An Empirical Analysis of the Incidence of Corporate Income Tax in Ghana (1997-2006)

The corporate income tax is levied on earnings at the corporate level and shareholders pay taxes again on these earnings when they are paid out as dividends. This double taxation has been a concern of policy makers and its effects on economies have been analyzed and discussed by researchers in many disciplines. This study uses a financial statement data from ten (10) manufacturing companies listed on the Ghana Stock Exchange over a ten year period spanning from 1997 to 2006. The simple ordinary least squares regression is used for models representing each of the three players over time. The results showed a negative relationship between returns to shareholders and the tax, indicating that returns decrease when the tax increases. The results also showed a negative relationship between the cost of labour and the tax, indicating that an increase in the tax will lead to a decrease in the cost of labour (wages). Finally, the results showed a significant positive relationship between the gross profit percentage and the tax; indicating that consumer prices may increase in relation to an increase in the tax rate