Home Business Revenue Mobilization In District Assemblies By Ibrahim Yakubu (CA, MBA,B,COM,PGDE)

Revenue Mobilization In District Assemblies By Ibrahim Yakubu (CA, MBA,B,COM,PGDE)

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A CASE STUDY OF TECHIMAN MUNICIPAL ASSEMBLY, A THESIS SUBMITTED TO THE GRADUATE SCHOOL, KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY IN PARTIAL FUFILMENT OF THE REQUIREMENT FOR AN AWARD OF COMMONWEALTH EXECUTIVE MASTERS DEGREE IN BUSINESS
ADMINISTRATION.

AUGUST,2013

CHAPTER ONE

INTRODUCTION

1.0.0 BACKGROUND TO THE STUDY
Domestic Revenue Mobilization (D.R.M ) refers to the generation of savings from Domestic resources and their allocation to economically and socially productive investments. Such resources allocated can come from both the public and Private sectors.

The public does this through taxation and other forms of public revenue generation. Domestic Revenue Mobilization is important to African Countries because it is the potential and the biggest source of long term financing for sustainable development and it is the life blood of all state governance and the provision of public goods and service.

According to the United Nation Trade and Development report on world investment in 2005-2006 indicate that most Africa countries have shown encouraging trends in Domestic Revenue Mobilization (D.R.M) growth in the recent years. However, there are still challenges that they encounter. In Sub-Saharan Africa, D.R.M constitutes about 70% of development finance, which means that there is deficit of 30% usually filled by loans, Aids or other forms of public finance. Africa is faced with what is referred to as the “paradox of plenty “, which means a characteristic of many mineral rich countries in Africa yet they are the worst in terms of revenue generation because of poor governance.

The report of the world investment released by the United Nation
Trade and Development shows that the average tax Gross Domestic Product
(GDP) ratio in Sub-Saharan Africa increase from 15% of GDP in 1980 to 18% in 2005. However virtually the entire increase in tax revenue in these countries come from the blessed natural resource such as income from production sharing, royalties and corporate income tax from oil and mining and agricultural sector.

The United Nation Trade and Development again indicate that there are only a few tax payers who contribute a bulk of direct tax. In the case of Ghana, it shows that 20% of tax payers contribute only 80% of direct tax revenue and remaining 80% of the tax payers contribute 20%. This is because, Ghana is faced with reality of a large share in agriculture and employment in total.The main characteristics is large informal sector and many small establishments.

The 2006 Budget statement and Economic policy of the government of Ghana emphasized the need to improve fiscal policy management. One of the most important aspects of the fiscal policy is how to manage tax environment especially tax law and tax information so that households and businesses can make their consumption, savings and investment decision in the most efficient way possible.

Publication is the first in an attempt to disseminate information on tax laws and other measures government has taken to improve tax administration and also encourage voluntary compliance. The publication puts together the series of year-by-year tax initiatives (new laws, amendments and improvements in tax education in Ghana) for the period of 2001-2006. Reforms of tax administration and tax collection has been a major undertaking backed by legislative changes. The tax measures also reflect the government’s desire to make taxation as a major policy to accelerate growth and poverty reduction.

With these, they have been several reforms outright relief and incentive signal to households and business sector. Reform has included the introduction of new taxes, increasing and decreasing tax rate on difference tax units. These have been adjustment to ensure that there is equity in the structure of incentives which are all line with Ghana growth and poverty reduction strategy. Budget statement and economic policies of government (2001-2006).

Taxation is one of the practical means of raising revenue to finance government expenditure on goods and services that citizens of the country demand in all the developed and developing countries. Setting up an efficient and fair tax system, as one of the canon tax is however not simply particularly for developing countries that want to become integrated in the international economy. The ideal tax system in developing countries should generate essential revenue that will ease the problem of government borrowing and should do without discouraging economic activities and not being different from other countries tax system.

With regard to the definition of Taxation, Agyeman (2005) defines taxation as “a compulsory demand of money by central government or local government, a payment of money by citizens of a country other than payment for some specific goods and services”. History shows that people sometimes pay tax willingly and sometimes too unwillingly.

As Prof. Ansah puts it “I have to the conclusion that taxpaying is unpleasant thing that anyone who loves paying tax or even pays tax without complaining out to have his or her head examined but without revenue from taxes there would be no social life as we know and we would be nearer to the jungle where we all presumed to have emerged.”

Generally revenue and regulating the economy are the two main function of taxation. In less complex society in which government has few duties and responsibilities, the financial needs of government are not so big. However as society becomes complex and large the need of the people also become great and the government responsibilities also become greater thus the financial needs of the government become great.

Consequently, taxes increase and their effect on the economy become more important and pronounced. Nsor Ambala (2008) Developing countries face big challenges when they attempt to establish efficient tax system. Most of the people in these countries are typically employed in the agricultural sector where lack of modern technology such as the use of heavy machines for farming and harvesting is a problem faced this sector. The other challenge is the informal sector where small enterprises paid regular fixed wage without any records in their books of accounts.

Income tax provides a large source of national revenue and government have been utilizing taxation as an instrument to regulate the general economy and its effect on inflation, unemployment and other social and economic objective has become a prime consideration in enacting tax laws. Nsor Ambala (2008). Changes in taxation can affect the economy. A good example of using tax to control behavior is the use of customs duties imposing a high custom duty on imported good to protect the local industries and to encourage the consumption of local goods.

Taxes are sometimes used as kind of social control. We see this idea in the taxing of alcohol and tobacco by governments to minimize the consumption of these products.
Information from the Domestic Tax Revenue Division (D.T.R.D) formally Internal Revenue Service (I.R.S) website (www.irs.gh) [accessed on 20/01/2013] indicates that there are two main type of taxation. That is taxation for formal sector and taxation for the informal sector.

Taxation for the informal which is normally the indirect taxes where the taxes on this sector are shifted to the final consumer of the goods or services delivered. Examples include the import duties, export duties and Value Added Tax (VAT). Indirect tax was outside the scope of this study.
Taxation for the formal sector is the direct taxes and they are;
∙ Capital Gain tax
∙ Gift tax
∙ Income tax
∙ Rent tax and stamp duty.

As the name of direct tax, it implies that these taxes are levied directly on the income of the earner. The effect of these taxes is that it is felt by the payee and she/he knows exactly how much she/he is to pay as tax. This tax is administered by the Domestic Tax Revenue Division (D.T.R.D) of the Ghana Revenue Authority, formally Internal Revenue Service (IRS) and it is the main focus point of this
project.

This project seeks to identify the strength and weakness of the Domestic Tax Revenue Division (D.T.R.D) in relation to tax collection and to identify measures of increasing revenue mobilization in the study area and Ghana at large.

1.1.0 BRIEF HISTORY OF TAX IN GHANA
In Ghana taxation started in the form of customs duty in 1850. It was levied on imported goods at the rate of 0.5% ad valorem. This was administered by a principal collector stationed at cape coast. In 1852, the British introduced poll tax in the British protectorate of the Gold Coast. This was intended to generate funds to help meet the cost of administration of the colony. The scheme lasted for only a year and had to be abandoned due to stiff opposition from the natives of the nation.

The first serious attempt to introduce income tax into Gold Coast was made in September 1931 by Governor Sir Ransford Slater. By 1941, cocoa exports, which hitherto had been providing government with sufficient revenue, had slumped as a result of the Second World War. In order to make up the short fall in revenue, government was forced to introduce income tax. Sir Allan Burns who was the Governor of the Gold Coast made another attempt of introducing income taxation into the country by addressing the Gold Coast Legislative Council on 23rd February 1943.

On August 19, 1943, Mr. W. B Dare, the then Commissioner of Income Tax for West Africa based in Nigeria introduced the income tax bill into the Gold Coast Legislative Council. The bill went through all the stages of the Council without mishap and later was passed into law on 22nd September 1943 as the Income Tax Ordinance No. 27 of 1943. The period from October 1943 to March 1944 was used in organizing administratively and therefore no assessment was raised. Actual assessment was raised from 1st April 1944 for the year of assessment 1944/1945. The assessments were raised on the self-employed, companies and employees. With the introduction of P. A. Y. E. (Pay As You Earn) the tax year was changed from April to September due to the delays in payment and the inflation.

Income earned in a particular year was not taxed till the following year so that the taxpayer would have the opportunity to invest his or her taxes somewhere else when payment was due.

Between 1961 and 1963 other taxes including entertainment tax and betting tax were added to the duties of the Income Tax Department. This necessitated the change of the name from Income Tax Department to Central Revenue Department in 1963. The Income Tax Department was first housed in the old secretariat building, which now houses the Department of the National Lotteries.

The Department moved into an old building situated at the junction of High street and Bannerman Road at James Town in 1946. The Income Tax Ordinance No. 27 with its numerous amendments was used up to 1966 when it was consolidated into the Income Tax Decree (NLCD 78). In 1975, it became necessary to also consolidate the NLCD 78 as a result of several amendments it had gone through. We thus had the SMCD 75.

This decree was used until 2000 when the Internal Revenue Service Act 2000 (Act 592) was promulgated. VAT on the other hand was first introduced in Ghana on March 1, 1995 when the VAT Act (Act 486) received parliamentary assent. In view of the insufficient education made before its introduction, it lasted for only three and a half months amidst violent protects and demonstrations. It was re-introduced on 30th December 1998 by Act 546 which still remains the current tax legislation on VAT.

The history of the Ghana Customs Exercise and Preventive Service dates as far back as the year 1850. It was then known as His Majesty’s Customs Department. The department was administered by a Principal Collector at the Cape Coast Castle then the seat of government. Since then the department had gone through a number of changes. In 1986, a major restructuring exercise was carried out resulting in the enactment of the CEPS Law 1986, (PNDC Law 144). In 1993, it became necessary to consolidate all the existing laws into one legislation for ease of reference and administration. Accordingly, CEPS Law 1993 (Act 330) was promulgated. This is the current tax legislation in force.

