Tax Evasion Determinants and Effect in Urban Ghana: The Case of Ledzokuku Municipal Assembly

Abstract

The purpose of this inquiry is to empirically investigate tax evasion’s influence on the Ghanaian economy, focusing on the Ledzokuku Municipal Assembly-(LMA), one of Ghana’s 261 Metropolitan, Municipal and District Assemblies-(MMDAs). The research methods used include a quantitative research approach-(specifically, cross-sectional design), performing descriptive statistics, principal component analyses-(PCA), exploratory factor analyses-(EFA), reliability/validity analyses, PLS-SEM analyses via first-order confirmatory factor analysis-(CFA) for testing the hypothesis. Data was purely primary, utilizing convenience sampling to select 300 respondents, who responded to 285 self-answered close-end/standardized questionnaires, yielding a survey response rate of 95%. Findings/Results revealed that all four tax evasion constituents acting as explanatory variables, namely, return filling-(RET), income disclosure-(DSC), tax liabilities computation-(DSC), and tax due payment-(PM) significantly exerted a negative impact on the Ghanaian economy, with DSC exhibiting the most potent predictor of tax evasion. Recommendations include initiating tax awareness campaigns via media channels to educate taxpayers, implementing penalties against tax evaders, incorporating thorough review/assessment procedures into the tax framework, conducting tax audits in specific areas, establishing an inspection division to issue tax clearance certificates, offering incentives for timely tax payments, reducing the informal economy, decreasing tax rates, and addressing inadequacies in penalties are advised to mitigate tax evasion and foster socioeconomic progress in Ghana. This research enriches the existing literature by providing detailed, context-specific insights into the determinants and effects of tax evasion in urban Ghana, a lower-middle-income West African emerging economy. Its novel approach offers valuable empirical evidence and practical recommendations for policymakers and researchers addressing tax evasion in similar urban contexts. The study’s conceptual framework, while specific to Ghana, can be replicated in other emerging market economies, thus contributing methodologically, conceptually, and theoretically to the broader discourse on tax evasion and fiscal policy.