Tax Risk Dynamics and Tax Planning Activity Nexus: Evidence From Banks in Ghana
DOI:
https://doi.org/10.26437/ajar.v11i1.902Keywords:
Bank. rolling tax risk. tax planning. tax rate. tax riskAbstract
Purpose: This study investigates the tax risk tax planning nexus of banks in Ghana. The paper explores the multidimensionality of tax risk and its consequences for tax planning activity.
Design/Methodology/Approach: Due to data availability and completeness, the study used a purposive sampling technique to sample 20 banks. The study focused on the universal banks in Ghana, with data from 2008 to 2022 generated from the audited financial statements, interpolated into monthly frequencies, and analysed using the Generalised Method of Moment to test the nexus.
Research Limitation: Although the findings presented in this study are grounded in the Ghanaian context, their implications extend beyond the Ghanaian setting. Also, while there are other equally important branches of the financial sector, the study only concentrated on the banking sector.
Findings: The findings show that differential/avoidance tax risk and rolling tax risk significantly positively affect the cash-effective tax rate. Therefore, it is concluded that a high tax risk reduces banks' aggressive tax planning activities in Ghana.
Practical Implication: A perceived high tax risk could lead to a high tax-paying culture. The tax authority should enforce regulatory sanctions to elicit high corporate tax compliance and improve this culture.
Social Implication: A high tax risk could result in increased tax revenue obligations, improving tax revenues for providing essential services like employment, education, healthcare, and infrastructure.
Originality/ Value: The study is one of the foundational studies in the Ghanaian setting to explore tax risk dynamics as antecedents of tax planning activity. By extending the empirical analyses to the banking sector, the study has not only recognised the heterogeneous characteristics of tax but also provides a unique understanding of the relationship from the banking sector where empirical evidence is virtually absent.
References
Abernathy, J. L., Klaus, J. J. P., Le, L., & Masli, A. (2023). Does greater access to employees with information technology capability improve financial reporting quality? Contemporary Accounting Research, 40(3), 2071-2105.
Agyei, S. K., Marfo-Yiadom, E., Ansong, A., & Idun, A. A. A. (2020). Corporate Tax Avoidance Incentives of Banks in Ghana. Journal of African Business, 21(4), 544–559. https://doi.org/10.1080/15228916.2019.1695183
Akitoby, B., Baum, A., Hackney, C., Harrison, O., Primus, K., & Salins, V. (2020). Tax revenue mobilization episodes in developing countries. Policy Design and Practice, 3(1), 1–29.
Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D., & Larcker, D.F. (2015). Corporate governance, incentives, and tax avoidance, Journal of Accounting and Economics, 60 (1), 1-17.
Ayers, B.C., Call, A.C., & Schwab, C.M. (2018). Do analysts’ cash flow forecasts encourage managers to improve the firm’s cash flows? Evidence from tax planning, Contemporary Accounting Research, Vol. 35 No. 2, pp. 767-793.
Barro, R. J., & Sala-i-Martin, X. (1992). Convergence. Journal of Political Economy, 100(2), 223-251.
Bawuah, I. (2019). Tax planning and performance of insurance companies in Ghana [Unpublished master’s thesis]. University of Cape Coast.
Beasley, M., Blay, A., Lewellen, C., & McAllister, M. (2023). Tempering Financial Reporting Risk through Board Risk Management. Journal of Risk and Financial Management, 16(12), 491.
Blouin, J. (2014). Defining and measuring tax planning aggressiveness. National Tax Journal, 67(4), 875–899.
Boateng, K., Omane-Antwi, K. B., & Ndori Queku, Y. (2022). Tax risk assessment, financial constraints and tax compliance: A bibliometric analysis. Cogent Business and Management, 9(1). https://doi.org/10.1080/23311975.2022.2150117
Boldycheva, A. G., & Klonitskaya, A. Y. (2022). Tax Risks and Tax Planning. Russian Engineering Research, 42(9), 954–957. https://doi.org/10.3103/S1068798X22090064
Bolton, P., Chen, H., & Wang, N. (2014). Debt, Taxes, and Liquidity (No. W20009), National Bureau of Economic Research, Cambridge, MA.