1.1.1 DEFINITION OF TAXATION
According to Agyeman (2005), taxation is defined “as a compulsory payment of money to people in a country, which is not a payment for specific services or as a penalty for offences”. Taxation is very necessary in every country. It is one of the important aspects of any country.
Nsor-Ambala (2008) also defined taxation “as a compulsory payment by individuals and companies to the state”. He further explained that tax is a compulsory payment imposed by authorities of law-making body of a state or by decree that is enforceable by law.

Ali-Nakyea Abdallah (2008) also defined Taxation as “the levying of compulsory contributions by public authorities having tax jurisdiction, to defray the cost of their activities”. According to him, no specific reward is gained by the taxpayer. The money collected is used for something that will benefit all citizens, that is, for the production of certain social amenities which are more efficiently provided by the State rather than by individuals, for example the maintenance of law and order at home , and defence against any external aggression.

In this sense tax can be said to be payment to support government expenditure. Taxes can therefore be considered as a compulsory payment from households and firms to government to enable the government to finance certain projects and programmes. Taxes are compulsory because anyone subject to tax does not have the option to choose whether to pay or not to pay.

Taxation can also be regarded as a compulsion on the individual to surrender his control over private goods and services so as to enable the government to re-channel the inputs (monetary or physical) into the production of public goods and services. You can avoid tax but cannot evade tax. Avoidance could be by you refusing to consume an item on which tax has been imposed.

The key aspects of these definitions of tax are;
∙ Tax is a compulsory payment because anybody subject to tax is not free to choose whether or not to pay.
∙ Tax is not a payment for specific service.
∙ Tax is not a payment for offences committed.
∙ No specific reward is gained by the tax payer.
∙ The money collected is used for a common goal.

For the purpose of this research, taxation may be defined as an amount of money levied by government which is backed by an Act or decree on its citizen and used it to run the general administration of the country. Just as other writers on the topic said, this levied amount is not for the payment of reward, offence and not for specific service but for the total development of the Nation.

1.2.0 PROBLEM STATEMENT
Tax revenue contributes substantially to the development of Ghana. Revenue accruing from taxes forms a major component of government income. It is believed that most government projects are funded by the revenue mobilized through taxes.

This therefore, makes the efficiency in mobilizing revenue very key to the realization of government plans. However the importance that it is required in mobilizing revenue by the tax agencies seems to be lacking, especially at the district levels resulting in shortfalls in government budgetary funding which makes governments over reliance on donor funding over the years.
A school of thought has it that those covered by the existing tax system are able to avoid or evade tax with impunity due to ineffective structures.

This is contrary to believe that the low revenue from taxes is due to the fact that Ghana’s tax base is not wide and therefore widening the tax base will capture more taxpayers and this will yield more revenue from taxes. The long-term effects of these weaknesses in revenue mobilization may continue to affect government development agenda and must therefore be indentified for solutions. The objective of this research is to find out the underlying causes of these weaknesses through a cross-sectional study.

1.3.0 RESEARCH OBJECTIVES
Poor revenue mobilization is a challenge to Techiman Municpal Assembly, at the end of this research, I would be able to:
∙ Identify the strength and weakness of the Domestic Tax Revenue in relation to tax
collection.
∙ Indentify measures of increasing revenue mobilization in the TMA
∙ Identify the causes of tax evasion in the area
∙ Identify other sources of revenue available to the TMA

1.4.0 RESEARCH QUESTIONS
Systematic investigations into the research questions will bring out information, ideas and concepts that will contribute a great deal to finding out a lot about the topic being written on. In order to go through the research successfully, the under listed questions need to be considered:
(i) Why is it that the TMA cannot generate enough revenue?
(ii) Are there measures to increase revenue mobilization in the TMA?
(iii) Why do people evade tax?
(iv) Are there other sources of revenue available to the TMA?

1.5.0 JUSTIFICATION OF THE STUDY
This research will go a long way to identify the strength and weakness of the Domestic Tax Revenue Division (D.T.R.D) of the Ghana Revenue Authority (G.R.A) in relation to tax collection and to identify possible measures that will increase revenue mobilization in the country at large.

1.6.0 METHODOLOGY
In order to ascertain the nature of the District Assembly revenue generation situation, and to be able to come out with meaningful conclusions, the researcher devised different methods for collection of the data.
For the purpose of the study, data would be gathered from both primary and secondary source. The researcher decided to use questionnaire method of data collection to obtain the primary data for the study. This method was used not only because every respondent could read and understand but also as a source of reference and documentation. Some other methods available for the collection of primary data include; telephone interview, face-to face interview, mailed questionnaire and personal observations.
The secondary data will be gathered from various sources including the News Papers, Magazines, websites, Acts of parliament, Reports etc. The data opts however be suitable, reliable, accurate and adequate for the study.

The data will be analyzed using tables, graphs, charts and histograms.
The accessible population or study was stratified to fifty (50).

1.6.1 PRIMARY DATA
The study made use of primary data. This data was collected by issuing
questionnaire and interview to the stratified sample of the population of forty tax payers and five tax collectors and five officials in the study area.

1.6.2 SECONDARY DATA
The study implored secondary data. Data concerning the budgeted revenue and actual revenue enable me to calculate the variance, the tax rates and others were collected from Domestic Tax Revenue Division of the Ghana Revenue Authority in Techiman Municipal Assembly office.

1.6.3 SAMPLE SIZE AND PROCEDURE
Stratified sampling method was used for the study. This involves disaggregating the theoretical population into coherent sub-groups and this made the sample more representative and to ensure that different group of the population is adequately represented in the sample. The selection if respondent was based on simple random method whereby each individual within a group had an equal chance of being selected.
The various categories of group were chosen for the investigation. This includes:

General public 40
Tax collectors 5
Tax officials 5
The total sample size was fifty (50) looking at the financial and time constraint of the research.

1.6.4 DATA COLLECTION PROCEDURE
Two instruments were used for the study and they were interviews and questionnaire. Respondents were interviewed for ten minutes each. The respondents were visited at their various offices and work places for the interview. The questionnaires were personally given to the respondents and they were given enough time to respond to the questions.

1.6.5 DATA ANALYSIS AND INTERPRETATION
The analysis of the data collection was based on the type of data. The quantitative data was analyzed with the support of Statistical Programmed for Social Science (SPSS) or Microsoft Excel to generate chart, diagrams, graph and
tables.

1.7.0 LIMITATIONS OF THE STUDY
The lack of record keeping in most departments in Ghana and for that matter the Domestic Tax Division was a problem in terms of how to get data. Fear of
intimidation of the tax collectors and tax officials also posed a standing block.
Financial constraints and combination of this work with full academic work in this short time period call for limits in this research. The scope of the research is centered on the taxation of the informal sector to identify the strength and weakness in relation to tax collection and to find ways in increasing revenue mobilization in the study area.

1.8.0 STRUCTURE OF THE STUDY
The Research was organized as follows; Chapter one was the introduction of the
study,
Chapter two was solely on the literature review. Chapter three covers the methodology that was used in obtaining data facts and information from the study area. Chapter four was the analyses of information collected from the study area. Chapter five was the final report of the study and it consists of summary, suggestion and recommendation to the study area.

CHAPTER TWO
LITERATURE REVIEW
2.0.0 INTRODUCTION
This chapter presents the various literature exhibited and produced by other persons and authorities related to the subject under study. Literature review discusses some ideas already in books, journals or websites that throw lights on the topic under research. An attempt is also made to examine carefully some time tested procedures and the conditions under which internally generated revenue mobilization may be implemented effectively.

A lot of theories, concerns and views have been put out by various writers and administrative practitioners on the revenue mobilization capacity of Metropolitan, Municipal and District Assemblies (MMDAs) and how those revenues mobilized are utilized.

Among the reasons assigned by such concerns and opinions is that the ineffectiveness of the local government administration is to be blamed on ineffective revenue mobilization the such as lack of mission or lack of comprehensive functional role, lack of proper structure (i.e. the role of local government in the development process was not known), low quality of staff and low funding (Adedeji 1970).

He further reiterated that, these problems led the local governments into a vicious circle of poverty because inadequate functions and powers lead to inadequate funding which results in the employment of low skilled and poorly paid staff.

Shibata (1993), on the division of expenditure responsibility between central government and local government, indicated that as a result, local public finance accounts for approximately two-thirds of the public expenditure burden, on the basis of final disbursements.

The urbanization of poverty is one of the most dramatic developments on the African continent, yielding contrasting images of affluent residential and business districts and utter misery in sprawling shanty towns or slums.

More than 50 per cent of Africa‘s population will soon live in towns and cities, and 50 per cent of Africa‘s poor will live in urban slums by 2025 (Tostensen etal.,2001). The growth of Africa‘s towns and cities has outpaced local authority capacity for service delivery in terms of management, infrastructure, and financing (McCluskey etal., 2003).

In Ghana, Bella (2000) mentions that the urban municipal authorities, many of which were originally instituted as colonial administrative institutions have not been restructured to cope with the fast-growing population. According to Devas (2003) a growing number of urban residents live in informal settlements characterized by deficient basic services such as housing, clean water, electricity, sanitation, refuse collection, roads, and transport.

Again, many municipalities are financially weak and therefore rely on financial transfer and assistance from the central government (Brosio, 2000).
Moreover, the revenue collection situation in most local government administration system is not sufficient and large amounts of revenue collected are often inappropriately managed.

As a result, many African towns and cities face a governance crisis and poor service delivery capability. Consequently, the restructuring of governmental functions and finances between the national and municipal levels of government has entered the core of the development debate. Fiscal decentralization that is the revolution of revenue mobilization and the spending powers to the lower levels of government has been the main theme of most governance in recent years.

2.1.1 ACADEMIC REVIEW ON TAX EVASION
Several options are available for raising fund for bidding resources away from other sectors of the economy and from other claimants to undertake their activities (Soyode, Kajola, 2006). The options include taxes, non taxes revenue such as fees, levies, charges, property and investment income, domestic and foreign borrowing including loans from the multinational institutions and foreign grants. Thus, a major source of funds for any government is the tax revenue (Asher, 2001).

The World Bank (2000) reiterated that taxes are compulsory transfer of resources to the government from the rest of the economy. Adeyeye (2004) described tax as liability on account of tax payer as contribution in some quantum measure to the fund available for use by government in providing necessary infrastructure for her citizens. Taxes are compulsory levy by the tax subject (government) through her designated agent on the tax subject (the tax payers).

