Tax Administration

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A RESEARCH PROPOSAL
ASSESSING THE EFFECTIVENESS AND EFFECIENCY OF TAX ADMINISTRATION IN KUMASI

BACKGROUND OF THE STUDY
Tax administration attaches great importance to all forms of taxes, in the sense that they aim at reducing tax evasion to its minimum level. Ghana has relatively a long tax history on tax administration. According to the Report of the Tax Review Commission (Parts 1, 2 & 3)," Accra, (1977) the first custom law was first passed under colonial rule in 1855 and later replaced in 1876 by a custom law based in the U.K. With reference to the Report of the Tax Review Commission (Parts 1, 2 & 3), (1977), the customs Consolidated Act, 1876, income tax was introduced in Ghana under the Income Tax Ordinance in 1943. As noted above, the three main revenue institutions are the Value Added Tax Service (VATS), Custom Excise and Preventive Service (CEPS), Internal Revenue Service (IRS). The CEPS and VAT service are structured in the same direction. The IRS deals with all direct taxes whilst VATS and CEPS deal with all indirect taxes. Until 1986, both CEPS and the IRS formed part of the civil service. In 1985, two laws, the customs excise and preventive law (PNDC Law 144) and the internal revenue service law (PNDC law 143), were enacted to grant full operational and practical financial autonomy to these institutions. It is important to note that the provisions of these laws which established the IRS and CEPS as service of the Republic are upheld by the constitution of the fourth Republic. Income tax administration in Ghana begun in the then Gold Coast by the Poll Tax Ordinance in 1943. However, this ordinance has been amended several times. The consolidated edition was first amended in 1961. This was followed by the Income Tax Decree in 1966 (No 78) and the Income Tax Decree SMCD 5 in 1975. However, the first assessment was made in the 1944/1945 year of assessment. During this era, assessment was based on preceding year, in other words, one is assessed in a previous year but was made to pay to the tax in the subsequent year. The tax year started in May and ended in April the following year until the 1960’s when the year of assessment was changed to July to June the following year. This was still followed by the passing of SMCD 5 (1975) until 1981 when the Provisional National Defense Council (PNDCL) amended part of the SMCD 5 (1975). The SMCD 5 (1975) as amended by Provisional National Defense Council Law (PNDCL) changed a lot of the bases of assessment of tax. That is, the preceding year bases of assessment of income tax was changed to current year bases so that one was assessed in the current year and payment was expected to be made in that same year. This change was made in 1983 and the government statutory year was equated to the year of assessment which begins in January and ends in December the same year. This made sure that all individuals and firms followed the government statutory year until 1986 when the accounting year base was introduced. According to the report of The Tax Review Commission (part 1, 2 & 3),”Accra, 1977), the entire SMCD 5 (1975) and PNDCL (1981) were replaced with the Internal Revenue Act (592) 2000 which had replaced the VAT law and the CEPS management law. Though the internal revenue act (IRA 592) was passed in the year 2000, the government gave its assessment in February 2001. This Act brought some changes in the assessment of income tax especially in relation to the computation of year of assessment and bases period, capital allowance and capital gains and assessment of partners of partnership firms in the year 2000. Section 71 of the Income Tax Decree 1975 provides for a Commissioner who is responsible for the assessment and collection of income tax. There are two main forms of taxes in Ghana, which are Direct Taxes and Indirect Taxes. Direct taxes are however administrated by the IRS as noted above. These are classes of taxes levied on income earnings of a taxpayer or...
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