Brühne, A. I., & Schanz, D. (2022). Defining and Managing Corporate Tax Risk: Perceptions of Tax Risk Experts*. Contemporary Accounting Research, 39(4), 2861–2902. https://doi.org/10.1111/1911-3846.12785
Brühne, A. I., & Schanz, D. (2022). Defining and managing corporate tax risk: perceptions of tax risk experts. Contemporary Accounting Research, 39(4), 2861-2902.
Cabello, O. G., Gaio, L. E., & Watrin, C. (2019). Tax avoidance in management-owned firms: evidence from Brazil. International Journal of Managerial Finance, 15(4), 580-592.
Cao, J., Dai, H., Li, S., Guo, C., Ho, M., Cai, W., ... & Zhang, X. (2021). The general equilibrium impacts of carbon tax policy in China: A multi-model comparison. Energy Economics, 99, 105284.
Carolina, V., Studi-Akuntansi, P., Bisnis, F., & Kristen Maranatha, U. (2021). The best measurement of tax aggressiveness in predicting corporate risk. http://journals.ums.ac.id/index.php/reaksi/index
Carsamer, E., Abbam, A., & Queku, Y. N (2021). Bank Capital, Liquidity and Risk in Ghana. Journal of Financial Regulation and Compliance. https://doi.org/10.1108/JFRC-12-2020-0117
Chen, W. (2021). Tax risks control and sustainable development: evidence from China. Meditari Accountancy Research, 29(6), 1381–1400. https://doi.org/10.1108/MEDAR-05-2020-0884
Chen, Z., He, Y., Liu, Z., Serrato, J. C. S., & Xu, D. Y. (2021). The structure of business taxation in China. Tax Policy and the Economy, 35(1), 131-177.
DeAngelo, H., & Stulz, R. M. (2015). Liquid-claim production, risk management, and bank capital structure: Why high leverage is optimal for banks. Journal of financial economics, 116(2), 219-236.
Doyle, J.M. (2017). Persistence in the long-run expected rate of return for corporate pension plans, The Quarterly Review of Economics and Finance, 6 (3), 271–277.
Drake, K. D., Lusch, S. J., & Stekelberg, J. (2019). Does tax risk affect investor valuation of tax avoidance? Journal of Accounting, Auditing & Finance, 34(1), 151-176.
Elmirzaev, S. (2015). Tax Risk Assessment and Management in Private Sector: Evidence from Uzbekistan. In European Journal of Business and Management www.iiste.org ISSN (Vol. 7, Issue 29). Online. www.iiste.org
Engen, E., & Skinner, J. (1996). Taxation and economic growth. National Tax Journal, 49(4), 617-642.
Ernst & Young LLP. (2016). Ernst & Young Tax Guide 2017. John Wiley & Sons. Finance and Accounting, 7(14), 59-66
Fleckenstein, M., Longstaff, F. A., & Strebulaev, I. A. (2020). Corporate taxes and capital structure: A long-term historical perspective. Critical Finance Review, 9(1-2), 1-28.
Ftouhi, K., & Ghardallou, W. (2020). International tax planning techniques: a review of the literature. Journal of Applied Accounting Research, 21(2), 329-343.
Ghazouani, T. (2013). The capital structure through the trade-off theory: Evidence from Tunisian firm. International Journal of Economics and Financial Issues, 3(3), 625-636.
Gnangnon, S. K., & Brun, J. F. (2019). Trade openness, tax reform and tax revenue in developing countries. The World Economy, 42(12), 3515-3536.
Guedrib, M., & Hamdi, Z. (2024). Investigating tax risk’s influence on tax avoidance and debt costs: evidence from France. Journal of Financial Crime.
