 4 B! .o 1 4

:2! %o you encounter any difficulties with taxpayers in filing their returnsK A! <es 1 4 B! .o 1 4

If yes, what are the difficultiesK PP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!PPPPPPPPPPPP !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!PPPPPPPPPPPP 9hat measures have you put in place to check the difficultiesK PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP :E! ;ave you been encountering any challenge with taxpayers in paying taxesK A! <es 1 4 B! .o 1 4 If yes, what are some of the challengesK !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!PPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP :F! 9hy is it difficult to collect taxes in the informal sectorK /lease rank them in order of most prevalent! Rank i! ii! iii! iv! v! vi! vii! )ransience Cash )ransaction ncertainty 7arge si,e of the tax district 7arge si,e of the informal sector Indifference to formal accounting /olitical Interference PPPPPPPPP! PPPPPPPPP! PPPPPPPPP! PPPPPPPPP! PPPPPPPPP! PPPPPPPPP PPPPPPPPP!

=5! 9hat suggestions can you offer to improve upon tax collection in the informal sector in your tax districtK PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPP!PPPPPPPPPPPPPPPPPPPPPPPPPPP!!!PPP

?UESTIONNAIRE FOR T9E INFORMAL SECTOR OPERATORS !TAXPAYERS) 28AME N2RUMA9 UNI:ERSITY OF SCIENCE AND TEC9NOLOGY !2NUST) INSTITUTE OF DISTANCE LEARNING !IDL)" )he purpose of this +uestionnaire is to gather data for a study on )axation and Informal (ectorG A case study of Bolgatanga Municipality! %ata collected would be used solely for academic purpose and respondents are assured of confidentiality of information provided! A" PERSONAL INFORMATION :! 'enderG =! Age 'roupG :B J >5 years >: J @3 years @B J B5 years 1 4 1 4 1 4 Male 1 4 &emale 1 4

B: years and above 1 4 >! Marital (tatusG Married 1 4 (ingle 1 4 %ivorced 1 4 (eparated 1 4 9idowL 9idower 1 4

@! 7evel of education Basic 1 4 1 4 (;(L Commercial 1 4 4 %iploma 4 1 4 : andLor = %egree 1 4 (pecify

st nd

/rofessional 1

.o formal education 1

"thers

3! 9hich of the following informal sector operators do you belong toK ;airdresser and Beauticians 1 4 %ressmakers and &ashion %esigners 4 Contractors 1 4 &ood ?endors 1 4 'eneral )raders 1 4 1 4 Artisans 1

B" FACTORS AFFECTING COMPLIANCE LE:EL B! %oes I8( organi,e tax education programmes to educate you on the need to file returns and pay taxes regularly and on timeK <es 1 4 .o 1 4

2! %o you pay taxes in anticipation of benefits 1or service4 from the governmentK <es 1 4 .o 1 4

E! 9hat is your level of satisfaction with the services provided by the government by the use of tax revenueK .ot satisfied 1 4 F! ;ow do you assess the existing tax rates to individual taxpayersK &air 1 4 )oo ;igh 1 4 Inade+uate 1 4 A! <es 1 4 B! .o 1 4 ;ighly satisfied 1 4 Averagely satisfied 1 4

Is there the need to change the existing tax ratesK Expatiate your choice of answer!

PP!PPPPPPPPPPPP!!PPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP :5! %o you think severe punitive measures can help to reduce tax evasionK A! <es 1 4 B! .o 1 4

::! 9hat will make you evade the payment of taxes, if possibleK /lease tick more than one answer! )oo high tax rates $nowing others are not paying nfair application of tax laws 1 4 1 4 1 4

Mistrust of government for the use of tax revenue 1 4 /lease, specify if others PPP!PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP!!! PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPP!PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP!!! :=! %o you think social sanctions can deter people from evading the payment of taxesK A! <es 1 4 B! .o 1 4

:>! %o you think individuals* participation in decision making process can influence their level of tax complianceK Explain your answer PPP!PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP!! PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP A! <es 1 4 B! .o 1 4

C"

C9ALLENGES IN TAX COLLECTION

:@! 9here do you operate your business fromK (tore 1 4 Market stall 1 4 1 4 )able )op 1 4 ;awking 1 4 $ioskLContainer

"thers, specifyPPPPPPPPPP!

:3! ;ow long have you been in your current businessK : J 3 years 1 4 B J :5 years 1 4 :: J :3 years 1 4 Above :3 years 1 4

:B! 9here did you hear about income taxK Media 18adio, )? U newspaper4 1 4 &riendLColleague 1 4

Brochures )ax education program by I8(

1 4 1 4

;ave not heard about income tax 1 4 :2! 9hat is the mode of payment for your goods or servicesK Cash 1 4 Che+ue 1 4 Both 1 4

:E! %o you keep proper records or books for accounting purposesK A! <es 1 4 If .o, explain PPP!PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP!! PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP :F! 9hat is your level of knowledge in accountingK A! 7owL/oor B! AverageLMedium C! ;ighL?ery good 1 1 4 <es 1 4 .o 1 4 4 7ack of accountants 1 4 4 1 4 B! .o 1 4

=5!If low, do you engage the services of an accountantK If no, what is the reasonK ;igh service fees 1 .need 1 4

=:! %o you file returns including accounts regularly with I8(K <es 1 4 If .o, explain PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP ==! 9hat suggestions can you offer to improve upon tax collection systemK!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP! PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP! .o 1 4