Tax evasion and avoidance have generated considerable interest and concern to the governments and finance experts (Nzotta: 2007). Tax evasion according to Kay (1980) takes place when facts of transaction are admitted but they have been arranged or presented in such a way that the resulting tax treatment differs from that intended by the relevant legislation.

Tax evasion is general term for efforts by individuals, firms, trusts and other entities to evade tax by all means. (Nwachukwu, 2006).Tax evasion usually entails tax payers deliberate misrepresenting or concealing the true state of their affairs to the tax
authorities to reduce tax liability. It also includes, dishonest tax reporting such as declaring less income, profits or gain than actually earned; or overstating deductions.(Alm and Martinez,2001). Eboziegbe (2007) opined that tax evasion remains serious threat to revenue generation efforts of government.

In essence, tax evasion is illegal while tax avoidance is legal under the ambience of law.(Soyode & Kajola,2006:Kay,1980). Pashev (2005), the failure of government the government to provide basic infrastructures which are supposed to be funded by the taxes being collected may aggravate tax evasion. Lack of transparency and accountability in the use of public funds has eroded public trust both in the tax system as well as the government.

2.1.2 EMPIRICAL AND THEORETICAL FRAMEWORK OF TAX EVASION IN
NIGERIA
Nigeria was colonized by the British just like some other African countries. By an act of the British Parliament, Nigeria became an independent country within the commonwealth on October 1, 1960. In 1963 Nigeria became a republic within the Commonwealth. In Nigeria, the taxation system dates back to 1904 when the personal income tax was introduced in northern Nigeria before the unification of the country by the colonial masters. It was later implemented through the Native Revenue Ordinances to the western and eastern regions in 1917 and 1928, respectively.

Among other amendments in the 1930s, it was later incorporated into Direct Taxation Ordinance No. 4 of 1940 (Library of Congress, 2008). In essence, the Nigerian tax system has been based on 1948 British tax laws and has been undergoing a lot of changes. Since then, different governments have continued to improve on Nigeria’s taxation system. A vital aspect of the improvement on the nation’s tax system is the recent Federal Inland Revenue Service (Establishment) Act, 2007, Companies Income Tax (Amendment) Act, 2007 and the Draft National Tax Policy pending before the National Assembly.

Sanni (2005) noted that a vibrant tax system will have the following “tripod”; Tax Policy, Tax Law and Tax Administration. He mentioned that a tax system is administered through tax policies while the tax laws serve as the legal backing. Soyode and
Kajola (2006) noted some of the sources of tax laws in Nigeria to include Legislations, Constitution, Court judgments and Circulars. Tax evasion can be traced back the study of Allinghan and Sandmo (1972). In the publication titled”
Income tax Evasion; A Theoretical Analysis”, since then, it has been followed by a large number of contributions to the literature. The study observed positive correlation between tax rate and evasion.

This study is in consonance with Olivia (1998) which noted that the rate at which taxpayers are being taxed impacts on tax evasion. He reiterated that the higher the rate of tax, the higher the likelihood for the taxpayer to evade tax. Acconnia (2003) noted that the level of corruption and tax evasion depends on such factors as the wealth of tax payer and wages of the tax officers. Mcgee and Marangyan (2006) model, which tried to identify the optimal wages at which tax officers should be remunerated, he ascertained that government is at dilemmas trying to fix the salaries that ensures its tax officers are not enticed to bribery as there is a link between tax evasion and the level of salary of the tax officer through corruption.

2.1.3 DIFFERENCES BETWEEN TAX EVASION AND TAX AVOIDANCE
Tax avoidance refers to arrangement through which a person acting within the letter of law reduces his true tax liability, infringing in the process both the spirit and intention of the law (Nzotta, 2007). Tax evasion on the other hand denotes an outright defrauding of tax revenues through illegal acts and deliberate suppression or falsification of the facts relating to ones true tax liability. Thus, while tax avoidance is legal and within the ambit of the law, tax evasion is illegal, criminal and punishable under the law. Soyode and Kajola (2006), tax evasion is willful and deliberate practice of not disclosing full taxable income in order to pay less tax. Also, it is a violation of tax laws whereby the tax due by a tax payer is unpaid after the minimum specified period.

On the other hand, Kay, (1980) opined that tax avoidance takes place when facts of the transaction are admitted but they have been arranged or presented in such a way that the resulting tax treatment differs from that intended by the relevant legislation. In essence, tax evasion is illegal while tax avoidance is not illegal under the ambience of the law. (Soyode & Kajola, 2006: 60; Kay, 1980: 142-145).

From the various literature above, pay less or no tax illegally is tax evasion while exploiting loopholes in tax laws and codes is tax avoidance and it is permissible at law.

2.1.4 CAUSES OF TAX EVASION
Nzotta (1995), a number of factors are responsible for tax evasion are:
1. The high level of corruption by some government officials at all level and lack of fiscal transparency. This affects the willingness of tax payers to pay tax in the sense that they believe chunk of this will go to top government official private pockets
2. Corrupt practices of some tax officials encourage tax evasion who sometimes colludes with tax defaulter.
3. Complexity of tax laws and bye-laws contribute to tax evasion. There have been instances of multiple taxes by two-tier at the same time. This gives room for tax evasion.
4. Absence of strong deterrent punishments and willingness to prosecute tax offenders whether mighty or poor contribute to rampant tax evasion.
5. Nature of administration by many revenue service offices hamper the task of assessment, investigation and administration of taxes. There has been poor data base and inadequate information system for effective tax planning.
6. Deteriorating standard of living with reduction in level of income contributes largely to tax evasion.
7. Lack of adequate information and improper education of the citizens on their obligations to the state about taxes affect the willingness to pay taxes.
8. Low level of patriotism among the citizen affects the attitude to taxes and willingness to pay taxes.

2.1.5 FACTORS THAT ENCOURAGE TAX EVASION IN NIGERIA
Lagos state is perceived state with highest Internally Generated Revenue (IGR) in Nigeria, the incidence of tax evasion is still very high. In 2012, the average monthly IGR of N25billion monthly far above annual generation of some states of the federation. Nevertheless, there are tax evasion especially among some foreigners and Nigerians who hide under the cloak of dubious tax officials and some appointed consultants.

Olabisi (2010), tax evasion and tax avoidance have a significance relationship with the government revenue in Lagos State; hence government revenue is being seriously affected by tax irregularities. The overall evidence suggests that tax evasion and tax avoidance are very significance in
Nigeria and the degree of the significance depends on the extent to which the government relies on taxation as a means of government revenue (Temitope, Olayinka and Abdurafiu, 2010).
Olabisi (2010), Nigeria tax system is not efficient and effective in its totality; there is no available database of all taxable individuals, the mechanism in place for the assessment and collection of taxes are not enough and there are no strict measures in place.

The effect of tax evasion and tax avoidance on the Lagos state economy cannot be overemphasized. The revenue of government has been greatly affected. The current tax system being used gives room for loopholes, the corrupt tax officials, the lack of adequate data and many more have worsened the situation. In addition, a reduction in tax rate is even not an optimum solution to the problem, simply because some people would still attempt to evade or avoid taxes no matter the rates of taxes. Therefore, there should be completely overhauled of the Nigeria tax system. The existence of substantial number of tax evaders in Lagos state should be a matter of concern to the policy makers and tax administrators.

Nzotta (2007), tax avoidance can largely be checked by plugging the loopholes in the tax law and carefully drafting of all new tax legislation. From the above, problems of tax evasion and avoidance is imminent. It is suggested that all the tax laws should be further codified and harmonized. Furthermore, tax enforcement machinery should be strengthening. The level of punishment should also be stricter and the legal provisions for doing this should be clearly stated.
Continuous education for citizenry has to be embarked upon and step has to be taken to convince the tax payers that the money collected in form of taxes are judiciously spent. The state Board of internal Revenue and the Revenue collecting officers at the state level should be exposed to further training and exposure.

2.2.0 TAXATION OF THE INFORMAL SECTOR IN GHANA:
Ghana has a large and diverse informal sector. Some of the activities of the informal sector are trading, spare parts, transportation, construction, agriculture, livestock, distillers, gold and silver smiting and traditional hearing. Because of the large size of the informal sector, it has become difficult for the Ministry of Finance and Economic planning and Statistical service to have a reliable data on their members and activities. Ayee (2007). According to Joshi (2003), the size of the informal sector is also an obstacle to income collection. The income tax in Ghana is very narrow. Only 20% of the work force is employed for wages and salaries. The rest (80%) are in the informal the informal sector. Because they are mainly self-employed and therefore the greater part of the real income cannot be assessed. As a result, majority of the informal sector have been the worst income tax evaders. The evasion takes three forms, and they are non declaration of income, under-declaration and inflation of deduction from income.

2.2.1 DIFFICULTIES IN TAXING THE INFORMAL SECTOR
Taxing the informal sector in Ghana is challenging. This has been acknowledged by the 2007 Budget statement. “One of the challenges facing Ghana is how to broaden the tax net”. Out of the five million potential taxpayers, only one million are paying tax. Apart from employees on the government payroll, only about three hundred and fifty thousand employees in the private sector pay taxes. Budget statement and economic policies (2007).

Experience in other countries indicates that nations are making transition from informal to formal economics have to use innovative methods to mobilize tax resources to enhance revenue collection and fairer distribution of the tax burden which is currently borne by those employed in the formal sector, the government in 2007 development and implemented a system to assess and collect income tax using the value of vehicle registered because a significant percentage of vehicle registration are from formal sector operators, most of whom are not taxpayers. Budget Statement and economic policies (2007).

There are two general challenges of tax collection.
Firstly, most business transactions are done on cash and even some establishments do not accept credit notes and cheques as a mode of payment. The transaction of all business in cash is one of the means a businessman can conceal taxable profits. By so doing, he is able not only to manipulate hiss resources and turnover figures for tax reduction purpose but he is also to eliminate all third party information leading to his purchase and sales.

Secondary, most self-employed people are indifferent to proper record keeping. However, in tax administration a very important task is the correct determination of the income of the taxpayers so that meaningful assessment of the tax liabilities could be made. Without proper record keeping, this cannot be done.