Guedrib, M., & Marouani, G. (2023). The interactive impact of tax avoidance and tax risk on the firm value: new evidence in the Tunisian context. Asian Review of Accounting, 31(2), 203–226. https://doi.org/10.1108/ARA-03-2022-0052
Guenther, D. A., Matsunaga, S. R., & Williams, B. M. (2017). Is tax avoidance related to firm risk? The Accounting Review, 92(1), 115-136.
Hanlon, M., Mills, L., & Slemrod, J. (2007). An empirical Examination of corporate tax noncompliance, in Auerbach, A., HinesJr., J.R. and Slemrod, J. (Eds), Taxing Corporate Income in the 21st Century, Cambridge University Press, Cambridge, pp. 171-210.
Hannah, E., Lopez, M., Murray, S., Etter-Phoya, R., Hall, S., & Masiya, M. (2023). How can corporate taxes contribute to sub-Saharan Africa’s Sustainable Development Goals (SDGs)? A case study of Vodafone. Globalization and Health, 1–15. https://doi.org/10.1186/s12992-022-00894-6
Ho, T. T., Tran, X. H., & Nguyen, Q. K. (2023). Tax revenue-economic growth relationship and the role of trade openness in developing countries, Cogent Business & Management, ISSN 2331-1975, Taylor & Francis, Abingdon, 10 (2), 1-14, https://doi.org/10.1080/23311975.2023.2213959
Hopland, A.O., Lisowsky, P., Mardan, M., & Schindler, D. (2018). Flexibility in income shifting under losses, The Accounting Review, Vol. 93 No. 3, pp. 163-183.
Hutchens, M. (2015). Does greater tax risk lead to increased firm risk?
Jansky, P. (2013). Illicit financial flows and the 2013 commitment to development index, Centre for Global Development (CGD) Policy Paper, 2013 (34), 1–30.
Keen, M. (2013). The Anatomy of the VAT. National Tax Journal, 66(2), 423–446.
Keho, Y. (2010). Effect of financial development on economic growth: Does inflation matter? Time series evidence from the UEMOA Countries. International Economic Journal, 24(3), 343–355.
Khan, M., Srinivasan, S., & Tan, L. (2017). Institutional ownership and corporate tax avoidance: new evidence, The Accounting Review, 92 (2), 101-122
Kinda, T., Mlachila, M., & Ouedraogo, R. (2018). Do commodity price shocks weaken the financial sector? The World Economy, 41(11), 3001-3044.
Knaisch, J. (2024). How to account for tax planning and its uncertainty in firm valuation? Journal of Business Economics, 94(4), 579–611.
Kovermann, J. H. (2018). Tax avoidance, tax risk and the cost of debt in a bank-dominated economy. Managerial Auditing Journal, 33(8/9), 683-699.
Lee, K., & Yoon, S. (2020). Managerial ability and tax planning: trade-off between tax and nontax costs, Sustainability, 12 (1),370–383.
Lee, N. (2017). Can territorial tax compliance systems reduce the tax avoidance of firms with operations in tax havens? Emerging Markets Finance and Trade, 53(4), 968–985.
Li, J., & Okafor, O. N. (2024). Tax Employee Careers and Corporate Tax Outcomes*. European Accounting Review, 1–26. https://doi.org/10.1080/09638180.2024.2386144
Mangoting, Y., Yuliana, O. Y., Effendy, J., Hariono, L., & Lians, V. M. (2021). The Effect of Tax Risk on Tax Avoidance. Jurnal Keuangan Dan Perbankan, 25(3), 570–584. https://doi.org/10.26905/jkdp.v25i3.5629
Masri, I., Syakhroza, A., Wardhani, R., & Samingun. (2019). The role of tax risk management in international tax avoidance practices: Evidence from Indonesia and Malaysia. International Journal of Trade and Global Markets, 12(3-4), 311-322.
Mills, L., & Newberry, K. (2004). Do foreign multinationals’ tax incentives influence their U.S. Income reporting and debt policy? National Tax Journal, 57 (1), 89–107.
Mills, L., Erickson, M., & Maydew, E. (1998). Investments in tax planning, Journal of the American Taxation Association, 20 (1), 1–20.
