In part one of this article we discussed how taxation is a major source of revenue used to fund national development and provide public goods in most jurisdictions. This part explores measures that must be put in place to mobilize as much revenue as possible in the face of significant tax cuts expected to be announced in the 2017 budget statement of the Republic of Ghana.
Ghana attaining lower middle income status has significant adverse implications on access to donor funds. Mobilizing domestic resources is the only sustainable way to finance development and deliver prosperity to the people. In a bid to modernize and boost domestic revenue mobilization a number of reforms have been introduced. The Ghana Revenue Authority was established and the existing revenue agencies integrated into one. At least four new revenue laws have been legislated between 2013 and 2015 and tax rates have been increased across board. Revenue has grown from 18.5% to 31.2% over the same period with the GRA exceeding its revenue target for 2015 by some GHS620 million.
The reforms notwithstanding, the informal sector employing some 80% of Ghana’s workforce, largely remains outside the tax net. Answering a question on efforts to expand the tax net, then President of Ghana, referring to the informal sector admitted on national TV that it is government policy to abandon taxes which are costly to collect. Only about 20% of Ghanaians in effect bear the entire burden of the increasing taxes and the situation is gradually becoming a disincentive to hard work and enterprise. As Jean Baptiste Colbert puts it “the art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the smallest possible amount of hissing.”
Tax policy initiatives must in the words of William Simon “…look like someone designed it on purpose.” The evaluation of taxes should start from its revenue potential but most importantly, extend to its impacts on other critical sectors of the economy. If this is done, we will not have to withdraw or suspend taxes even before they become operational as was witnessed in the recent past with the 1% tax on interest on personal savings. The revenue strategy should aim at expanding the tax net at lower rates rather than increasing and introducing new taxes. According to World Bank’s Doing Business Report, tax cuts are increasingly being used by countries all over the globe (both industrialized and developing) to attract foreign investments. According to the Organization for Economic Co-operation and Development (OECD), eight of the world’s most industrialized countries reduced their corporate taxes and/or announced plans for further tax cuts in 2015. Yemen has dropped its tax rate to 20% from 35%. Fiji and our very own Botswana reduced their taxes from 31% and 25% to 20% and 22% respectively. Tax cut for businesses, means more cash to fund expansion and growth and if properly managed can yield even more revenue. To this end, I support proposals by the current Ghana government to reduce corporate tax rate from 25% to 20%. I will however urge that the reduction is made gradual say to 22% in 2017 and eventually, 20% at the end of 2019 rather than a drastic reduction from 25% to 20%. Ukraine over the last few years have gone from 25% to 21% to 19% and corporate tax rate now stands at 18%. This I believe will afford the new administration some time to pluck the revenue loopholes, assess the real impact of the reduction on the economy and devise ways to deal with any resulting adverse impact.
A rigorous tax compliance and enforcement drive must accompany the proposed cuts. At a lower rate, every person from whom tax is due must be assisted and where necessary, compelled to discharge their revenue obligation to the country. It will serve the public good if the managers of the economy do reintroduce the tax amnesty program for six-months only. This is to enable businesses and other taxpayers to reassess their books and voluntarily redeem themselves of any unpaid tax liabilities without paying penalties and interest. On the back of the successes of the revenue task force, I propose a review, retooling and extension of the program across the country to vigorously inspect the tax files of companies and other business entities. Professional accounting firms could be engaged on commission basis; assigned specific business locations. Their terms of reference will be to identify business entities in the assigned geographical area, inspect and audit their tax files. While the exercise will certainly bring in some revenue, the focus shall be to enroll as many defaulting entities as there are into the tax net going forward.
Tax education and awareness creation is another area that requires strategic attention. For most people paying taxes is seen as an obligation to avoid rather than a civic duty. We must change this tax-culture and a proactive National Commission on Civic Education (NCCE) must lead the way. The NCCE was very active during the electioneering activities. Elections are over now! And they should focus their attention on other areas of civic education particularly taxpayer education. In part one of this article I made mention of many business owners I had met in the course of work who believe all their tax obligations are discharged when they pay duties at the ports. The Ghana Revenue Authority should find ways to extend help to taxpayers, educating and assisting them to comply with their tax obligations.
For the long term however, we should seriously consider introducing taxation as part of the school curricula at the basic and second cycle level. The students of today are the future taxpayers. If we will make any progress in re-aligning the tax culture of Ghanaians for development, we shall have to equip these students with the basics of taxation. A high school graduate should know what a tax is, why they must pay tax and how paying taxes impacts them. With little or no supervision, they should be able to complete basic income tax return. El Salvador (one of the poorest Latin American countries according to OECD) is now an international benchmark having first included taxation in its school curricula in 2009. A lot can also be learnt from big brother, the United States of America. Knowing about taxes should be considered a basic life skill (Oberholzer & Nel, 2006) and no Ghanaian should be left out.
Over 64% of Ghanaians are excluded from the banking system according to world bank data and a further 25% have no access to financial services altogether. Roping Ghanaians onto the banking system would enable the GRA with relevant legislative backing, track the income of the informal sector for tax purposes. Instead of encouraging patronage, the 17.5% VAT imposed on financial services, a very good example of nuisance tax has made banking services even less attractive. I support the proposal to scrap the VAT on financial services. In addition, deliberate and concerted measures should be implemented to entice Ghanaians to sign up onto the banking system. This, apart from the potential gains that will accrue by way of increased savings and capital accumulation, will hasten the formalization of the economy. Also, the resulting potency such a measure will lend to the rather ineffectual monetary policies of the Bank of Ghana should more than compensate for any temporary revenue loss.
The new Companies Act should expressly require auditors to specifically report on the tax compliance status of a client in their audit report. The Registrar General’s Department (RGD) is another dormant revenue source that needs to be revamped. The RGD should emulate the special revenue mobilization taskforce module that has been implemented to great results by the GRA. If the penalties prescribed for the various violations of the Companies Act will be enforced, the Department will be a major revenue contributor to state coffers.
The tax system should be made transparent and accountable to encourage voluntary compliance. It is a useful practice that revenue mobilized and its disbursement is reported to the public. Parliament should as a matter of urgency pass the Right to Information Bill into law to facilitate access to such information. The renewed efforts to implement the Tax Identification Number Act and the National Identification System is in the right direction as no country can make meaningful planning without basic data about its own citizens and what they do. This will enable us collate a comprehensive national profile to inform policy making and implementation including the quest to expand the tax net.
I consider taxation as not just an economic tool but a fundamental pillar of democracy. A tax paying public demands accountability from public officers which reinforces democracy. Our economic and political future as a people therefore lies with the proper utilization of taxation. In the final analysis, increasing taxes just to raise revenue is ultimately self-defeating. Increased taxes mean less funds for business expansion, hence less growth. This means less employment and less income for the government to tax. Taxes will then have to be increased to meet revenue targets. A cyclical downward spiral is set in motion. As Sir Winston Churchill puts it “…for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
The writer is a tax policy enthusiast and a student of the Ghana School of Law. He can be reached at firstname.lastname@example.org
 Ghana Revenue Authority Act 2009, Act 791
 The new tax laws include VAT Act 2013, Act 870; Excise Duty Act 2014, Act 878; Customs Act 2015, Act 891; and the Income Tax