Determinants of Tax Evasion: Empirical Evidence from Ghana

Abstract

For decades, researchers of tax systems and taxation as a whole are in a dilemma on the factors affecting taxpayers' noncompliant behaviors. Numerous experimental and survey results concluded by tax researchers have identified characteristics of noncompliant taxpayers because tax revenues are seen as a major source of income in funding government expenditures. Globalization has called for a huge demand for numerous public services thereby forcing governments into increasing tax revenues to finance these projects. The demand of public service by government and taxpayers shifts the burden of taxes to taxpayers. The gap between tax revenues and tax expenditures are swelling thereby ensuring unbalanced government budgets due to taxpayers' noncompliance. Understanding the causes of tax evasion calls for research into taxpayers' reasons for evading taxes. The main aim of the study is investigating factors that have a detrimental effect on tax evasion in Ghana. In coming out with such factors, this research employed multiple regression techniques and factor analysis. The empirical results obtained from the analysis revealed that taxation and fiscal factors, demographic factors, administrative factors and economics factors are the main factors that have a significant effect on the evasion of taxes.

Determinants of tax evasion in the developing economies: A structural equation model approach of the case of Ghana

“…Tanzi (1983) provides an empirical evidence on the impact of tax rates on tax evasion and concluded that the tax rateevasion experience varies in results from neutral effect to significantly positive and negative effect. In contrast to this view, some studies (Slemrod et al, 2000;Allingham et al, 1972) including most recent studies (Ameyaw et al, 2016) have concluded that there exists a statistically significant positive effect of tax rates on tax evasion.…”

“…However most of these studies are done in developed economise (Clotfelter, 1983;Klovland, 1984;Schneider et al, 2008) with a limited number focused on developing countries. Very few studies discuss the subject matter in the developing countries such as Ameyaw and Dzaka (2016) and Ameyaw et al (2015). Although non-compliance by tax payers is a continual and global problem, many indicators suggest that developing countries in sub-Saharan Africa have had the hardest hit (Annan et al, 2010).…”

“…On determinants of tax evasion, Ameyaw and Dzaka (2016) outlined fiscal factors, demographic factors, administrative factors and economic factors as the main factors that have a significant effect on the evasion of taxes in Ghana, using factor analysis. These studies however fell short of examining specific attitudinal antecedents of tax-paying behaviour and the role of tax education in reducing tax evasion.…”

“…Other recent studies in the developing economies (Ameyaw et al, 2016), has attempted to group these reasons and find out how these groupings, collectively, may be a key motivator of tax evasion in Ghana. This study, in a similar manner, grouped these reasons into three major factors (traditional, institutional and sociocultural) moderated by the education level of the tax payer to determine the extent to which these factors collectively leads to tax evasion.…”

“…These clearly shows that the literature support the fact that, there is a significant inverse relationship between complexity of the tax law and fairness of the tax system. Several studies have been conducted to investigate the factors that contribute to tax evasion in Ghana, notable among them being Ameyaw et al (2016), Annan et al (2010) and Agyei (1984). To our knowledge, it is evident that these studies have investigated these factors independently with only few which have combined the factors into a truly multidisciplinary study.…”