Tax Planning Dynamic in Ghana Banking Sector Does Solvency Constraint Matter?

Author(s): Kwakye Boateng, Kwame Bosiako Omane-Antwi PhD and Yaw Ndori Queku PhD


This paper examines the relationship between tax planning activity dynamics and solvency constraints within the Ghanaian banking sector. This is conceived on the premise that banks are likely to change their tax planning dynamics in the midst of solvency challenges to boost their after-tax capital position to minimize the exposure to the going concern problem. The study employs the quantile regression estimation to draw time-varying constraint scenarios to measure solvency constraint proxies: WW index, HP index, and Z-score. Tax planning activity is also measured through cash effective tax rate. Annual data from 2008 to 2022 are used for the investigation with the unit of analysis expanding to cover all licensed banks which have been in operation within the study span. Panel quantile regression (median) is employed as the estimation approach with a one-year lag of solvency. It is found that banks are presently paying taxes beyond the statutory tax rate. The government is advised to protect the banks not to fall into any solvency constraint situation since that could change their tax planning activities.
Keyword(s): Tax planning activity, solvency constraint, panel quantile regression, banking sector, Ghana

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