2.2.2 CAPACITY CONSTRAINTS
Although the introduction of VAT and presumptive taxes has eased the assessment and collection process, there is still the need for effective tax administration for monitoring and enforcement. The Domestic Tax Revenue
Division (formally of IRS and VAT) does not have adequate capacity. According to
2006 Budget Statement, “Human Resource Department and Training Division of the IRS will develop a comprehensive training programmes that will sharpen the technical and managerial competencies of IRS employees”, “the VAT service will initiate customer care programmes to ensure that the right approach is adopted by VAT service personnel in all their undertaking with regard to both their internal and external stakeholders.”

2.2.3 THE POLITICS OF TAXING THE INFORMAL SECTOR
Whether one likes or not, the informal sector constitutes a substantial vote bank for politicians. Consequently, there has been what Nsor Ambala called the “devil’s deal” an unspoken arrangement between politicians and the informal sector operators: If you vote for me, I won’t collect taxes from you, I won’t let you comply with other tax environment or labour regulation and I will keep the police and inspectors of tax from harassing you. Nsor Ambala (2008).
Public officials and politicians are willing to turn a blind eye to informal activities in order to retain their support base. The relationship that existed between the Ghana Private Road Transport Union (GPRTU) and Rawlings’s Provisional National Defense Council in the mid 80s is a case in point.

Ayee (2007) suggested that the process of bargaining with the informal sector over the payment of tax is itself a gesture of concession and accommodative, which is fraught with political overtures and undertones. Even though successive government made public statement for widening the tax net and taking tough measures to sanction tax defaulters, there are still gaps between their intentions and actions. This is possible because of serious consequences for instance, losing electoral support. There is hard evidence to support this point because we still know little about the politics of the informal sector in general, let alone the specific issue of taxation. However, the notion provides yet another plausible explanation of why governments often are unable or unwilling to directly tax the informal sector.

2.2.4 THE INCENTIVE AND MEASURES
Government recognized the importance resource flows to the revenue agencies to ensure that they are able to collect more revenue for development. In this regard, all revenue agencies were paid 2.5% of their collection to cover personal emoluments, administrative services and investment expenditure.
Tax policies and measures (2003). The measure that was put in place to mobilize more revenue for the development was the introduction of the vehicle income tax (VIT) by introducing stickers in July 2003. This was done in consultation with Ghana Road Transport coordinating council and the Internal Revenue Service now known as Domestic Tax Revenue Division.

2.3.0 THE INCENTIVES FOR PEOPLE TO PAY THEIR TAX
A number of reasons have been advanced for the willingness of pay their tax. First, payment of tax is regarded as a social or collective choice. That is, the relationships between the preferences of the individual members of the state or society and the collective choices made by governments. People are willing to pay because of the “social contract” that exists between them and their government. Citizens expect government to provide goods and services, whether public or private goods. Their effective provision enable citizens pay tax in return for the enjoyment of these goods. In other words, government expenditure require the generation of revenues and people pay tax as a result of a combination of the public interest and self-interest Bird and Oldham (1975), Brown and Jackson (1978).

Secondly, people pay tax because it is linked to governance. People pay because of government’s effective coercion since people will not pay voluntarily. In the words of Friedman (2003:1) “we obey the rules when the government does its job and ensures that the systems are in place to force us to comply”. Thirdly, people pay tax voluntarily because they feel they are contributing to the state with which they identify or a government programme which they support.

2.3.1 SOME MECHANISMS FOR TAXING THE INFORMAL SECTOR
With these challenges, what then is the best way of taxing the informal sector? How can a culture of taxpaying be created in the informal sector that had avoided taxation for a long time? A number of mechanisms have been used.

2.3.2 ASSOCIATIONAL TAXATION
In 1986 after the creation of the IRS as an autonomous revenue agency, the Ghanaian tax administration reforms adopted an explicit strategy to broaden the tax base by targeting the informal sector. Until then, the informal sector was expected to pay taxes through a system of an annual presumptive flat tax. However the weak administrative capacity of the IRS, the inability of informal operators to pay large lump sum annual payments and the perceived unfairness of the scheme in which high and low income businesses were subject to the same tax liability, led to poor implementation and tax compliance Joshi and Ayee, (2002).

In order to bring the informal sector into the tax net, an innovative scheme called identifiable Grouping Taxation (IGT) (henceforth associational taxation) was initiated that used informal sector, whose largest union the Ghana Private Road Transport Union (GPRTU) was at the forefront of this movement towards associational taxation, it was found out that the prevailing system posed many problems for its members.

The standard assessment, payable yearly at first and then quarterly, was not affordable, as drivers were required to pay a lump sum in advance. Further the tax did not take account loss of income due to breakdown of vehicles or lost workdays. Corruption was prevalent in the filling of taxes and when obtaining tax and road worthiness certificates Joshi and Ayee, (2002).

Associational taxation addressed some of these problems by using informal sector associations as agents for income tax collection. The associations had intimate knowledge of the activities of their members and could collect taxes without much additional effort. The taxes were collected daily at first, and later weekly reduce the high costs printing and monitoring daily receipts, making the payments small and affordable to most members. Moreover, the taxes were only payable when the drivers earned. If a vehicle was not in use, taxes were not paid. The associations too had an incentive to collect taxes for the state and they were offered 2.5% of the total revenue collected.

2.3.3 OTHER INSTITUTIONAL MECHANISMS
Given the ineffectiveness of the associational taxation, one must look at other institutional mechanisms. These mechanisms can be subsumed under what has been referred to as the “reciprocity with government “ Kenyon (2006). In other words, government must perform its responsibility of ensuring tax compliance in addition to relying on associations. Consequently, the “reciprocity with government” means state capacity, that is, the measure of the ability of a government to implement its policies and accomplish its goals Brautigam (1996). More importantly, the “extractive capacity” of the state is the ability of a government to raise the revenues it needs to pay for the expense of implementing its policies and goals is considered to be the most important element of state capacity Brautigam (1996).

2.3.4 ENFORCEMENT OF REGULATIONS
The regulation function of the government must be properly performed. Government through its institutions, the D.T.R.D should enforce rules and regulation governing tax compliance. Those found to be have defaulted must face the sanctions. In this connection, the closing down of companies embarked by the D.T.R.D must be intensified. Those individuals in the informal sector who failed to pay their tax must be prosecuted. Special tax court must be established to deal expeditiously with cases of non-compliance. There is frustration on the part of the tax agencies for inability of the court to deal expeditiously with tax cases brought before them. Some scholars have pointed out that the enforcement of regulations will not ensure compliance. Even though the argument is a vexed one, experience has shown that punishing or “public shaming” of either people or companies sends the right signal for tax compliance Friedman (2003).

2.4.0 SUSTAINED PUBLIC EDUCATION
The inculcation of a culture of tax compliance depends on changing attitudes and perceptions. Even though the revenue institutions and the National Commission for Civic Education (NCCE) have embarked on public education programmes either in the media or on posters and billboards the approach is as hoc and piecemeal.

Therefore, a more concerted and sustained approach needs to be put in place for the sensitization of the public Terkper (2003). Deal when it is detected. An assumption of a connection between perceived corruptibility of public officials and the underreporting of income by private persons can thus be made. The lack of effective access to information provision (which would ensure taxpayers are aware of their rights and less exposed to discretionary treatment by corrupt officials) and the absence of credible review mechanisms increase the risk of corrupt dealings. Personal contact between Tax officials and tax payers, and discretion in the interpretation of unclear regulations, are conducive to illicit practices Torgler (2003).

2.4.1CORRUPTION WITHIN THE DIRECT TAX SYSTEM
In this area of public service, the incentives to engage in corrupt behavior are high for both officials, who can enrich themselves, and bribe payers, who evade taxes. At the same time, taxation regulations are often so complex, that opportunities for corruption abound. The complicated regulations create opportunities for public officials to exercise discretionary power, thus giving a push to corruption. Indeed, reduction of opportunities for corruption in tax administration and the change of the incentive structures for tax officers while keeping tax policies simple is one of the most important entry point quoted successful example is Korea where reform of tax administration led to drop of reported corruption cases from 45 to 9 year, while the tax revenue increased
Arindam (1999).

2.4.2 STAFF-RELATED INDICATORS
As is the case in any public sector environment, the evidence of public officials living beyond their means – that is living to a higher standard than their income would normally enable them to – is an indicator for the existence of corruption. The absence of measures designed to maintain the integrity of staff, such as the promotion and enforcement of ethical standards, merit-based recruitment and promotion procedures and regular staff rotation schemes to prevent the building of networks, increases the likelihood of staff exploiting corrupt opportunities. Low ethical standard among professions linked to the tax system, such as accountants, are indicators for the existence of corruption among those in charge of protecting the system are abuse.

Finally, the perception of the corruption of tax officials among members of the public is certainly suggestive of corruption actually taking place. The perception of additional income to be made from illicit deal is highly likely at attract the wrong kind of people into tax administration.

2.4.3 PREVENTION OF CORRUPTION
There are often direct measures I anti-corruption programmer focusing on tax administration, which can include: Standardization of procedures manuals and electronic forms, made widely available to the tax payers, make the service more transparent, reduce discretion of officials and strengthen accountability and possibilities for controls. Standardized procedures should limit one-on-one contact between officials and customers and reduce the number of forms or approvals needed for example through the introduction of one-stop procedures, Odd-Helge (2003).

2.4.4 PROFESSIONALISM OF SERVICE
A number of factors can increase the professional standards of tax administration, starting with the appointment of a professional management, instead of political appointed heads of administration. Staffs need to be recruited and promoted on merit, compensation needs to be sufficient and regular training and development needs of the staff members should be provided.

In addition, responsibilities should be clearly defined and functions duly separated. Staff rotation schemes should be put in place to prevent certain irregularities between the tax collectors and the tax payers. Accincia (2003).

2.5.0 INCENTIVE REFORMS
There are a number of studies available on the role of incentive reforms (particularly salary incentives) for public officials in preventing corrupt behavior. No consensus has yet emerged in literature as to the direct relationship between pay incentives and corruption levels. However, all studies are in agreement as to the fact that pay incentives as a stand-alone measure will not yield much result and have to be viewed as one element of a carefully tailored strategy. Dilip and Mookherjee (1997).

