Practitioner viewpoint: Income recognition rules, tax justice, and tax revenue mobilization: a practitioner's perspective on taxing bank deposits

Practitioner viewpoint: Income recognition rules, tax justice, and tax revenue mobilization: a practitioner's perspective on taxing bank deposits 1. IntroductionTaxation is a key economic governance tool through which nations impose levies on property, entities and individuals to generate revenue for infrastructure, social services, development and running of government machineries (Gbadago, 2018).In this regard, we argue that beyond revenue generation, taxation directs investments and can be used to promote industrialization, create jobs and drive economic growth.However, it is often imposed against the will of the people and may be resisted, avoided or evaded.To ensure efficiency, tax authorities enforce compliance and assess taxable income.When conventional collection methods fall short, revenue targets are used to measure effectiveness.Tax audits serve as crucial tools for verifying income accuracy, detecting non-compliance and enforcing tax laws, ensuring fairness and adherence to regulatory frameworks.However, tax audits present challenges for practitioners, requiring a clear understanding of business revenue recognition for tax determination.We believe that with the advent of the Independent Tax Appeals Board and judicial tax dispute resolution, accurate income recognition is crucial for consistent determination of chargeable income.Business income reflects gains from operations contributing to profitability.Under GAAP and IFRS, income is recognized on an accrual basis, recorded when earned rather than when cash is received, ensuring accurate financial reporting.Accordingly, over-relying on cash flows, particularly bank deposits, distorts revenue recognition and contradicts accrual and matching principles.This approach excludes cash transactions used for business purposes and may misclassify non-revenue sources such as loans, shareholder contributions and refunds.Accurate income recognition must align with accounting principles and legal frameworks to ensure fairness and compliance.Many tax laws, including Ghana's Income Tax Act, 2015 (Act 896), Section 19, follow GAAP to enhance tax accuracy, ensuring assessments reflect actual business income rather than cash flow misinterpretations.Tax administrators often prioritize revenue mobilization over business-friendly income recognition, impacting SMEs and startups.They sometimes treat total bank deposits as taxable income, disregarding business challenges and strategic financing.This approach raises concerns about tax compliance, financial reporting accuracy and ease of doing business.Wrongful tax assessments can burden businesses, hinder capital accumulation and slow economic growth.Many SMEs rely on bank financing, shareholder contributions and interbank transfers, which appear in bank deposits but are not taxable income.In emerging economies, businesses rotate supplies and funds to build creditworthiness for banking facilities.If tax authorities misclassify these transactions as revenue, firms may face inflated tax obligations, reducing reinvestment capacity and stifling job creation and economic sustainability.Despite Adam Smith's taxation principles, research gaps persist in applying GAAP to tax compliance in emerging economies.Business income recognition challenges affect revenue mobilization and tax-to-GDP ratios.Most studies focus on tax avoidance and evasion, with limited research on GAAP-based assessments.This paper offers insights for aligning tax audits with best practices.Efficient tax authorities in advanced economies uphold fair, transparent systems rooted in sound accounting principles, fostering trust and compliance.However, in emerging economies