An analysis of Ghana’s tax revenue since 2012 indicates that an average of 57 per cent of the tax revenue comes from indirect taxes such Value Added Tax, Communication Services Tax, National Health Insurance Levies, COVID-19 levies, GETFUND levies, excise duties and import duties.
Indirect taxes are easy to collect, and government gets tax revenue almost on a daily basis as opposed to income tax, which is generally an annual event.
However, consumption taxes generally reduce real income and lowers household consumption and for low-income households, this has adverse consequences on their ability to purchase nutritious food.
Between 2015 and 2016, about 65 per cent of total taxes collected came from indirect taxes.
Because of the negative impact of indirect taxes on the poor and vulnerable, it makes Ghana’s reliance on indirect tax as a major source of tax revenue somehow worrying because poorer households spend larger proportions of their income on goods and services.
Critics say with consumption tax, the government is able to collect its tax revenue, irrespective of whether a taxpayer is wealthy or poor profitable or not, but because lower-income households spend a greater share of their income on consumption than higher-income households do, the burden of an indirect tax is regressive when measured as a share of current income.
The remainder of 46 per cent of the total tax revenue came from corporate taxes, personal income tax, corporate tax from oil companies, mineral royalties, National Fiscal Stabilisation, financial sector clean-up levies and other direct taxes.
• Value Added Tax (VAT) at 12.5 per cent or three per cent flat rate
• Communication Services Tax at five per cent
• GETFUND Levy at 2.5 per cent
• National Health Insurance Levy 2.5 per cent
• Excise Duty at various rates e.g Excise Duty on beer 47.5 per cent
• COVID-19 levy at one per cent
• Import duties at various rates
The nature of VAT is such that, it is the last consumption tax to be computed after all levies and other taxes are added to the price of a product.
This makes the final VAT rate of 12.5 per cent higher when all other taxes and levies added.
The problem is compounded by the 2018 mid-year budget which separated the VAT and the NHIL and GETFUND components and made them straight levies.
Consumption taxes in levies are regressive to businesses because it gives opportunity for price adjustments by business owners in their attempt to pass on the levies to consumers.
Businesses may pass on to consumers taxes which may be more than the rate prescribed by law.
Businesses are not consumers but rather producers.
They should not be compelled to pay consumption taxes.
The principle of consumption tax is that businesses are used as agents to collect the taxes.
The general view is that they should be allowed input VAT on their purchases.
In so doing the VAT is then calculated at each stage of the Value added along the production chain.
Making all levies non-deductible VAT increases the price of goods the more because VAT will be calculated on the on the levies.
Future tax polices
The current tax structure is more balanced towards indirect taxes which is to the disadvantage of the poor and vulnerable.
Direct taxes and other areas like property tax should influence tax Ghana’s policies.
This will also relief the existing Income taxpayers since they suffer both Income tax and indirect taxes.
It is imperative that future tax policy aggravate more towards direct taxation than indirect taxation.