A determination of the cash flow impact of paying advance corporate income tax in Ghana
Keywords:cash flow, Ghana, income tax, quarterly tax instalment
Though advance payment of corporate tax is a major tool employed by governments for mobilising tax revenue, it is often considered to have a distortionary impact on taxpayers. The study is a quantitative investigation of the cash flow impact of paying income tax by Ghanaian companies. The data used for the study was mainly drawn from the statements of income, cash flows and financial position of 20 listed companies in Ghana. By running regression and correlation analyses on MsExcel, the study found evidence of the link between advance corporate income tax payment and cash flows. The study also found that the cash flow effects of paying corporate income tax in advance varied significantly from one industry to the other. The study recommends the introduction of automatic exemption from withholding taxes in respect of companies which are identified to be compliant with the quarterly tax instalments payment system. It also recommends the introduction of an advance tax deferment system to enable companies faced with cash flow challenges to have their tax instalments deferred in periods of cash flow challenges.