Politics of taxation
Ghanaians are not opposed to paying taxes.
In 2002, the Afrobarometer survey asked Ghanaians whether authorities have the right to make people pay taxes. In response, eight out of ten Ghanaians (80 per cent) said yes. The survey repeated the question five more times (2005, 2008, 2012, 2014, 2017), and each time, at least 80 per cent said yes. In fact, in 2012, as many as 90 per cent responded in the affirmative.
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In 2012 and 2014, the survey further inquired whether it was “not wrong at all,” “wrong but understandable,” or “wrong and punishable” not to pay the taxes owed on income. In 2012, 63 per cent said it was wrong and punishable, rising to 71 per cent in 2014.
In 2014, as many as eight out of ten Ghanaians (80 per cent) said citizens in a democracy should always pay taxes they owe to the government. In 2012 (84 per cent) and 2014 (79 per cent), citizens agreed that they must pay their taxes to the government for the country to develop.
Challenges
There is no doubt that efficient revenue collection is an administrative challenge that local authorities have faced over the years. Those in the formal business and employment sector are easy to identify and tax, putting them in a state of shouldering a significant portion of the tax burden. Then there is the vast informal sector and the conundrum of how to effectively tax its economic activities.
Beyond these challenges that the tax system faces, what else irks Ghanaians about taxation? I believe there are three things – a) the proportion of the tax burden carried by those in the formal sector of the economy, b) the timing of the imposition, and c) the politics of taxation. I want to focus on the third.
Taxation
On March 31, 2023, Parliament passed three tax bills along strictly partisan lines. The bills form part of the government’s efforts to generate more revenue as it faces fiscal challenges and works to secure a bailout from the International Monetary Fund (IMF). In the aftermath, the government has been reminded of several statements key people in their party made in the lead-up to the 2016 election. These statements include the condemnation of the then National Democratic Congress (NDC) government on the issue of taxation and promising to “move the country away from taxation to production.” Therefore, the imposition of these revenue measures goes contrary to what they promised.
In fairness to the government, it did honour its campaign promises on taxation. In the fiscal year 2017 budget, it introduced several tax measures, including abolishing the one per cent Special Import Levy imposed on imported raw materials and machinery; the 17.5 per cent VAT/NHIL on Financial Services; the 17.5 per cent VAT/NHIL on domestic airline tickets; the excise duty on petroleum; import duty on specified vehicle spare parts; the five per cent VAT/NHIL on real estate sales; the 17.5 per cent VAT/NHIL on selected imported medicines not produced locally; and levies imposed on ‘kayayei’ by local authorities.
The government also reduced the following taxes – a) the Special Petroleum Tax reduced from 17.5 per cent to 15 per cent; b) the Energy sector levy rates for National Electrification and Public Lighting from five per cent to two per cent and five per cent to three per cent, respectively; c) exemption from tax gains from the realisation of securities listed on the Ghana Stock Exchange for five years.
But the government had introduced some revenue-enhancing measures, even before these recently passed ones, including the electronic levy (e-levy); the one per cent COVID-19 levy; the five per cent financial sector clean-up recovery levy; and the 2.5 per cent increase in the Value Added Tax (VAT)
Amidst the economic pinch points faced by citizens who were promised a “move away from taxation to production,” it comes as no surprise then that the government will take a lot of political heat for the introduction of any form of taxes.
Lesson to political parties
Taxes are a legitimate tool of government. There are times when a government may have no choice but to tweak the tax net to broaden it and raise more revenue from citizens. But doing so has political consequences, especially for those who promised to do otherwise.
Perhaps, instead of a blanket promise to move an economy away from taxation, it will serve political parties well to promise a combination of several measures. Measures like enhanced efficiency in revenue collection; improvement in the judicious use of taxes; reduction of the tax burden whenever possible; and the possibility that, under certain conditions, new revenue measures may be necessary and more realistic promises to make.
The future is unpredictable; therefore, we must be circumspect in how we play politics with the legitimate tools of government, such as taxation.
The writer is a CDD-Ghana fellow