The Effects of Financial Rewards and Penalties on Tax Evasion and Whistleblowing Intentions in Accra, Ghana

Abstract

The study investigates the influence of financial rewards and penalties on individuals’ intentions to report tax evasion. The research, involving 402 respondents in Ghana’s Accra Metropolitan District, uses regression analyses and statistical mediation to analyze cross-sectional survey data. Ghana’s Whistleblower Act of 2006 and the Revenue Administration Act of 2016 establish penalties for tax offenses and mechanisms to encourage truthful reporting. While the Act provides protections for whistleblowers, it faces hurdles such as a lack of confidence and cultural reluctance. The findings show that financial rewards have a limited impact on whistleblowing and tax evasion intentions, while penalties have a significant influence. This supports the deterrence theory of punishment, suggesting that individuals are deterred from engaging in illegal behavior when threatened with punishment. The study also highlights the role of financial rewards in shaping whistleblowing intention but suggests a combination of financial rewards and enforceable penalties to encourage whistleblowing and discourage tax evasion. The findings suggest integrating a model incorporating financial reward and penalties into tax laws, making it mandatory for individuals to report tax evasion, with failure resulting in punishment. This model could serve as a deterrent to individuals who would otherwise not report tax evasion activities.