2.5.1 INDEPENDENCE/AUTONOMY
Establishment of semi-independent Revenue authorities in some countries, revenue authorities largely independent of the civil service have been set up in order to improve tax collection. These semi-independent revenue authorities have been the subject of various reviews Arindam (1997).

2.5.2 WAYS OF IMPROVING REVENUE GENERATION IN TMA
Many of the problems facing the generation of revenue in the local governments are those that can be corrected to improve their generation.
According to Herbert, a dependable tax base for the local authorities is essential shortage of trained valuation staff will make taxes on real property difficult to assess for some time to come. The system of graduated tax has been in
unjustifiable dispute in recent years. Olaoye (2008) also suggested the possibility of a Native Authorities’ Loan Authority (NALA) as an agency to provide capital loans for the local government. However, some of the strategies for
improvements are:

Ø Good infrastructure
A location with good road net work will have every access to the coming and going out of the local government’s cars and people, if they get to the local government’s cars and people, if they get to the local government and see good roads, pipe-borne water, hospitals, schools etc. they may decide to stay (Aderinto, 2005). This will increase the number of people and business that will be paying tax and this will definitely increase the revenue generation because more people will be paying tax, if the government can provide good infrastructure for the local government, there will be more business and people will see reasons to pay tax.

Ø Staff motivation
According to Henry Fayol, there are fourteen principles of management of which motivation is among the list. Henry Fayol however defined motivation as a driving force which stimulates a worker in action workers should be encouraged so that they can put in their maximum services and when this is done, there may be increase or solid improvements in revenue collection. Training of workers for knowledge enhancement should be one of such motivational factors (Adebisi, 2005). It is fervently hoped that when the above suggestions are fully implemented, the local government will not only improve internally but also with the outside world.

Ø Establishment of projects
The local government should embark on the establishment of some minimize industries, which will provide employment opportunities to the people. It is happy to note that the Ghana Nuts Company in the Techiman municipality has helped to solve some of the employment problems within the municipality. There should also be development and improvement in agricultural ventures like crop farming etc. the participation in agriculture will encourage the inhabitants of the community to improve their standard of living.

Ø Revenue management
There is a general trend going about most governmental establishment, there are mis-management and embezzlement. The little revenue collected is mismanaged by the officer thereby not making the revenue to have any effect on the general populace of the local government.
This can be reduced by the centralization of the collection department and rotation of jobs and assignments. If a worker is occupying a particular position for a long time he tends to have all the ways by which he can fraud the department.

Ø Loyalty of tax payers
If people can change their attitude of tax evasion, more revenue will be generated. The number of people that pay up their dues (tax) as at when due are very small compare to the number of people that are suppose to pay. If the orientation can change, it will go a long way in increasing the amount of revenue that will be generated in the local government.

2.5.3 THE DEFINITION AND CONCEPT OF PUBLIC REVENUE
The Oxford Advanced Learner‘s Dictionary defines public revenue as the money that a government receives from taxes and other sources. In simple terms, Revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover. Some companies receive revenue from interest, dividends or royalties paid to them by other companies (Carcello, 2008). Revenue may refer to business income in general, or it may refer to the amount, in a monetary unit, received during a period of time. Profits or net income generally imply total revenue minus total expenses in a given period. In accounting, revenue is often referred to as the “top line” due to its position on the income statement at the very top.

(a) Revenue – Non-profit Organizations
The US Department of the Treasury (2006) states that for non-profit
organizations, annual revenue may be referred to as gross receipts. This revenue includes donations from individuals and corporations, support from government agencies, income from activities related to the organization’s mission, and income from fundraising activities, membership dues, and financial investments such as stock shares in companies.

(b) Government Revenue
The Australian Government Central Government revenue includes gross proceeds from taxes levied on companies and individuals, excise duties, customs duties, other taxes, sales of goods and services, dividends and interest received. In general usage, revenue is income received by an organization in the form of cash or cash equivalents. Sales revenue is income received from selling goods or services over a period of time. Tax revenue is income that a government receives from taxpayers. In more formal usage, revenue is a calculation or estimation of periodic income based on a particular standard accounting practice or the rules established by a government or government agency.

Corporations that offer shares for sale to the public are usually required by law to report revenue based on generally accepted accounting principles or International Financial Reporting Standards. Source.( http://www.budget.gov.au/ dated 16th April 201.L.ocal government revenue on the other hand is mainly user fees and charges, property tax, revenue from specific trade etc. accruing at the local level. Revenue mobilization is the act of marshaling, assembling, and organizing financial contributions from all incomes accruing from identifiable sources in an economic
setting.
2.5.4 IMPORTANCE OF LOCAL REVENUE TO LOCAL GOVERNMENTS
Ziria, (2008) outlines the importance of local revenue to Local Governments as
follows:
Ø Financing administration costs (e.g. in Uganda councilor`s emoluments and employee costs);
Ø Financing maintenance costs and thus promoting ownership of projects;
Ø Permits collection of localized and low yielding revenues;
Ø Guarantees sustainability of service delivery and autonomy of local governments;
Ø Regulates businesses and provides important infrastructure and services such as markets and public conveniences at a charge;
Ø Reduces pressure on central governments and reliance on donors.
2.6.0 REVENUE INSTRUMENTS FOR LOCAL GOVERNMENTS
Olowu and Wunsch,( 2003) state that sound revenue system for local governments is an essential pre-condition for the success of fiscal decentralization. Shahs (1998) as well as Oates (1998) add that local revenue mobilization has the potential to foster political and administrative accountability by the empowering communities.
However, prescriptions deriving from the theory and from good international practice impose huge constraints on the choice of revenue instruments for local governments. Bahl et al (2003) classify local government revenue into two main categories for local authorities in Africa: These are internally generated funds which includes taxes, user fees, and various licenses and transfers from the central or regional levels, usually in the form of grants and revenue sharing. In some countries, municipalities, districts and other local authorities are allowed to borrow money for capital investments in infrastructure. In Ghana, the laws make purchase of equity shares by local government authorities illegal.
2.6.1 REVENUE SOURCES AVAILABLE TO LOCAL GOVERNMENTS
According to Lutaya (2009), using the Ugandan experience, states that there are various sources of revenue for District Assemblies, which can be emulated by the Techiman Municipal Assembly. The sources can be grouped under four major sources as shown below:
(i) User Fees and Charges Ø Hotel tax
Ø Trading Licenses
Ø Parking fees (cars, taxis, buses, motor cycles etc)
Ø Market dues
Ø Fish Monger permits
Ø Tender application fees
Ø Tourist license fees
Ø Registration fees for certificates of birth, marriage, death and political party registration
(ii) Property Revenue
Ø Rent on commercial buildings and land
Ø Ground Rent
Ø Building plan approval and inspection fees
Ø Sale of boarded assets
Ø Land search and registration fees
(iii) Revenue from specific Trades
Ø Slaughter fees
Ø Traditional healers practice fees
Ø Brewing and sale of alcohol
Ø Transportation of charcoal and wood
Ø Lumbering
Ø Permits for stage plays and public entertainment
(iv) Revenue from persons in gainful employment
Ø Local service tax is applicable to artisans, businesspersons and
commercial farmers.

2.6.2 STRENGTHS AND WEAKNESSES OF MAJOR LOCAL GOVERNMENT IGF INSTRUMENTS
As noted above, the local government own revenue systems across Africa are often characterized by a huge number of revenue instruments. However, the main sources of local revenue in urban councils are usually property rates, business licenses, and various uses charges, often in the form of surcharges for services provided by or on behalf of the municipality. Nevertheless, experiences from a number of African countries show that these revenue instruments have serious shortfalls. For instance, property taxes can be very costly to administer (Brosio, 2000, p. 20), and the enforcement of user fees has resulted in widespread resistance to pay from the poorer segments of the urban population in some countries (Fjeldstad, 2004; Fjeldstad et al., 2005). Moreover, complex business licensing systems have proved to be major impediments for the start up and expansion of especially micro and small enterprises
(Devas and Kelly, 2001; Sander, 2003). However, international evidence shows that when well administered, these revenue instruments can provide substantial and reliable revenues for urban municipalities.

2.6.3 PROPERTY TAX
Property tax is a major source of revenue in several urban councils (Mikesell, 2002). In the 1990s, property taxes accounted for 40 per cent of all sub-national taxes in developing countries (Bird and Slack, 2002, p. 6), but less in many African countries; for instance 10–30 per cent in urban councils in Tanzania (Fjeldstad et al., 2004), and around 20 per cent in South Africa (Bahl and Smoke, 2003). It also has the potential to become an important revenue source in semi-urbanized centres in district councils. Textbooks on revenue assignments between various levels of government argue that few fiscally significant taxes are more appropriate to local administration than property tax. This is due to the fact that real property is visible, immobile, and a clear indicator of one form of wealth. Hence, in principle, property tax is difficult to avoid and if well administered it can represent a non distortional and highly efficient fiscal tool.

Property tax can be administrated by both local and central governments. When local governments administer the tax, they are responsible for maintaining property and ownership records, determining taxable property values, calculating and distributing property tax bills, managing receipt payment, and applying tax enforcement against non-payers (Mikesell, 2002, p. 22). In other cases, local governments have a say in the choice of the tax rate, while all parts of the administration of the tax are performed by the national revenue authority. In some countries, including Malawi, property valuation is done by the central government, while local authorities set rates and handle collection (Mikesell, 2002, p. 28).

According to Brosio(2000) West African French-speaking countries in general rely on the traditional French model, in which the property tax is administered and collected by the central government, whereas East and Southern African countries rely on local administration. This is usually recommended in the literature that stresses that taxes should be administered by the government that is entitled to their revenue. However, mixed results prevail in both cases in Africa.

Expert opinion diverges on how to improve property taxation in developing countries. Some experts blame the excessive centralization of property tax policy, which bars setting higher tax rates. Others blame what they consider the almost total anarchy deriving from local government freedom in this field. There is also dispute over tax administration. Certainly, property taxes have many attractions as local bases, but they also have some obvious weaknesses that need to be taken into consideration before heavy reliance is placed on them. Often the capability and capacity of the municipality are inadequate to administrate the property tax at a low cost (McCluskey et al., 2003).