Muhammadi, A.H., Ahmed, Z., & Habib, A. (2016). Multinational transfer pricing of intangible assets: Indonesian tax auditors’ perspectives, Asian Review of Accounting, 24 (3), 313-337.
Murray-Johnson, L., Witte, K., Patel, D., Orrego, V., Zuckerman, C., Maxfield, A. M., & Thimons, E. D. (2004). Using the extended parallel process model to prevent noise-induced hearing loss among coal miners in Appalachia. Health Education & Behavior, 31(6), 741–755.
Neubig, T., & Sangha, B. (2004). Tax risk and strong corporate governance. Tax Executive, 56, 114.
OECD (2020). Tax revenue trends, in Tax Policy Reforms 2020: OECD and Selected Partner Economies, OECD Publishing, Paris, https://doi.org/10.1787/c9ee7031-en.
OECD (2023). Corporate tax revenues, in Corporate Tax Statistics 2023, OECD Publishing, Paris, https://doi.org/10.1787/5a0764e2-en.
OECD (2024). Corporate tax revenues, in Corporate Tax Statistics 2024, OECD Publishing, Paris, https://doi.org/10.1787/a5180086-en.
OECD/AUC/ATAF (2023). Revenue Statistics in Africa 2023, OECD Publishing, Paris, https://doi.org/10.1787/15bc5bc6-en-fr.
Ogbonna, G. N., & Appah, E. (2016). Effect of tax administration and revenue on economic growth in Nigeria, Research Journal of Finance and Accounting, 7 (13), 49-58.
Ogundajo, G. O., & Onakoya, A. B. (2016). Tax planning and financial performance of Nigerian manufacturing companies. International Journal of Advanced Academic Research Social & Management Sciences, 2(7), 64-80.
Packard, M. D. (2017). Where did interpretivism go in the theory of entrepreneurship? Journal of Business Venturing, 32(5), 536-549.
Perspective of International Financial Reporting Standards (IFRS). Research Journal of
Platikanova, P. (2017). Debt maturity and tax avoidance, European Accounting Review, 26 (1), 97-124.
Popova, N. (2020). Challenges to the taxation of the digital economy. EMAN 2020–Economics & Management: How to Cope with Disrupted Times, 233.
Price Waterhouse Coopers, PWC (2014). Ghana banking survey report, available at: www.pwc.com/gh.
Price Waterhouse Coopers, PWC (2020). The new normal: banks’ response to COVID-19, available at:www.pwc.com/gh.
Queku, I. C. (2016). Review of Compliance Measure in Empirical Accounting Literature:
Queku, I. C. (2017). International Financial Reporting Standards (IFRS) compliance and earning predictability: Evidence from banks in Ghana. International Journal of Innovative Research and Advanced Studies (IJIRAS), 4(8), 102–111.
Queku, I. C., & Carsamer, E. (2016). Stock market and macroeconomic performance in Ghana: new evidence. International Journal of Social Science and Humanities Research (IJSSR), 4(4), 436-447.
Queku, I. C., Gyedu, S., & Carsamer, E. (2020). Stock prices and macroeconomic information in Ghana: speed of adjustment and bi-causality analysis. International Journal of Emerging Markets, 17(1), 47–70. https://doi.org/10.1108/IJOEM-05-2019-0342
Queku, Y. N., Seidu, B. A., Aneyire Kubaje, T., Boateng, K., Antwi-Agyei, E., Apeku, T., & Yamoah, K. (2023). IFRS adoption and tax revenue performance in Africa: Does Africa need tax-targeted IFRS reforms? Cogent Business & Management, 10(2), 2212500.
Queku, Y. N., Seidu, B. A., Attom, B. E., Carsamer, E., Adam, A. M., Fayeme, M., & Acquah, S. (2024). Tax Revenue Performance in Africa: Does Macroeconomic Environment Matter? Journal of Tax Reform, 10(2), 271-291.
Queku, Y.N. (2020). Value relevance of fair value measurement and stock price predictability: incremental effect and synergetic analysis of listed banks in Ghana, ADRRI Journal of Arts and Social Sciences, 17(5), 85–110.
