A Study Into The Impact Of Tax Reforms On Investment Decisions In Ghana

A Study Into The Impact Of Tax Reforms On Investment Decisions In Ghana

Chapter One

Preface

Any government and utmost especially those in the developing husbandry are concerned about the profitable growth of their nation. As a result, they put by important trouble to achieve advanced rate of profitable growth and raise the standard of living of its citizens.

The critical issue has been how to attract investors and induce the demanded coffers domestically using duty instruments that are least dangerous to both the government and the investors. This will obviously involve reforming the duty system to insure effectiveness by widening the duty net without inescapably adding the duty rate.

Governments continue to encourage foreign investment as an integral part of its profitable policy. Ghana embarked on a privatization program in the early 1990s. The government at one point controlled further than 350 state- possessed enterprises but nearly 300 were privatized by the end of 2000 and as at December 31st 2005, 351 had been privatized leaving just a sprinkle of state- possessed enterprises. For illustration, the governments, stated precedence privatization in the 2007 budget included Ghana Telecom, Western Wireless( Westel), Tema Oil Refinery, Ghana Oil Company and State Insurance Company. They also pursued privatization through selling of State- possessed shares on the Ghana Stock Exchange( GSE).

The government recognizes attracting foreign direct investment requires an enabling legal terrain and has passed laws that encourage foreign investment and repeated some that has preliminarily stifled it. In the United States for illustration, there was a decline in investment some times agone . In order to stimulate investment, a new duty Act was introduced in 2002 and 2003. This helped the frugality to recapture its stage by the late 2003, investment returned to itspre-recession trend and the frugality expanded at a healthy rate of3.9 and despite the disruptions that was as a result of the hurricanes and steep rise in energy prices, registered3.2. A exploration conducted in United States by a Joint Economic Committee presented a case that, lowering the cost of capital through duty legislation can be both timely and effective in stimulating profitable growth.

Governments need to put in further trouble in attracting investors into their country through duty reforms if it wants to achieve profitable growth and enhance norms of living.

The most important source of government profit is from duty. According to the 2006 budget, the government introduced some duty impulses for adventure capital investment and reduced duty rate on particular and commercial income in order to strengthen the private sector and enhance the disposable income of householders. duty rate for companies in orders A and B were lowered, and rate for other orders were abolished with regard to the National Reconstruction Levy.

colorful studies have shown that changes in the duty system have great impact in investment opinions. Feldstein( 1982) observed that adverse changes in the duty variables since 1965 have depressed investment by further than 40 Hassett and Hubbard recent empirical studies appear to have reached a agreement that the pliantness of investment with respect to the duty- acclimated stoner cost of capital is between-0.5 and-1.0 Hassett and Hubbard cited other studies that concluded that duty over the last forty times have had a large effect on investment. A exploration by House and Shapiro showed that temporary investment duty impulses did stimulate investment.

Background Study

In my study, I’ll consider certain variables that affect investor†™ s decision as to where to invest. These, which include the position, type of exertion and time variables, are veritably important because the duty laws pertaining to each one of them concerning the duty rate to be paid, impulses, immunity, relief and leaves to be enjoyed varies.

Due to these nonstop changes in the duty law, there’s the need for similar information to be publicized since it goes a long way to determine the growth of the frugality, divert coffers to a particular sector of the frugality and also cover the original diligence, at the same time attracting foreign investors.

This is what Ghana has embarked on in recent times and my study will try to dissect the budget from January 2010 to April 2012 and see the colorful attempts by the government to induce further profit by attracting investors into the country.

Analyses of the budget in recent times had indicated that the government continually decreases the duty rate to widen the duty net. Indeed though in terms of duty profit composition, our main source of profit is deduced from circular levies( Handbasket especially), these are circular levies paid by consumers on some goods and services to the state through registered individualities or businesses. It has been realized that profit from direct levies continues to rise. In 2010, it constituted38.71 of total duty profit and increased to42.84 in 2011 and this can be attributed to the patient reduction of the commercial duty rate by the government as part of its sweats to ameliorate the terrain for private sector businesses.

These many changes and numerous others that haven’t been mentioned then brought to the fore the need to observe how decision on where to invest, what to invest in and when to invest changes as the duty system pertaining to these changes. These are serious issues which must be considered because the transition of developing countries into developed countries depend largely on the extent to which people invest their coffers to promote profitable growth.

1. ORGANIZATIONAL PROFILE

The Ghana Revenue Authority( GRA) under the ministry of finance and profitable planning of the democracy of Ghana is a public service association charged with direct duty administration.