These administrative weaknesses are manifested in problems of valuation and arbitrariness in tax assessment and enforcement. In theory, assessment of property value and revenue collection are straightforward: conduct a cadastral survey that assesses the market or site value of each plot of land or property, and send a tax bill to each owner. In practice, however, cadastral surveys are expensive and time-consuming (Bahl et al., 2003, p. 79). The task is often beyond the financial and technical capability of many local governments. Tax offices in many sub-Saharan African countries are short on assessors, if they have any at all (Farvacque-Vitkovi and Godin, 1998). In Uganda, for instance, there are eleven certified land and property valuators responsible for valuing three million parcels (McCluskey et al., 2003). 36
The corresponding figures for Tanzania are approximately 100 certified valuators and five million parcels. Thus, it is difficult to conduct and maintain assessments, which are also often eroded by inflation. Particularly when property prices are changing rapidly, it is difficult to administer. Accordingly, the property tax base is inelastic, despite growth in the physical size or value of property, because old valuations are not updated and new properties not identified. In most cases, the system has been inherited from the colonial era and is poorly suited to present
conditions.

2.6.4 BUSINESS LICENSES
Local business taxes are generally levied in one of two ways (Devas and Kelly, 2001, p. 384): either as a fixed amount, which usually varies by type, size, or location of the business, or as a percentage of turnover or profits. Assessing turnover or profitability, however, is difficult both in relation to small businesses, which often do not maintain proper records, and to large businesses with multiple premises across various jurisdictions. Thus, local business taxes often use proxies for turnover or profitability, such as the size of premises, type of business, number of employees, installed electricity power, etc
According to Devas and Kelly (ibid) in Francophone Africa, local governments levy a tax called the Patente, was originally based on the French Taxe Professionelle.
In Cote D‘Ivoire, the Patente was the largest single local revenue source in the 1990s, financing about 17 per cent of the local government budget, and more in the capital Abidjan. The calculation of this tax, however, is quite complex, involving the value of the premises, number of employees, turnover, machinery employed, installed energy capacity, and other size proxies. Moreover, within this formula, rental value of premises is by far the largest factor, so that the tax starts to resemble a property tax.
As point out by Devas and Kelly, in Anglophone Africa, the standard mechanisms for mobilizing revenues from businesses have been through licensing. Although the original intent was regulatory, local business licensing has increasingly become simply a revenue source in most places. Typically, business licences generate between 5 per cent and 30 per cent of local government own revenues in urban councils.
In many Anglophone countries, however, the system has been quite
unsatisfactory, often quite inequitable. It has imposed huge costs on businesses, while generating relatively little money. A common complaint from Small and Medium-sized Enterprises in most African countries has been that ‗they do not know what to pay, where and to whom‘. The regulatory aspects of the license system have been largely abandoned.

In addition, poor policy design and weak administration mean that license coverage; assessment, collection, and enforcement rates are low, leading to poor revenue generation. Obtaining a license typically involves multiple visits to various offices, sometimes over several days, with associated travel costs. Failure to provide the correct license receipts may result in closure of the premises. Consequently, the system is often riddled with rent seeking and corruption.
Aranjou-Bonjean and Chambas, 2003) state that poor administration often means that many businesses are not included in the license system due to lack of proper business registers. Furthermore, weak financial management will often imply that collection and enforcement provisions are rarely enforced. This erodes the tax base and introduces inequities into the system. Thus, many existing business license systems across Africa contain serious defects.

2.7.0 REASONS FOR LOW REVENUE MOBILIZATION – THE MALAWIAN
EXPERIENCE
Schroeder et al (1998) reveal the following as reasons responsible for poor revenue mobilization in the Malawian local authorities.
(a) Weak Administration.
In general, the revenue base information is incomplete, collections are low, and enforcement is virtually non-existent. Although policy can be fine tuned, the primary obstacle to successful local revenue mobilization is weak administration. Weak administration, combined with a lack of political will for enforcement, generates a low level of local revenue mobilization performance. There is general agreement that the local assemblies have substantial potential for enhancing local revenues—especially from business licenses and property rates (Schroeder, et al., 1998).

(b) Collection and Enforcement
Local revenue collection rates in Malawi are low—estimated to range between 20-50 percent. This is only an estimate since statistics on actual collection rates are difficult to identify since information on actual revenue collections is difficult to assemble and is usually compared based on tax collection targets not on billed liabilities or potential revenues. To date, local assemblies rely mostly on individual persuasion to mobilize revenues—rather than utilizing the various enforcement mechanisms available through the Local Government Act. According to Kelly et al (2001) lack of collection ability and enforcement can be attributed to several factors such as:
Ø Lack of apparent political will.
Mobilizing political will requires education and incentives to those involved in the revenue mobilization effort.
Ø Poor local facilities
The taxpayer must be convinced to pay the tax through receiving improved local services and perceiving that the taxes and fees are being administered fairly. The first priority must therefore be to improve service delivery—since people are always more willing to pay taxes and fees if in return they receive some tangible benefits or services.
Ø Lack of education on tax responsibility
As with all taxes, attention should also be given to educate the taxpayer on the rationale, procedures, obligations and responsibilities related to the business licenses and property tax. Having the ability to link revenue collections to improved service delivery, and a better-educated taxpayer population will enhance compliance. Mobilizing the community through enhanced participatory budgeting and civic participation will engage the citizens and also facilitate enhanced revenue collection.
Ø Tax Base Coverage
Kelly et al (ibid) conclude that the coverage ratio of the local government revenue registries seem to be quite low resulting from non-existent, incomplete and or outdated information on the taxable objects, properties and businesses. Local business license registers contain only information on those few smaller businesses being licenses issued by Assemblies. Information on any larger businesses is contained in the business register at the Ministry of Industry and Commerce (Malawi). The property tax registers are also in various levels of completeness. Within the district assemblies, property tax registers do not exist and must be created for the first time. In the previously rate-able areas, the property tax registers may be incomplete and out of date.
(c) Property Valuation and Classification
Using the information from the registers, Kelly et al say that the tax administration must classify the tax object correctly for a unit tax assessment such as a license fee system or it should be valued correctly for an ad valorem tax assessment such as a typical property tax system.
To them accurate business classification for tax assessment depends on:
Ø Having sufficient and unambiguous information on the business
characteristics needed by the staff to correctly classify the businesses,
Ø Trained staff who can classify correctly and consistently,
Ø Proper supervision and oversight for quality control and
Ø An appeal process to deal with cases of misclassification.
Accurate property valuations similarly depend on:
Ø Having good descriptive physical property information which can be linked to market data or indicative valuation measures to ascertain the relative property value
Ø Trained and knowledgeable staff who can use this information to
determine the relative valuation of property,
Ø Proper supervision and oversight for quality control and an appeals process to deal with cases of mistakes in valuation.
Kelly et al argue that both the classification and valuation accuracies affect the revenue potential, equity, efficiency, administrative feasibility and political acceptability. Generally speaking, business classification is quite straight forward. It is based on objective descriptive information such as type of business and its size.
2.7.1 PROBLEMS OF LOCAL GOVERNMENTS TAX MOBILIZATION IN NIGERIA.
Adedokun, (2007) has identified the following problems that inhibited local government tax mobilization in Nigeria which are similar to that of Techiman in Ghana.
Ø Shortage of trained personnel.
Shortage of well trained and qualified personnel which are suppose to serve as tool for collection of taxes and rates at the local level, even the few available are not properly trained in efficient budgetary and financial management systems.
Also most of the local governments are short staffed to carry out their duties.
Ø The dependence syndrome.
Despite the fact that there are constitutional provisions for statutory allocations and internally generated revenues, local governments are tightly controlled and subordinated by state governors through sundry mechanisms, including manipulation of the disbursement of financial transfers to them. Local governments mobilize their funds solely from external sources. The external sources include local and central governments financial transfers like grants, statutory allocations, share of Value Added Tax (VAT), receipts and loans. These external sources introduce a dependency syndrome in local government revenue mobilization effort. Any setbacks from the external sources have adverse effect on the administrative machinery and execution of some local government viable projects. This also has weakened their internal revenue mobilization capacity.
Ø Corruption.
In addition, insincerity of council staff on field assignment poses greater problem because most of them usually divert collected council fund for their personal usage thereby denying the council of the needed funds for its operations. Some local governments Chairmen deposited local Government‘s subventions into savings and loans companies in which the local governments had no account. Some local governments see this as an avenue to divert council‘s funds for personal use.
2.7.2 FACTORS THAT AFFECT LOW REVENUE IN GHANA
According to Arye (2003) factors that account for low revenue mobilization in MMDAs include the following:
Ø Poor administrative capacity to assess the revenue base and enforce the payment of taxes.
Ø Explicit and intentional tax evasion and resistance from taxpayers.
Ø Corruption, including embezzlement of revenues by revenue collectors.
Ø External pressure on the local finance department to provide optimistic projections in their budgets.
Ø Political pressure on the local tax administration to relax on revenue
collection especially during election periods. Ø Poor budget formulation and implementation.
CHAPTER THREE
METHODOLOGY
3.0.0 INTRODUCTION
This Chapter focuses on the methodology of the study. It discusses the research design, source of data or data collection procedure, primary data, secondary data, target population, sapling and sampling procedure and data analysis.
3.1.0 HISTORY OF TECHIMAN DISTRICT
Techiman is located in the Brong Ahafo Region of Ghana. The Techiman District Assembly was created in 1978 and graduated into its current municipal status in recent years. The Municipal capital is Techiman, a strategically situated junction town with roads linking it not only to most of Ghana`s major commercial centres, but also to the republic of Togo, Bukina Faso and Cote d`Ivoire. It has an estimated total land area of about six hundred and seventy (670) square kilometers. The Municipality shares local boundaries with Wenchi Municipal to the west, Sunyani west and Offinso north District to the south, Kintampo south District to the north and Nkoranza south District to the east. Techiman is a farming community with one of the most patronized markets in Ghana
3.1.1 DEFINITION OF TERMS
For the purpose of this study; the following profile or terms will be summarily
defined;
(i) District Assemblies
(ii) District Assembly common fund (DACF)
(iii) Tax Jurisdiction
(iv) Direct and Indirect tax
(v) Government Expenditure
(I) DISTRICT ASSEMBLIES
District Assemblies in Ghana are either Metropolitan (Population over 250,000),
Municipal (one town assemblies with population over 95,000) or district
(Population of 75,000 and over).At the time of writing this project, there are six(6) Metropolitan Assemblies (Accra, Cape Coast, Kumasi, Secondi Takoradi, Tamale and Tema), about thirty-eight (38) Municipal Assemblies and one hundred and twenty-six (126) District Assemblies. In all there are one hundred and seventy
(170) District Assemblies and in each instances, they represent the central Government of the area concerned.
A Metropolitan/Municipal/District Assembly is created as the pivot of administrative and developmental decision-making in the District and is the basic unit of Government administration.
i. Assigned with deliberative, legislative as well as executive functions.
ii. Constituted as the Planning authority for the District
NB: The researcher shall use the terms: Metropolitan, Municipal and District interchangeably for the purpose of this work.
(II) DISTRICT ASSEMBLIES COMMON FUND (DACF)
Article 252 of the constitution of the fourth republic Ghana provides for the establishment of a District Assemblies common fund (DACF), which shall.
(a) Be allocated annually by parliament not less than five percent (5%) of the development.
(b) Be distributed among District Assemblies on the basis of formula to be approved by parliament. The proposed formula for 1996 was laid before parliament on Tuesday 28/5/96 and was subsequently referred to the committee of the house for consideration and report. The new formula is as follows ;
Equalizing factor -30%
Needs factor -35%
Responsiveness -20%
Service pressure -15%
=== 100%
Note; for the purpose of this detail calculation and description of the formula shall be left to the economist.
(III) TAX JURISDICTION
Tax jurisdiction is an area in which a particular set of tax laws applies. There are national tax jurisdictions, with a set of tax laws applying within a national tax jurisdiction. There may be local tax jurisdictions at Metropolitan, Municipal, and District Assemblies (MMDAs). There is a competent authority in each tax jurisdiction which is responsible for administering taxes and ensuring that taxes are collected. The competent authority may be more than one depending on the size of the area, with each being responsible for the different forms of taxes in the country. The competent authority responsible for direct taxes in Ghana is the Internal Revenue Service (IRS) now the Domestic Revenue Tax Division of the Ghana Revenue Authority (GRA), where as the competent authorities responsible for indirect taxes are the Customs, Excise and Preventive Service (CEPS) now
Customs Division of Ghana Revenue Authority (GRA) and Value Added Tax Service (for the value added tax (VAT).
A tax jurisdiction may apply taxes on a “source” basis or a “global” basis. In
Ghana, the source jurisdiction is applied and this means that income is taxable in Ghana as long as its source is Ghana. Therefore where the source of the income is not Ghana, that income is not subject to tax in Ghana. It should be noted that where the source of in income or revenue is not Ghana, the income has to be brought in or received in Ghana to make it taxable in Ghana. This position is clearly outlined in section 6 of the Internal Revenue Act, 2000 (Act 592) which states that the assessable income of a person for a year of assessment from any business, employment, or investment is,
(a) In case of a resident person, the full amount of the person`s income from the business, employment or investment accruing in, derived from, brought into, or received in Ghana during any basis period of that person ending within the year of assessment;
(b) In case of a non-resident person, the full amount of the person`s income from any business, employment or investment accruing in or derived from Ghana during any basis period of the person ending within the year of assessment.
The above provisions make it clear that once an income is generated in Ghana or accrues to a person in Ghana that income is subject to tax in Ghana. It is also evident from the provisions that as long as the source of an income is Ghana, the income is taxable in Ghana irrespective of where the income is paid, that is, even when the income is paid into a foreign account. For example, if an expatriate takes up an appointment in Ghana for a period more than six (6) months or one hundred and eighty-three (183) days, he is deemed to be a resident person and thus all income earned by him by way of his salary and other emoluments is taxable in Ghana even where part of the salary is paid into his accounts in his country of
origin.

