Abstract:
Tax planning is increasingly becoming an area of interest to many
organizations including banks due to the potential benefits that firms and
shareholders could derive from it. The problem militating against tax planning
is the agency cost and other non-tax costs associated with it. To mitigate the
agency problem between shareholders and managers, shareholders rely on
corporate governance mechanisms in ensuring that managers carry out tax
planning to enhance their wealth. This study examined the relationship
between tax planning and performance of banks in Ghana in the presence of
good governance structures. The study used panel data generated from the
annual reports of 18 sampled commercial banks for a ten-year period, 2004
2014. The study employed fixed effect model of regression via GLS based on
the outcome of the Hausman (1978) specification test.
The results reveal that, on average, banks in Ghana have high effective tax
rate. But foreign owned banks have higher effective tax rate than Ghanaian
owned banks, suggesting that Ghanaian owned banks, for the period of study
were more effective in managing their tax burden than foreign owned banks.
The results also show a significant negative relationship between tax planning
and performance. Regarding corporate governance, the results reveal that
corporate governance moderate the relationship between tax planning and
performance. The study recommends that, banks in Ghana must maintain a
system to ensure that management is given monetary incentives for effective
tax planning. The study has direct policy relevance for shareholders in
monitoring and controlling banks tax planning activities.
