Challenges of income tax compliance in the informal sector of Adansi North District

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Governments and their tax authorities have been working around the clock to bring the informal sector into the tax bracket. Efforts by governments to widen the tax base will greatly increase revenue leading to a reduction in the reliance on donor funding and in incidences where governments are forced to increase taxes on basic commodities. The study set forth to determine the level of income tax compliance by the informal sector, the challenges faced by the informal sector in complying with income tax liabilities and the reasons for the non-compliance of income tax by the informal sector of Adansi North District. The study reviewed literature related to income tax compliance in general and employed a quantitative and qualitative methodology. The questionnaires and follow up interviews were used as the main instrument in the collection of data. The study used a sample size of 230 which comprised entrepreneurs in the informal sector of Adansi North District. The research questions were analyzed through the use of statistics tools (Tables, percentages, pie charts, and bar charts). This study identified that majority of respondents were mostly into retail/commerce and agriculture. On the average the amount of tax paid by the informal sector deviated from expected tax to be reported and paid to GRA by 25.25%. Participants recounted inefficiencies with GRA as part of the reasons for income tax non-compliance. Another reason identified for tax non-compliance and evasion by the study included the perceived misuse of the revenues collected by GRA. Challenges identified from the work ranged from high rate of taxation, cost of complying with tax, skill and education base in the sector to firm wide performance. In the light of the above findings to the study, the researcher proposes that GRA should focus on strengthening its structures to eradicate the loopholes as well as ensure proper use and allocation of revenues.
A dissertation presented to the Department of Accounting and Finance in partial fulfillment of the requirement for the award of Masters in Business Administration,