The Effects of Personal Income Tax Evasion on Socio-economic Development in Ghana: A Case Study of the Informal Sector

Abstract

Revenues generated from taxes constitute a major source of income for governments. However, the epic display of tax evasion by individuals and firms in most countries has induced researches on the factors accounting for tax evasion in developing countries. Therefore, this study is conducted to investigate the effect of personal income tax evasion on economic growth in Ghana. Questionnaires were submitted to 153 respondents to investigate personal income tax evasion and socio-economic development with 109 respondents and 44 tax authority respondents from the informal sector in the Tema Metropolitan Assembly of Ghana. Regression analysis employed in our study depicted the results of the impact of personal income tax evasion on socio-economic development. The results of the study revealed that tax evasion in Ghana has an adverse influence on Socio-Economic Development. Furthermore, a liaison between tax rate and tax evasion was established. In other words, high tax rates amounts to high tax evasion tendency. The study further revealed that tax payers’ relationship with tax authorities has no linkage to the evasion of taxes. Moreover, the existence of weak penalties towards tax evasion also do not contribute to the evasion of taxes. The study conclude with recommendations to policy makers to aide in curbing the high incidence of tax evasion in Ghana.