(IV) DIRECT TAX
This tax is intended to be paid by the person or organization on whom /which it is actually levied, the impact and incidence being on the same person or
organization, for example, income tax, gift tax, capital gain tax and corporate tax.
The administering authority is the Internal Revenue Service (I.R.S) now the Domestic Tax Revenue Division of the Ghana Revenue Authority (GRA). Under the direct tax, the taxpayer knows with certainty what he/she is expected to pay and they are generally progressive in nature. However, the cost of administering direct tax is very heavy as compared to indirect tax.

(V) INDIRECT TAX
This is a tax which is levied on one person in the expectation that the tax will be shifted or passed on to another person. Here the impact and incidence are on different persons. Examples of such taxes include excise duty, custom duty and value added tax. They are called indirect taxes because the administering authorities which levy the taxes on goods and services do not collect the taxes direct from the consumer but do so indirectly through importers, manufacturers or other intermediaries. The shifting or passing on of the liability is effected by loading the tax element on the selling price of the commodities sold to the next person in the commercial chain unit until it is finally borne by the final consumer. Indirect taxes may take the form of ad valorem duty (according to the value), that is, where the rate of duty is determined as a percentage of the value of goods, example wrist watches are taxed 50% ad valorem. It can also take the form of specific duty. That is where the rate of duty is based on a fixed amount per some physical attribute or a combination of physical attributes of the commodity being taxed, for example weight, quantity, size etc

(VI) GOVERNMENT/DISTRICT ASSEMBLE EXPENDITURE
The District Assemblies incur certain expenses to ensure the smooth running and administration of the Assembly. The expenses incur in the District Assemblies includes; Personal Emolument, General expenses (such as postage, electricity bill, Telephone bills, Stationary etc, Traveling and Transport, Repairs and Maintenance, Fuel and Lubrication, Supply of service, supply of stores etc.

3.1.2 RESEARCH DESIGN
The aim of the research was to find out the measures that would help to increase direct tax revenue in Ghana.

3.2.0 RESEARCH METHODOLOGY
It made use of revenue generated as the baseline for assessing the performance of the direct tax in the economy of Ghana. It incorporates personal judgment from the researcher and respondents through interview, which serve as parameter upon which a conclusion was drawn and used to promote future research.
The study was undertaken at the Techiman Municipality of the D.T.R.D. The choice of Techiman Municipality in particular was considered owing to its accessibility and limited time constraint. Also, the choice was made because of financial difficulties and time constraint could not allow the study to cover the entire fraternity of D.T.R.D in Ghana.

3.2.1 PRIMARY DATA
The study made of primary data. This data was collected through issue of questionnaire and interview to the stratified sample of the population of forty tax payers, five tax collectors and five tax officials in the area.

3.2.2 SECONDARY DATA
The study also employed secondary data. Data concerning the budgeted revenue and actual revenue were collected from the D.T.R.D office in the Techiman Municipal Assembly for the calculation of the variance.

3.2.3 SAMPLE SIZE AND SAMPLING PROCEDURE
Stratified sampling method was used for the study. The theoretical population was disaggregated into coherent sub-groups and this made the sample more reprehensive and to ensure that different group of the population is adequately represented in the sample.
The selection of respondents was based on simple random method whereby each individual within a group has an equal chance of being selected. Various categories of group were chosen for the investigation.

This includes;
General public 40
Tax collectors 5
Tax officials 5
In all, a sample of fifty (50) was considered appropriate looking at financial and time constrains of the study.

3.3.0 DATA COLLECTION PROCEDURE
Two instruments used in the study were Interviews and Questionnaires. Respondents were interviewed for the ten minutes each. The respondents were visited at their various for the interview. The questionnaires were personally given to the respondents who can read and understand and they were given enough time to the respond to the questions. Detailed explanations were given to respondents on questions which they find difficult to understand.

3.4.0 DATA VALIDITY AND RELIABILITY
Five collectors and two managers validated the questionnaire through pre-testing in D.T.R.D. There were comments and suggestions which enabled the researcher to make the necessary corrections. On the part of reliability of this design, it is hoped that, this project would serve as footprints upon which subsequent studies in the area and on this topic can be trace or made use of. Further researcher may use extract of this study to draw conclusions for further research.

3.5.0 DATA ANALYSIS AND INTERPRETATION
The analysis of the data collection was based on the type of data. The quantitative data were analyzed with the support of Statistical Program for the Social Sciences (SPSS) and or Microsoft Excel to generate flow chart, diagrams, graphs and tables. Records and data collected from respondents were thoroughly studied and analyses.

CHAPTER FOUR
DATA ANALYSIS
4.1.0 INTRODUCTION
This chapter place emphasis on the data analysis and discussions. Under this chapter, the data collected was thoroughly analyzed and discussed. The chapter is divided into the following subheading, analysis of demographic characteristics of r respondents, analysis and discussion of main data etc.

4.2.0 ANALYSIS OF QUESTIONNAIRE FROM THE GENERAL PUBLIC Questionnaires were issued to forty people (general public) and of the respondents, 12 were male which represent 30% and 28 were also female which also represent 70% of the respondents.

Figure 1
Table (1) how respondent pay their tax
Cumulative
Percent Percent
Frequency Percent
Full
Installment
Total 9
31
40 22.5
77.5
100.0 22.5
77.5
100.5 22.5
100.0
With regard to the payments of tax, 9 respondents pay their tax on full basis which represents 22% and 31% respondent also pay their tax on installment basis which represent 78%

Figure 2
Table (2). The responses of the punctuality of revenue officials
Frequency Percent Percent Cumulative
Percent
Yes 40 100.0 100.0 100.0
The study seeks to find whether the tax officials are punctual at their work to collect tax from the taxpayers or at punctual at their work place for tax payers to come and pay their tax when it is due. The response was that 100% of therespondents admitted that the revenue officials are always punctual.
Table (3). The responses of the issue of tickets after payment
Frequency Percent Percent Cumulative
Percent
Yes
No
Total 37 3
40 92.5
7.5
100.0 92.5
7.5
100.0 92.5
100.0

Fig. 3
Table (4) The responses of tax education
Frequency Percent Percent Cumulative
Percent
Yes
No
Total
Missing System
Total 26
12
38 2
40 65.0
30.0
95.0
5.0
100.0 68.4
31.6
100.0 68.4
100.0

The study seeks to find whether the tax collectors normally issue tickets to the taxpayers after payment. The responses were that 92% admitted that they normally received a ticket after the payment and 7% also admitted that they normally don’t receive tickets after payment. On the tax education, 26% respondents which also represent 65% had tax education and 12 respondents which represent 30% do not know why tax is compulsory levy.

