The effect of taxation on financial performance of listed manufacturing firms in Ghana

Abstract

This study examined the effect of corporate income taxes on the profitability of some listed manufacturing firms in Ghana from 2016 to 2020 using secondary data which was sourced from various publications of the firms’ financial reports. To achieve this, the study employed the quantitative approach, with the descriptive survey and cross-sectional study being the design adopted for the study. In handling a sample size of 20 manufacturing companies, the secondary data extracted was imputed into SPSS v.26 for both descriptive and inferential statistics to be done. The study further employed the regression analysis as the estimation of the conditional expectation of the dependent variable given the predictive variables whiles panel data was used to estimate the extent to which value-added taxes, withholding taxes, personal income taxes, size, and age affected the profitability of manufacturing firms when they comply with payment of corporate taxes. The study revealed that there is a significant negative relation between corporate income tax and financial performance. On the other hand, firms’ age and size show a significant positive relationship with financial performance. The study showed firms did not specifically engage tax experts to manage their overall tax managements which was a challenge. The manufacturing industry is also challenged by various changes in tax regimes over the period, managers in the sector regard this to be hindering the sector. It is on this basis that, this study recommended that policymakers should develop an interest in promoting the manufacturing industry by making it stable and efficient to boost confidence. Also, management of manufacturing firms must also take tax planning initiatives into consideration in an attempt to reduce net tax payments to increase their financial performance.