Small and Medium Scale Enterprises in Ghana and Withholding Tax Issues: Challenges, Effects and Solutions

Abstract

Every nation depends on taxes paid by individuals, businesses and institutions for running the affairs of the nation. One group of tax payers in Ghana is the Small and Medium Scale Enterprises (SMEs). It has been observed that most of the SMEs are not able to comply with the provisions of the Internal Revenue Act, 2000, ACT 592 with regards to withholding tax issues. In this study, an attempt is made to examine the challenges that SMEs encounter in complying with the provisions of sections 81-92 of ACT 592 which deals with withholding tax issues, the effects of non- compliance with the tax laws and offer suggestions on viable ways of dealing with the challenges to minimize the effects on the SMEs. The study was conducted using the case study approach. Data was collected by administering open-ended questionnaires to business owners and accounts staff of the selected SMEs. Additional data was collected by interviewing some external auditors and some officials of Ghana Revenue Authority. The results of the study show that some of the challenges that SMEs in Ghana encounter in compliance with the provisions on withholding tax are: Some of the owners of the SMEs do not have adequate knowledge of the tax laws in relation to withholding tax issues;Deliberate failure of owners of SMEs to comply with the provisions of the tax laws; Non – enforcement of the provisions sections 81-92 of the Internal Revenue Act 2000, ACT 592, which deals with withholding tax issues; Failure of withholding agents to give the tax credits issued by the commissioner general of GRA to those from whom tax was withheld; and  Impracticability of withholding tax on payment for certain goods and services.