Taxation is one major tool used by governments to raise revenue to finance both recurrent and capital expenditures.
The issue of taxation is very critical because it goes beyond revenue.
It is a critical policy tool to determine and shape consumer behaviour or even ramp up production, depending on the performance of the economy.
Governments have always faced the dilemma of either pushing for more taxation when the coffers are dwindling and the chances of maximising inflows look bleak or stimulating growth by reducing the tax burden on citizens and businesses to encourage more production to boost economic activities.
It has always been difficult for governments to find that fine balance between adopting a taxation policy which is fair and not regressive and which does not encourage evasion and also engenders compliance, with very little motivation to evade.
Over the years, our economy has been caught up in this quagmire where the tax authorities have failed to meet annual revenue targets. In situations like this, those who have borne the brunt are those who already are tax compliant and are in the formal sector.
Workers and businesses in the formal sector always become easy targets because they are already in the tax net.
And this category, who do not even number more than two million, are made to shoulder the burden of the direct form of taxation.
This unfairness is one of the many ills of the Ghanaian tax system.
This, among the other challenges which this government promised to deconstruct, won it a lot of praise from Ghanaians.
It promised to pursue production rather than taxation, with the aim of doing away with many nuisance taxes.
However, not everyone is happy about our tax regime, and justifiably so because no one likes paying tax and it is not perfect.
But when an institution like the Private Enterprise Federation (PEF) describes the tax regime as unfair, then the authorities ought to listen.
PEF describes our tax regime, which slaps equal rates and bands on both big businesses and micro, small and medium enterprises (MSMEs), as very unfair.
It contends that the current practice of applying the same tax rates to all corporate entities makes it easier for smaller businesses to want to evade tax, thereby encouraging tax evasion.
PEF is advocating a segregation of the tax system in a manner that will take into account the income generated by corporate payers and their general ability to pay.
We share in PEF’s concern that there is the need to realistically define MSMEs. We think that because they are unique businesses, they must not be taxed together with bigger companies.
It will be good if the Ghana Revenue Authority (GRA) creates a tax system exclusively for MSMEs, which account for over 80 per cent of registered businesses in the country.
This will definitely encourage compliance, as data available indicate that of the 92 per cent MSMEs registered at the Registrar-General’s Department in 2016, only four per cent paid taxes.
Statistically, low tax revenue contribution by the MSMEs may be an indication that there is something basically wrong with compliance, which requires urgent fixing. — GB