By John Kinyorbaan Gabulja
Taxation is the lifeblood of national development, providing governments with the resources to fund infrastructure, education, healthcare, and other essential services. However, tax evasion remains a significant challenge in many developing economies, including Ghana. Despite the legal and moral obligations to pay taxes, individuals and businesses often find ways to avoid fulfilling their tax responsibilities. This article examines the key reasons behind tax evasion, the role of accountants who engage in unethical creative accounting, and the need for greater transparency in tax administration. It calls for a national dialogue on fostering a culture of tax compliance and integrity within Ghana’s financial ecosystem.
Reasons Why People Evade Taxes
Tax evasion is a multi-faceted problem rooted in economic, psychological, and structural factors. Among the most common reasons are:
1. High Tax Burden and Perceived Unfairness
Many taxpayers perceive tax rates as excessively high, especially in relation to their income levels. When citizens feel that taxes are disproportionately burdensome or unfairly structured, they may seek ways to reduce their obligations illegally.
2. Corruption and Mismanagement of Public Funds
One of the most compelling reasons for tax evasion is the lack of trust in government institutions. Many Ghanaians believe that their taxes are misused through corruption, mismanagement, and wasteful expenditures. When citizens do not see tangible benefits from their tax contributions, they may rationalize tax evasion as a form of protest.
3. Weak Enforcement and Loopholes in the Tax System
Ghana’s tax administration faces structural weaknesses, including inefficient enforcement mechanisms and outdated regulatory frameworks. Many businesses and high-net-worth individuals exploit these loopholes to underreport income or engage in fraudulent tax schemes.
4. Poor Taxpayer Education and Awareness
A significant portion of the population lacks adequate knowledge about tax laws and their obligations. Some individuals unknowingly evade taxes due to ignorance, while others take advantage of the general lack of awareness to manipulate the system.
5. Influence of the Informal Sector
Ghana has a large informal sector, where many businesses operate outside the formal tax system. The difficulty in tracking informal economic activities leads to widespread tax evasion, reducing government revenue.
Unethical Creative Accounting and Its Role in Tax Evasion
Accountants play a crucial role in ensuring financial integrity within businesses. However, some professionals engage in “creative accounting,” a practice that involves manipulating financial records to present a misleading picture of a company’s financial health. In many cases, this unethical practice is used to evade taxes, thereby depriving the government of needed revenue.
The Ethical Dilemma for Accountants
Many accountants justify creative accounting by arguing that they are merely serving the interests of their clients. However, this practice raises serious ethical concerns:
It undermines the credibility of financial reporting, leading to distorted economic data that misguides policymakers.
It violates professional ethical standards, as accounting bodies emphasize honesty and transparency.
It exposes businesses to legal risks, including penalties and reputational damage when fraudulent practices are discovered.
Advice to Accountants
To address this issue, accountants must uphold ethical principles and resist pressures to manipulate financial statements. Professional accounting bodies in Ghana, such as the Institute of Chartered Accountants, Ghana (ICAG), should strengthen disciplinary actions against members who engage in unethical practices. Additionally, companies must prioritize ethical leadership, ensuring that financial reporting aligns with legal and moral standards.
The Need for Transparency in Tax Administration
A transparent tax system is critical for building public trust and increasing tax compliance. The Ghana Revenue Authority (GRA) and government officials must take proactive steps to address concerns related to corruption and inefficiency.
1. Digitalization and Automation of Tax Processes
Implementing modern tax collection technologies can minimize human interference, reducing opportunities for corruption. Ghana has made progress with the Ghana Card system and e-tax platforms, but further digital transformation is needed to enhance efficiency and prevent manipulation.
2. Strict Monitoring and Accountability of Tax Officials
Cases of unethical behavior by GRA officials must be addressed with strict legal consequences. The government should introduce whistleblower protections and independent monitoring mechanisms to hold tax administrators accountable.
3. Public Education and Engagement
The government must invest in nationwide tax literacy campaigns to educate citizens on the importance of tax compliance. Greater awareness will discourage tax evasion and foster a sense of national duty.
A Call for National Dialogue
Tax evasion, unethical accounting practices, and lack of transparency in tax administration are serious threats to Ghana’s economic development. Addressing these challenges requires a multi-stakeholder approach, involving the government, accounting professionals, businesses, and civil society. Ghana must foster a culture of tax compliance and integrity to ensure sustainable national progress.
A national dialogue on taxation, ethics, and governance is necessary to reshape public attitudes toward tax compliance. By promoting fair tax policies, strengthening enforcement, and ensuring accountability, Ghana can build a more transparent and prosperous economic future.
The Conversation Must Begin Now!
Written by John Kinyorbaan Gabulja BBA, Msc, CTA, DBA Candidate
Tax Expert, 0240252518
