Let’s fashion initiatives to enhance tax system
Ghana’s tax reforms constitute the major policy instrument needed to accelerate economic growth and poverty reduction.
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Over the past two decades, the government has consistently spent more revenue than it is able to generate, and the gap is often financed with external borrowing, foreign aid and grants.
For the country to close the funding gap for accelerated economic development, it must have a holistic review of its tax policies to enable it to fashion initiatives that can boost revenue mobilisation.
This is imperative for the country in the face of global economic challenges, and as the second largest economy in West Africa, it has to work on improving its 14 per cent tax to Gross Domestic Product (GDP) ratio, which is lower than the ECOWAS average of 18 per cent.
Senior Presidential Advisor, Yaw Osafo-Maafo, last week stated that the 14 per cent tax to GDP was one of the lowest ratios in West Africa and even the world where other countries, especially the developed countries, had an average ratio of 35 per cent.
The Daily Graphic holds the view that not only is the country’s tax revenue as a share of GDP low in absolute terms, but it is also very low as a share of GDP relative to those of its African peers, pointing to the need to significantly increase tax revenue.
Indeed, the recent macroeconomic challenges occasioned by the Russia-Ukraine war and the effects of COVID-19 have brought about hikes in food prices, high inflation and high debt levels.
These circumstances have spurred the government to introduce various fiscal measures to reset the economy, restore macroeconomic stability and help individuals to thrive.
The critical issue has been how to generate the needed resources domestically using tax instruments that are least harmful to the poor.
This will obviously involve reforming the tax system to ensure efficiency by widening the tax net without necessarily increasing the tax rate.
It is important for policymakers to balance the tax burden so that businesses are not overtaxed in the search for revenue.
Developing mechanisms to improve tax revenue has, however, become challenging on at least two fronts: the lack of good data on tax compliance and difficulty in finding effective instruments for improving compliance, given the institutional constraints.
One way to raise more tax revenue, therefore, is to improve the effectiveness of the tax administration system.
Another important way is to improve tax compliance.
This means strengthening the capacity and resources needed for better taxpayer services and enforcement, reviewing tax structures and investing in skills and management systems needed to establish a productive tax system.
The Daily Graphic believes that tax revenues can help governments promote economic development and provide public goods to their citizens.
However, in a country where the government lacks information about the economic activity of the citizen, tax authorities may not be able to raise revenues efficiently.
In such context, tax regulations may not be fairly implemented, tax collection costs can be high and citizens can lose their trust in the tax system.
The tax authorities should focus more on expanding the pay as you earn (PAYE) data by adding not less than two million new taxpayers which should effectively increase taxpayers to about three million by the end of December 2024.
The Daily Graphic will also urge the government to improve the entire revenue collection process by introducing information technology tools and training the staff responsible on how to use them.
We must also bolster the reliability and accountability of the local government with MMDAs’ political leaders and staff by emphasising the social accountability aspect of local revenue mobilisation and the importance of linking revenues to service delivery.
To improve the country’s revenue base, we must make a conscious effort to sensitise citizens and businesses to the importance of paying property taxes while informing them of the potential benefits of tax compliance, mainly the financing of public services.
When these are done, we are confident that we can have an efficient and effective tax administrative system.
