Examining the effect of withholding taxes under internal revenue Acts 2000, Act 592

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The study attempts to examine how tax withholding under Act 592 on earnings from individuals and corporate bodies affect tax collection and compliance, cash flow of business, savings and investment and the flow of foreign capital. The study discovered that withholding tax is a potential tool to increase tax collection and compliances, broaden the tax net and one of the most economical instrument of taxation. Tax withholding on contracts and supplies resulted tax over payments which is difficult to refund, and its resultants lack of fund for business to pay their debts or reinvest. Under Act 592 tax withholding on savings and investment prove otherwise that, savings and investments are not discouraged. Also the relatively low rate of tax withholding on earnings by foreign investment fails to discourage the flow of foreign capital as thought otherwise. In other to broaden the direct tax base of Ghana, it is recommended that withholding taxes should be extended to include individuals as withholding agent; there is the need of multiple actions such as tax withholding and information reporting; penalties should be severe to deter non-compliance; there should be treaties with other countries on elimination of tax withholding to encourage the flow of foreign investment and; tax education and campaign should be initiated and must be on-going.
A thesis submitted to the Board of Postgraduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirements for the award of the Degree of Master of Business Administration, 2008