Razali, M.W.M., Ghazali, S.S., Lunyai, J., & Hwang, J.Y.T. (2018). Tax planning and firm value: evidence from Malaysia, International Journal of Academic Research in Business and Social Sciences, 8 (11), 210-222.
Rego, S., Williams, B., & Wilson, R. (2017). Who invests in corporate tax avoiders? Kelly School of Business Research Paper, 17 (16), 21–53.
Roodman, D. (2009). How to do xtabond2: an introduction to difference and system GMM in Stata, The Stata Journal, 9 (1), 86–136.
Saibu, O. M. (2015). Optimal tax rate and economic growth. Evidence from Nigeria and South Africa. Euro Economica, 34(01), 41-50.
Santa, S.L.L., & Rezende, A.J. (2016). Corporate tax avoidance and firm value: from Brazil, Revista Contempor anea de Contabilidade, 13 (30), 114-133.
Saragih, A. H., & Ali, S. (2023). Corporate tax risk: a literature review and future research directions. Management Review Quarterly, 73(2), 527-577.
Schaffer, M. E., & Turley, G. (2019). Effective versus statutory taxation: measuring effective tax administration in transition economies. In Institutional Change in Transition Economies (pp. 145-175). Routledge.
Seidu, B. A., Opoku-Boahen, E., Queku, Y. N., Boateng, K., & Opoku-Boahen, G. (2022). A Critical Review of Antecedents of Unauthorised Extra-Budgetary Expenditure: Application of Fraud Triangle Theory. African Journal of Business and Economic Research, 17(4). https://doi.org/10.31920/1750-4562/2022/V17N4A14
Seidu, B. A., Queku, Y. N., & Carsamer, E. (2021). Financial constraints and tax planning activity: empirical evidence from Ghanaian banking sector. Journal of Economic and Administrative Sciences, 39(4), 1063–1087. https://doi.org/10.1108/JEAS-12-2020-0199.
Sreesing, P. (2018). Taxes and risk-taking behavior: evidence from mergers and acquisitions in the G7 nations. The Journal of Risk Finance, 19(3), 277-294.
Suwardi, E., & Saragih, A. H. (2023). The effect of tax risk on audit report delay: Empirical evidence from Indonesia. Cogent Business and Management, 10 (1). https://doi.org/10.1080/23311975.2023.2192315
Taylor, G., & Richardson, G. (2014). Incentives for corporate tax planning and reporting: empirical evidence from Australia, Journal of Contemporary Accounting and Economics, 10 (1), 1–15.
Tosun, M. S., & Yildiz, S. (2020). How does aggregate tax policy uncertainty affect default risk? Journal of Risk and Financial Management, 13(12), 319.
Towery, E. M. (2017). Unintended consequences of linking tax return disclosures to financial reporting for income taxes: Evidence from Schedule UTP. The Accounting Review, 92(5), 201–226.
Wahab, N. S. A., & Holland, K. (2012). Tax planning, corporate governance and equity value. The British Accounting Review, 44(2), 111–124.
World Bank (2015). Tax revenue (% of GDP), available at: http://data.worldbank.org/indicator/gc.tax.totl.gd.zs (accessed 10 March 2017)
World Bank (2022). Tax revenue (% of GDP), available at: https://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS.
Yimbila, B. (2017). Tax Planning, Corporate Governance and Performance of Banks in Ghana, Masters Thesis, University of Cape Coast, Cape Coast, Ghana.
Zhang, Z., Xiao, X., & Liu, C. (2024). The economic effects of tax structure transformation: a study based on the tax reform of China's Hainan Free Trade Port. Heliyon.
Downloads
Published
How to Cite
Issue
Section
Categories
License
Copyright (c) 2025 AFRICAN JOURNAL OF APPLIED RESEARCH
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
By submitting and publishing your articles in the African Journal of Applied Research, you agree to transfer the copyright of the Article from the authors to the Journal ( African Journal of Applied Research).
