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Go after tax defaulters - Economist urges govt

John Gatsi - EconomistA chartered economist and analyst, Mr John Gatsi, has called on the government to make public the debt tax defaulting companies owe the Ghana Revenue Authority (GRA) and invoke the appropriate instruments to collect them.

The economist and lecturer at the University of Cape Coast believes that if all such debts are collected the government would not have to come to the point of re-introcuding tax measures such as the national stabilisation levy.

“Government should be transparent about companies that owed taxes to it so that it releases its instruments such as distress actions and garnishee orders to collect them,” he said.

Mr Gatsi told the GRAPHIC BUSINESS in an interview that the measure would be a long term strategy of solving the challenge of revenue shortfalls and its attendant liquidity difficulties of the government, which usually occured in the first half of the fiscal year.

The Minister of Finance, Mr Seth Terkper, announced on May 23 in Accra that due to liquidity challenges the government was taking a number of measures including tax initiatives to close the revenue gap.

The government, he said, had missed most of its first quarter targets on the economy, including revenues and expenditures. While the revenues fell short, the expenditures went beyond the expected targets for the first quarter of the year.

The tax measures, therefore, included the imposition of levy on certain imports, increase in some excise duties and special audits. Such audits are usually meant to uncover concealed revenue or determine the true level of taxes that an entity has to pay.

According to Mr Gatsi, the re-introduction of the stabilisation levy was a bold admission by the government of the economic challenges facing the country.

That, he said, could have been avoided had the GRA taken such distress actions to collects debts owed it.

In February this year, the Value Added Tax (VAT) Division of the Ghana Revenue Authority sealed off the premises of six companies, which owe it GH¢1.2 million in revenue in the Western Region.

The defaulting companies are in commerce, industry and hospitality and had through their operations collected Value Added Tax (VAT) on behalf of the GRA but failed to release the monies to the state.

This Mr Gatsi said it was not good enough and that the government must be serious about tax collection and punishing defaulting companies.

According to him, the the tax agency could also use the services of independent audit firms to determine taxes since they had proven to be more effective in past exercises than their own auditors.

Fiscal Stabilisation Levy, which was first introduced in 2009, imposes specified levies on selected sectors of the economy and companies, including the financial services sector, mining companies and breweries, to raise more revenue. It was abolished in 2011. It was also introduced in 2001 as National Reconstruction Levy.

The government will lay the proposals before Parliament when they resume sitting this month.

“Most of the fiscal measures will have sunset clauses because they are only meant to fix fiscal pressures,” Mr Terkper explained. This means that the measures with sunset clauses will have definite end periods and not continue forever.

To implement the measure, the government would have to negotiate, particularly, with the with the mining companies which had stability agreemement with the government, the economist stated.

“The companies will have to understand that the economy is going through challenges and so will have to sacrifice a bit for the country,” Mr Gatsi explained.

Mr Terkper also announced that there would be reviews of fees and charges. In the face of revenue shortfalls, the reviews will mean increases in facility user fees. 

The largest grouping of the manufacturing sector, the Association of Ghana Industries (AGI) said even though it does not disagree with the government’s attempt to introduce tax measures to raise more revenues, but “whatever instruments we use, we should ensure that we have special dispensation for the manufacturing sector for it to keep providing jobs”

The Executive Director of the AGI, Mr Seth Twum-Akwaboah, in her tax measures, the government should give special consideration to the manufacturing sector which was critical to economic development, so that its cost of doing business was not increased to make the sector non-competitive.

“If the import duties are on consumption goods which sometimes serve as competitors to locally manufactured ones, then it okay. But if the duties are imposed on imports that serve as raw materials for the manufacturing industry, then it can make the cost of doing business expensive for the sector.

Mr Akwaboah said the association would do a much wider consultation with its membership to review the new tax measures, especially as it was not clear on which products, but advised the government to endeavour to broaden the tax net to rope in the informal sector.

“We have always argued that if the government broadens the tax net, it can raise more revenues that may not require such tax increases,” he said, adding that although it was easier to plan with the formal sector, there could be a way out to track inflows from the informal sector as well.

Giving a snapshop of the liquidity position of the country, the finance minister said, total revenues and grants for the first four months of the year stood at GH¢6.28 billion, a shortfall of the GH¢7.12 billion target for the period.

The shortfall came from two ends. First, 38.3 per cent lower than expected disbursement of grants, which amounted to GH¢426.9 million, and second, the 8.9 per cent lower than expected domestic revenue of GH¢5.85 billion as against the targeted GH¢6.43 billion for the period under review.

Even in the face of revenue shortfalls, the government still over-spent its budget by GH¢3.39 billion or deficit equivalent to 3.8 per cent of gross domestic product (GDP). The targeted deficit was 3.0 per cent of GDP.

Mr Terkper said the revenue shortfalls were largely due to the energy crisis which posed a challenge to the private sector, thus forcing them to report low productivity, hence lesser tax payments.

On inflation, Mr Terkper explained that the marginal increases from 8.8 per cent at the end of 2012 to the current 10.6 per cent was consistent with the season, as food prices normally went in during this time.

Story: Samuel Doe Ablordeppey & Suleiman Mustapha /Graphic Business

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