Governments earn money from a variety of sources, including taxes, all around the world. As a result, if eligible taxpayers adhere to tax policies in a major way, the revenue of the respective government will increase. This conformity will aid in the proper implementation of a nation’s constitutional commitments to its inhabitants as well as the preservation of its sovereignty.
As a result, the government’s fiscal policies should be strengthened to ensure that any leakages in tax revenue creation are reduced. Despite the government’s economic policies aimed at making the tax system more efficient and effective, tax fraud and evasion appear to be severe problems. Individual and corporate tax avoidance has long been a source of worry for the government and policymakers.
Tax fraud, evasion, and non-compliance have become alarmingly common in most developing countries, and these are the most serious issues confronting Ghana’s tax administration. Tax evasion, avoidance, and non-compliance by people and businesses are all examples of tax fraud.
Fraud is the intentional concealment, falsification, or omission of material facts with the intent of tricking another into acting on it to be defrauded. Every act of fraud is a breach of trust. The ability of people or businesses to escape tax by false representation, fraudulent tactics, or concealment of tax material facts to deceive the government and decrease tax liabilities and payments is the essence of tax fraud. A taxpayer accused of tax fraud or tax evasion has engaged in fraudulent behaviour that violates the law.
The growing complexity of tax fraud necessitates immediate attention and the use of a forensic accountant to investigate and prosecute tax evaders and other fraudulent acts. As a result, using forensic accounting techniques to reduce this threat and instil tax compliance in individuals or businesses by complying with actual tax assessment and payment is a viable option.
Tax Fraud
Tax fraud is the intentional use of deception and tactics to reduce or avoid paying taxes by falsifying tax filings or evading taxes. It is a deliberate act committed by a taxpayer to dodge tax payment. Tax fraud is an intentional misrepresentation by a taxpayer that causes the government harm (tax loss).
It entails both underpayments of taxes and intent to defraud. This can be done against the government and tax authorities in the country who collect taxes. Tax evasion has both a national and international scope. The internal dimension takes the form of tax evasion, which is exacerbated by the presence of a large informal economy.
The international dimension refers to profit shifting and offshore financial asset holdings by businesses, corporations, and high-net-worth individuals. Many businesses and individuals use creative accounting tactics to avoid paying taxes by falsifying accounting records, financial facts, and accounting numbers. Ghana’s tax system is based on voluntary taxation, in which people file tax returns when they are required for tax assessment and payment. While some people follow the rules and pay their taxes, others are dishonest and do not pay taxes or pay them enough. Tax fraud, or techniques to cheat the tax authority and the government, is an intentional and wilful act of underpaying taxes.
Tax fraud can be avoided by:
- Having good internal control over tax revenue collection. 2. Taxpayers should be properly monitored. 3. Prohibit any collaboration between tax officers and taxpayers. 4. Instilling a fear of punishment as a deterrent. 5. Reducing the opportunity for tax officers to defraud taxpayers. 6. Providing tax officers with current working equipment, as well as proper training and skill transfer on new forensic technologies. 7. Tax fraud auditing on a proactive basis. 8. Establishing a culture of honesty, transparency, and fairness in the tax system and the administration of tax proceeds.
It is less expensive and more effective to avoid tax fraud than it is to investigate and detect it. Tax fraud prevention is preferable since the chances of recovering the entire amount involved in a fraud case are minimal, and investigating fraudulent actions takes time and money. As a result, having the proper apparatus in place to avoid tax fraud will save time, money, and a great deal of work that would otherwise be spent tracking down fraud perpetrators and recovering payments. Understanding and identifying the elements that contribute to fraudulent actions and unethical behaviour is critical. This will demonstrate the fundamental purpose for committing fraud as well as who the fraudsters are.
Tax Evasion
Tax evasion is a criminal crime and immoral behaviour that deprives the government of money and impedes the provision of goods and services, as well as social and economic development for the citizens’ well-being. It is a worldwide issue, but it is more acute in developing countries than in rich economies.
Non-registration for taxes, failure to pay taxes, non-submission of tax returns, overstatements of expenses, understatements of incomes or revenues, deliberate omission of vital tax matters, the fraudulent claim of fictitious reliefs, presentation of fictitious transactions in books of accounts, and falsification of tax returns are all examples of tax evasion. Government efforts to achieve the Sustainable Development Goals (SDGs), good governance, infrastructure development, and social economics and fiscal policies are hampered by tax evasion.
Researchers have identified several factors that contribute to tax evasion in a country, including low tax morale, greed and selfishness, fiscal corruption, illiteracy, a lack of social contract, weak internal control, high tax rates, a lack of tax awareness, poor tax service delivery, ambiguity in tax laws, a weak legal system, and a delay in prosecuting evaders. Regardless of these factors, tax evasion has a significant economic impact since it disrupts government administration and prevents the implementation of annual budgets. As a result, tax evasion is a social phenomenon that reduces tax collections and harms a country’s social-economic progress and infrastructure development.
