A Former Minister of Finance, Mr Seth Terkper, has bemoaned the increasing number of tax handles imposed on the citizens in recent times.
He said the country needed to understand that it could not tax its way out of expenditure overruns that were leading to high deficits, borrowing and debts.
He said while taxes were necessary to raise revenue to fund development and alleviate poverty, a plethora of abnormal levies at a time of recovery was distortive and self-destructive to the standard tax regime.
According to him, some of the taxes were additions to temporary taxes that should had lapsed in 2017 and 2020.
He said the distortions were pronounced with the Value Added Tax (VAT) system, where a series of changes and challenges associated with the decoupling of the National Health Insurance Levy (NHIL) and the Ghana Education Trust Fund (GET FUND) had made it difficult for businesses to legally offset the VAT they paid on inputs or purchases called input tax credit (ITC).
Mr Terkper explained at a forum to review the 20-year implementation of the VAT in Accra that the country appeared to be reverting to the distortions in the tax regime that led to the introduction of VAT in 1998 and that risked disrupting the tax system.
He also reiterated his earlier position that the country needed to cultivate the habit of phasing out short-term tax measures such as the National Stabilisation Levy (NSL), temporary import duties, and the Energy Sector Levies Act (ESLA) to help engender public support for their reintroductions in times of crisis.
The tax expert, who was the National Coordinator for the team that introduced VAT, was making a presentation at the second in the series of the PFM-Tax Africa Network Policy Dialogue.
The event was on the theme: ‘20 Years of VAT: The good, the bad and the ugly’, and was organised in partnership with the Multimedia Group.
The dialogue featured a panel discussion that examined the circumstances leading to the first introduction of the VAT in 1995 and its reintroduction in 1998, its impact on revenue generation, the changes to the tax so far and recommendations on how to strengthen it in the long run.
It was streamed live on Facebook and also attended by key civil society organisations (CSOs), including representatives from the IMANI Centre for Education and Policy, the Africa Centre for Energy Policy (ACEP) and the Natural Resources Governance Institute (NRGI)
On the distortions to the VAT system, Mr Terkper cited the decoupling of the education and health levies as an example of the worrying changes that tended to hurt businesses.
He said the decoupling and the denial of ITC now amounted to costs to businesses and higher consumer prices, thereby defeating the original intentions of the policy.
“The whole thing was just a VAT that is earmarked to education, health and infrastructure (the Ghana Infrastructure Investment Fund (GIIF). But by separating the GET FUND AND NHIL, they are neither VAT nor excise and we have defeated the purpose by just adding up to the costs of businesses,” he said.
He opinionated that any policy that disturbed the right to input tax credit was a disincentive and must be discouraged.
“VAT is not a tax on business; it is a tax on the consumer so you hurt both businesses and consumers when you block that ITC,” he said.
He noted that such distortions led to tax evasion and avoidance and that resulted in the reduction in revenue accruing from the VAT and shrinking of its contribution to total revenue over the years.
He noted that the current structure undermined credibility, efficiency in collection and weakened the ability of taxpayers to comply.
The tax expert, therefore, called on the government to restructure the tax structure to remove ambiguities to engineer confidence and compliance.
The former finance minister also called on the government to ramp up efforts to automate the operations of the Ghana Revenue Authority (GRA), explaining that such an action would improve collections.
Mr Terkper’s position was supported by the panellists, comprising a Senior Lecturer at the School of Law, University of Ghana, Dr Abdallah Ali-Nakyea, and a Senior Lecturer at the University for Professional Studies (UPSA), Mr John Amoh.
Dr Ali-Nakyea, also of Ali-Nakyea & Associates, said the tax system should be made simple for the purposes of easy appreciation and compliance.
He said it was not a higher number of taxes that guaranteed increased revenues but efficiency in the collection and utilisation of the revenue.