GRA as a profit agency is veritably strategic in the achievement of public pretensions. It has thus embarked on a charge of perfecting the quality of service delivery to taxpayers and the general public through simplifying processes and clarifies rules and procedures. It has set up time frames for prompt completion of tasks in order to render them more transparent to the public. The main ideal of the Ghana Revenue Authority( GRA) is to produce a client acquainted profit collection association concentrated on quality service to enhance voluntary duty compliance.

The Ghana Revenue Authority( GRA) is supported in its bid at advanced quality service delivered by the ministry of public sector reform.

VISION

The Vision of the GRA is to be an effective Tax Administration Agency that applies the duty laws fairly, efficiently and with integrity in order to collect profit for National Development.

MISSION

The Mission of the GRA is to optimize duty profit through the fair operation of duty laws, to promote voluntary compliance through bettered client service and taxpayer education, and to effectively and efficiently administer the duty laws through well- trained and motivated staff.

The Ghana Revenue Authority( GRA) has five( 5) main Departments. These are-

Operations

Research, Planning and Monitoring

Finance

Administration

Legal Services

Statement Of The Problem

In every thriving frugality, investors main end is to invest scarce coffers to yield maximum returns on them. The government also needs to feed for its expenditure and development of the country.

It has thus come necessary to induce the demanded coffers from domestic frugality using duty instruments that are least dangerous to both the investor and the government

In Ghana, there have been several programs to attract investors into the country but it isn’t clear whether investors use these programs which have been put in place to profit both the Government and investors in all.

It’s in light of this, that this exploration tries to probe into the following issues

How the changes in the duty system affects investment decision in the country.

Whether duty reliefs, impulses, immunity and leaves have an impact on investment opinions on a particular position.

Exploration Objects

To find out the extent to which the colorful duty reforms affect investment decision in the country.

To estimate the colorful duty reforms in the formal sector over the once many times.

To explore the impact of commercial duty on firm position decision in Ghana.

Exploration Questions

i. What are the accounts behind or the reasons for duty reforms?

ii. What are the problems of duty reforms?

iii. What are some of the duty impulses used in attracting foreign direct investment?

iv. Should duty rate generalities be used to examine the effect of duty reform on investment?

SIGNIFICANCE OF THE STUDY

The study will be useful in the following ways

originally is that, it’ll educate prospective investors on the stylish indispensable business to invest in, grounded on the duty law for that particular sector.

Secondly, it’ll also encourage being investors to expand their investments to other sectors of the frugality as well.

likewise, it’ll also enlighten investors to the colorful duty impulses, reliefs, immunity and leaves available to and how they can take advantage of them.

also, it’ll help individualities to also understand how investors reply to changes in the duty system and how it affects the frugality both negatively and appreciatively.

And fifthly, the study will add further value to being literature since it’ll be streamlined with current issues and rates in the colorful sectors of the frugality.

And incipiently, in Ghana, it’s a demand for the attainment of a Bachelorette of Science degree. It’s also a demand of All Nations University for a degree program.

Compass Of The Study

This study is to assess the changing structure of the duty system in Ghana from January 2010 to April 2012 and suggest ways to ameliorate the duty administration in the country to bridge the gap between public expenditure and domestic profit.

Abdallah( 2006) Taxation in Ghana defines taxation as the levying of mandatory benefactions by public authorities having duty governance to defray the cost of their conditioning. It can also be seen as a means by which government apply decision to transfer coffers from the private to the public sector.

colorful types of duty can be grouped into Direct or circular. Direct duty include Income duty, capital earnings duty, gift duty and commercial duty. circular duty includes Excise duty, Custom duty and Value Added duty( Handbasket). They’re called circular because the Administering authorities, the Customs, Excise and preventative Service and the Handbasket Services don’t collect levies from consumers but do so laterally through importers, manufactures and other interposers.

Reilly and Norton, Investments( 2003), 6th edition defines investment as the current commitment of coffers for a period of time in the anticipation of entering unborn coffers that will compensate the investor for

The time the coffers are committed

The anticipated rate of affectation

The threat, that’s query of the unborn payments

Internal Revenue Act( 2000), Section 94 defines investment as a manner in which a person may decide earnings, gains or income other than from a business or employment.

Details of this will be given in chapter two.

Limitations Of The Study

During the study, the experimenter encountered certain limitations similar as time constraint. This didn’t permit the experimenter to expand his population base and to make certain enquires into areas that could have been useful to the study.

There was difficulty in having access to certain information due to the fact that sufficient records weren’t available.

And incipiently, target repliers may not be willing to give acceptable and prompt feedback of questionnaires.