Tax evasion occurs in areas such as customs duties, where under-invoicing or changing the description of the goods to attract lower rates, smuggling through illegal routes; personal and corporate income taxes, where failure to remit PAYE deductions to the tax authority, filing false PAYE returns, underreporting of incomes or over-reporting of expenses; VAT evasion through falsification of invoices and use of fake invoice to offset VAT payment; and VAT evasion through falsification of invoice and use of To reduce tax evasion, the government must reformulate tax laws, ensure that the tax system is equitable, ensure that appropriate penalties and sanctions are imposed on tax evaders as a form of deterrence to others, and ensure proper awareness of the moral and importance of tax payment while applying tax revenues with fairness, justice, and honesty.
Scholars have also determined that there is a link between forensic accounting and fraudulent behaviours. Several studies have also shown that forensic accounting is a reliable mechanism for detecting and preventing fraud, exposing corruption, combating financial and economic crimes, managing fraud, maintaining the integrity of financial statements, improving banking sector performance, and improving tax administration efficiency, among other things.
The job of a forensic accountant in tax fraud extends beyond accounting numbers to include adequate investigation and analysis of financial data, report writing, and the acquisition of appropriate exhibits and documentary evidence that will aid as an expert witness in tax legal proceedings.
The investigation, dispute resolution, and litigation support are three key areas in which forensic accountants work. In industrialized countries such as Canada, the United Kingdom, the United States of America (USA), and Germany, forensic accounting has been used to uncover tax fraud and increase tax revenue generation for economic growth and development.
Forensic Accountant’s Role in Tax Disputes
In tax disputes, forensic accountants play three key roles: fact witness, consulting expert, and testifying expert. As fact witnesses, forensic accountants are supposed to provide solely factual facts about a legal case, without expressing any opinions. He is required to provide consulting services on attorney’s work by devising strategy, reviewing papers, and providing new information in a legal situation as a consulting expert.
The consulting professionals owed the client fealty and acted as an advocate for the client. As expert witnesses in legal action, forensic accountants must appear before a court or jury to provide professional advice and opinion on problems, either through disposition or testimony.
Forensic accountants have recently been utilized to deal with financial accounting manipulation and tax rule violations that result in tax fraud. The inability of statutory audits to detect fraudulent acts in tax proceedings necessitates the use of sophisticated fraud and manipulation detection techniques. These technologies will be used to detect incomes that have not been disclosed or underreported, as well as costs that have been over-reported or invoices that have been falsified.
External auditors provide audits and certifications of a firm and individual financial statements around the world, as well as processing tax returns. The government and policymakers are concerned about tax evasion, tax fraud, fraudulent activities, and aggressive practices in tax returns.
Because forensic accounting is an effective tool for exposing fraudulent activities, it has become relevant for tax investigations due to the recent increase in cases of financial and tax fraud as a result of the statutory audit’s weakness and constant failure to detect and prevent fraudulent activities and tax fraud or evasion.
This necessitates the development of new skills, techniques, and strategies to uncover tax fraud. The objective behind using forensic accounting to tax revenue collection and preventing tax fraud or tax evasion is to look for any inconsistencies or fraud in tax assessments, tax rule violations, returns, and payments.
The investigation, discovery, and recovery of tax revenue losses to the tax authority and government are at the heart of the fight against tax fraud. This will ensure that fraudsters and tax evaders do not gain an unfair advantage over complying taxpayers, while also improving tax fairness and justice.
In light of this, the purpose of this article was to examine forensic accounting as a means of preventing tax fraud and other illegal actions involving tax income. Furthermore, the paper’s theoretical implications include a contribution to policy, knowledge, and literature, as the application of forensic accounting techniques for tax revenue production is still a new topic with little research on it.
As a result, forensic accounting was created to control and deter fraudulent practices on tax revenues to promote and expand tax revenue generation by the government. The application of forensic accounting to tax fraud and tax evasion is critical to increasing revenue production, particularly in developing nations with a high rate of informal sectors, corruption, and continual growth in tax loss.
Increased government revenues are needed to provide public goods and services, as well as improved social, economic, and infrastructure development and a decrease in the country’s annual budget deficit. In addition, the use of forensic accounting techniques for tax revenue collection will influence tax morale and lead to a rise in tax compliance.
It would also promote tax fairness and justice by increasing the number of tax complaints individuals and businesses, as well as bridging the gap between taxpayers and tax evaders, as those who voluntarily pay their taxes will not feel offended or cheated by tax evaders.
It will improve the collection of taxpayer data since more taxpayers will be brought into the system, allowing for better revenue-generating planning and budgeting. As the degree of compliance rises, the time and expense involved with inquiry and recovery will be reduced and eventually eliminated.
The writer is a Ph.D. candidate, Certified Forensic Investigation Professional, Researcher, and Accountant for Serviceships Ghana Ltd & Cape Logistics Ltd
Contact: 0246390969 – Email: [email protected]
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