4.3.0 ANALYSIS OF QUESTIONNNAIRE FROM REVENUE COLLECTORS
Five questionnaires were issued to the revenue collectors and all the five were received representing 100%.
The studies seek to find whether they are able to reach all potential tax payers.

Figure 4
With regard to this figure, 80% of the respondents admitted that they have not been able to reach their potential tax payers and reason attached to this problem is that they don’t have logistics to cover their located areas and which 60% also admitted they don’t have the request logistics.

Figure 5
On the Part of the general attitude towards the payments of taxes, 80% of the respondents admitted that the public are very corporative while 20% also admitted that the public are less corporative towards the payments of taxes.

4.4.0 ANALYSIS OF QUESTIONAIRE FROM THE TAX OFFICIALS
The questions were to find out the strength of the staff in DTRD and their qualification and the responses were that 80% of the officials in the DTRD said they don’t have enough staff to carry out their duties and this lead to the revenue collectors not able to reach the potential tax payers whiles 20% of the responses were that the staff in the was enough and need to motivated to work hard and logistics need to be provided for them reach the potential taxpayers.

CHAPTER FIVE
SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.0.0 INTRODUCTION
5.1.1 SUMMARY OF FINDINGS FROM THE GENERAL PUBLIC
This chapter provides a summary of findings, conclusion and recommendation s of the study. It provides about the information about the findings as well as recommendations from the general public, the management and the tax collectors or officials of the Domestic Tax Revenue Division of the study area.
The study reveals that the inculcation of a culture of tax compliance depends on changing attitudes and perceptions. Even though the revenue institutions and the National Commission for Civic Education (NCCE) have embarked on public education programmes either in the media or on posters and billboards the approach is ad hoc and piecemeal. Most people within the informal sector have little or no idea of the essence of paying tax. The revenue agencies have not been able to develop a closer link with the informal sector operators. There is a little contact between the revenue agencies and the Trade and Business Associations which allows frequent meeting to identify and address policy, operations and other related issues for improvements of their tax procedures.

5.1.2 TAX REGULATIONS
The tax regulations are often highly complex and include exemptions for many, often poorly defined. This makes the system difficult to understand and gives officials discretionary power. To prevent corruption, tax system should have simple and clear rules, few exceptions and clear definitions. If the tax system is perceived to be fair, the incentives for corruption and evasion are diminished.

5.2.0 SUMMARY OF FINDING FROM THE MANAGEMENT
The effect and consequences of rampant corruption in the tax system are very serious. It reduces state revenue and thus diminishes the capacities of the state to fulfill its obligations. The losses in revenues and thus subsequently in public spending are often completely out of proportion to the amounts paid as bribes. One of the effects of corruption in this field is that it reduces the distributive function of tax collection and hence contributes to increasing income inequality. Another major impact area is that by dividing resources away from public spending, corruption in this field exaggerates scarcities and contributes to growth of corruption across whole of public sector.

5.2.1 TAX INCENTIVES AND MOTIVATION
Motivation tends to be low among tax officials assigned to work with the informal sector. Promotion prospects are few, and they are more lucrative positions. The DTRD does not have the capacity to implement, monitor and enforce taxation. It is the only revenue agency which is yet to be computerized. This coupled with inadequate logistics such as vehicles, office space and inadequate conditions of service to motivate staff have made it impossible to make significant inroads into informal sector taxation. Strategies employed by the DTRD such as on-the-spot check, closing down of shops, public education on tax and the demand of tax clearance certificate for appointment to public office to stimulate tax consciousness in the informal sector has achieved marginal success. These are jobs to be avoided, especially by the more senior officials. In such circumstances, it is hard for governments to focus more on taxing the informal sector.

5.2.2 STAFF CAPACITY
The study reviewed that the Domestic Tax Revenue Division does not have the required number of personnel to carry out its duties as required. Lack of personnel has made it impossible to make significant inroad into the informal sector. The DTRD is not able to send personnel to all locations to collect taxes as most taxpayers complained about difficulty in travelling long distance they can pay their taxes.

5.2.3 IMPACT ON TAX COMPLIANCE IN THE FORMAL SECTOR
The studies reviewed that there is general non compliance in the informal sector. People deliberately refuse their tax obligation. There is always cohesion between tax payers and the revenue officials. Legitimate taxpayers in the formal sector perceive the state as being unfair in pursuing them for taxes while the informal sector continues to operate untaxed. Ignoring informal sector activities will lower compliance morale and increase the risk of generalized non compliance.

5.3.0 SUMMARY OF FINDINGS FROM REVENUE COLLECTORS
In general terms, it is obvious why it is difficult to tax the informal economy. It comprises a large number of small-scale operators, each with low turnover. Many activities are carried out within homes and out of public sight; it may be difficult to identify them for tax purposes. Barriers to entry are low. This leads to fierce competition and high degree of transience and uncertainty. Businesses in operation today may not exist tomorrow. In activities like transportation or street vending, operators may not be very mobile. Low levels of literacy and lack of access to banking services means that cash transactions dominate. The family-oriented, small-scale nature of most businesses leads to a lack of separate accounting of personal and business transactions. Large size tax payers, who are spread over a wide geographical area and cannot either therefore be easily reached and or found it difficult to access tax collection points.

5.3.1 CASH TRANSACTIONS IN THE INFORMAL SECTOR
Most business transactions are done in cash and even establishments would not accept credit note or cheque as a mode of payment. The transaction of all business in cash is one of the means by which businessman can conceal taxable profits. By so doing, he is able not only to manipulate his records and turnover figure for tax reduction purposes but he is also to eliminate all third party information leading to his purchase and sales.

5.3.2 RECORDS KEEPING
Also, most self-employed people are indifferent to proper record keeping. However, in tax administration a very important task is the correct determination of the income of the taxpayers so that a meaningful assessment of the tax
liability could be made. Without , mainly due to illiteracy.

5.3.3 ANNUAL TARGET
The studies reviewed that the even though annual target are set for revenue collectors, the target are not challenging enough that allows the revenue collectors to over exert themselves.

5.4.0 RECOMMENDATIONS
The regulatory function of the government must be properly performed. Government through its institutions, the DTRD should enforce rules and regulations governing tax compliance. Those found to be have defaulted must face the sanctions. In this connection, the closing down of companies embarked by the DTRD must be intensified. Those individuals in the informal sector who failed to pay their tax must be prosecuted. Special tax courts must be established to deal expeditiously with cases of tax non-compliance. Procedural manuals and electronic forms should be made widely available to the tax payers, makes the services more transparent, reduce discretion of officials and strengthen accountability and possibilities for controls.

Standardized procedures should limit one-on-one contact between officials and customers and reduce the number of forms/approvals needed.
Tax regulations are often highly complex and include exemptions for many, often poorly defined cases. This makes the system difficulty understand and gives officials discretionary power. To prevent corruption, tax system should have simple and clear rules, few exceptions and clear definitions. If the tax system is perceived to be fair, the incentives for corruption and evasion are diminished.

A number of factors can increase the professional management, instead of politically appointed heads of administration. Staffs need to be recruited and promoted on merit, compensation needs to be sufficient and regular training, adapted to the needs of the staff members, and should be provided. In addition, responsibilities should be clearly defined and functions duly separated. Staff rotation schemes should be put in place to prevent clientelism.

Apart from incentives such as quality provision of goods and services to motivate people to pay tax, incentives such as national awards for tax compliance to be given to those in the informal sector should be instituted to motivate taxpayers in the informal sector to honor their tax obligation despair paying tax is non-rewarding. The country has a culture of punishing tax defaulters in the informal sector and not rewarding those who have fulfilled their obligations. The institution of rewards will go a long way to stimulate individuals groups in the informal sector to be alive with their tax obligations.

The inculcation of a culture of tax compliance depends on changing attitudes and perceptions. Even though the revenue institutions and the National Commission for Civic Education (NCCE) have embarked on public education programmes either in the media or on posters and billboards the approach is ad hoc and piecemeal. Therefore, a more concerted and sustained approach needs to be put in place for the sensitization of the public.

Services should be subject to regular internal and external controls. In order to make controls effective, performance standards (relating to revenue targets and service standards) as well as codes of conduct, providing for principles such as conflict of interest, confidentiality of information, etc., should be in place. These codes need to be backed up by effective sanctions, which should includes internal disciplinary measures for minor offence and the involvement of law enforcement agencies for more serious cases of fraud and corruption .

The establishment of special vigilance units can support internal controls. Customer (tax payer) surveys are useful tools to diagnose problems and monitor the ongoing effects of reforms. A credible, independent and accessible appeals mechanism should be available to the tax payers.

5.5.0 CONCLUSION
The paper has shown that taxing the informal sector is a difficult task and that the prospects for making a significant advance are not so bright, given the various mechanisms used. However, the importance of attempting to do so by the government is undeniable. It must be pointed out that taxing the informal sector for a long time will depend on a combination of approaches and mechanisms. There is therefore no single mechanism which can provide that “magic wand”. Tax collection is an important government challenge that depends on a compliance culture, the values and norms of a society, its history and above all the capacity of the government to deliver.

The potential for taxing the informal sector depends upon two key factors (a) the degree of pressure on government to increase revenue and (b) the existence of collective actors in the informal sector having institutionalized channels for negotiation with the state. Above all, there must be a different way of thinking politically about taxation of the informal sector that could lead to a substantial new research agenda. In other words, make inroads into the difficult problem of taxation of the informal sector we need to think differently about the issue. Maximizing voluntary compliance is therefore a must which must be taken seriously by any reform new research agenda.

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APPENDIX 1
KWAME NKRUMAH UNIVERSITY OFSCIENCE AND TECHNOLOGY, INSTITUTE OF
DISTANCE LEARNING-KUMASI