An Analysis of Tax Compliance for Rent

1.0 Introduction

1.1 Background of the study

The Ghana Revenue Authority (GRA) is stepping up the collection of tax on rent income from owners of residential and commercial properties following the re-launch of the tax in Accra.Though it has been in the statute books since 1973, compliance with the tax, which is charged at 8% of gross rent income, has not been encouraging and the GRA said it will increase efforts to collect the tax, especially since the real estate sector is witnessing a boom.

It has become necessary, after assessing the performance of the tax on rent income as a percentage of total GRA collections, for us to re-strategize to ensure that the tax takes a respectable position among the tax types, said George Blankson, GRAs Commissioner-General. There is a strong believe that there is a boom in the real estate sector. Unfortunately, the tax revenue from this sector does not correspond to the boom we are experiencing. Available data show that the contribution of rent income tax to total direct tax collections was 0.42% in 2011, representing GH15.92 million out of GH3.75 billion in direct taxes. In 2012, the tax contributed 0.32%, representing GH17.48 million out of GH5.4 billion. As a share of total GRA collections, rent income tax registered 0.14% in 2012.

We are very much determined and committed to enhancing the contribution of the tax to total GRA collection in 2013 and beyond, said Mr. Blankson, adding that the Authority will ensure full implementation of the renewed directive by collaborating with public bodies and private organizations to enable it gain access to relevant information for assessment purposes.He said the GRA will engage with institutions such as the Electricity Company of Ghana, Ghana Water Company, the Lands Commission, Ghana Real Estate Developers Association, Ghana Institution of Architects and the Ghana Institute of Engineers who deal with property owners.

Speaking at the event, Minister of Finance Seth Terkper said the re-launch of the tax is timely and has come at a period when the nation needs to mobilize every available tax revenue to cover rising expenditure.He said the 2013 budget is focused on revenue generation through expanding the tax-base and improving the efficiency of tax administration.Any new initiative in this regard is therefore welcome. For me, the re-launch and the emphasis that is being given to the tax on rent income is an indication of the preparedness of GRA to broaden the tax-base. I charge the GRA to come up with many new ideas in this direction, he said.

Even though the housing sector is one area where the tax potential is huge, we have not derived much revenue from this sector for various reasons. Therefore any fresh initiative which aims at breaking the barriers and increasing compliance is very much welcome and appreciated, he added.The rent income tax law, LI 1698, also obliges institutions and corporate bodies to withhold the tax whenever paying rent to property owners.

The GRA said it is targeting companies, financial institutions, partnerships, educational establishments, medical establishments, corporations, government agencies, consular offices, and international organizations in its renewed attempt to improve collection of the tax.

1.2 Statement of the problem

Knowledge about taxation, the benefits of taxation and the dangers of non-compliance remain a key impediment to tax compliance in many countries. Countries such as the US, Canada, Japan, New Zealand, Australia, the UK and Malaysia have all been implementing a continuous tax education for taxpayers and children as future taxpayers (Palil, 2010). Various countries such as the USA, the UK and Australia also have developed interactive websites, disseminated leaflets together with tax returns, opened call centers’, created advertisements or supplied reminders via television and radio (e.g. to remind taxpayers of deadline dates for filings)

1.3 Aim and Objectives of the Study

The aim of the study is to analyze the Tax Compliance for Rent. In achieving this aim, the following specific objectives were laid out as follows:

1. To ascertain the level of rent tax compliance of the people of BolgatangaMunicipality in Ghana.
2. To determine the effects of taxation on Ghana's economy.
3. To determine the challenges of taxpayers in Bolgatanga Municipality.
4. To recommend ways of tackling these challenges.

1.4 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• Do the people of Bolgatanga Municipality comply with rent tax in Ghana?
• What are the effects of taxation on Ghana's economy?
• What are the challenges of tax payers in Bolgatanga Municipality?
• What are the ways of tackling these challenges?

1.5 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

• H0: The people of Bolgatanga Municipality do not comply with rent tax in Ghana.
• H1: The people of Bolgatanga Municipality comply with rent tax in Ghana.

1.6 Significance Of The Study

Most tenants and landlords in Ghana are avoiding outright non-compliance by not submitting returns or pay taxes at all instead they had irregular payment and tax reduction. This study hope to find throw light on the need for compliance on rent tax as taxation is the primary source of revenue for governments throughout the world to implement their social and political agendas and to deliver services to the citizens

1.7 Scope of the study

This study covered the rent tax compliance inBolgatanga MunicipalityGhana.

1.8 Limitations of Study

During the course of this study, many things militated against its completion, some of which are:

1. Financial Constraint:

   Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection through the internet, questionnaire and interview.

2. Time Constraint:

   The researcher simultaneously engaged in this study with other academic work. This consequently cut down on the time devoted for the research work.

1.8 Definition Of Terms

Rent:

A tenant's regular payment to a landlord for the use of property or land.

Tax:

A compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.

Tax Compliance:

The action or fact of complying with a wish or command.