- Increased Enforcement And Tax Compliance
Improving tax compliance is essential to boost revenue instead of the introduction of new taxes. Focus should be on few core taxes with stringent enforcement measures. There should be increase in the capacity for tax audits and enforcement to deter tax evasion and ensure that those who evade taxes face penalties.Policies such as E-VATcould possibly help in attainment of this target. It will appear intimidating, but tax officers should demonstrate high level of professionalism when conducting their duties.
- Increased attention on Non-Tax Revenue Measures
Non-tax revenue forms an insignificant part of Ghana’s domestic revenue due to prolonged inattention. In 2020, Ghana’s non-tax revenues amounted to 2.8% of GDP. This was lower than the average non-tax revenues for 31 African countries (6.8% of GDP). Property rates are fees imposed on property owners by local governments. While they are collected by the government, they are not classified as taxes in the traditional sense because they are directly linked to the ownership of property and the provision of local services. Real estate is a growing sector in Ghana and reforming and effectively collecting property rates can significantly boost revenue. IMF noted underexploited taxes (property tax) as one of Ghana’s problems. The government can explore other non-tax revenue sources such as royalties, licenses, and fees from various sectors.
- Tax Rates Review
The level of tax rates, both for individuals and businesses, can influence economic growth. High tax rates discourage investment and entrepreneurship by burdening businesses and stifle their growth potential, while lower rates can incentivize economic activities. It is crucial to strike a balance between collecting taxes and ensuring that businesses have the resources they need to invest, expand, and create jobs. Even though reducing tax rates does not necessarily guarantee an increase in tax revenue, and the relationship between tax rates and tax revenue depends on several factors, including the elasticity of demand, taxpayer behaviour, and the specific tax being reduced, the Laffer Curve which illustrates the relationship between tax rates and tax revenuesuggests that there is an optimal tax rate that maximizes revenue. If tax rates are too high, reducing them can stimulate economic activity and increase revenue.
- Special Tax policy for informal sector
Ghana has a substantial informal economy, contributing significantly to GDP, with untap tax revenue potential. Informal businesses and individuals often evade taxes, reducing the government’s revenue collection. Encouraging formalization while not overburdening these enterprises is a delicate task, but addressing taxation in the informal sector is crucial at this point. Several tax policies such as the Tax Stamp, Modified taxation, Vehicle Income Tax for car owners and many more policies directed at the informal sector has not yield the targeted results. Government should therefore come up with a deliberate policy targeted at businesses and individuals in the informal sector.
- Strengthen Tax Administration
The government should empower the Ghana Revenue Authority (GRA) with the necessary resources and training to efficiently collect tax. Section 21 (2) of the Ghana Revenue Authority Act, 2009 (Act 791) provides that, the GRA shall retain not more than 3% of the net revenue collected for the payment of salaries, allowances, operational and administrative expenses, and other expenses of the GRA. Parliament should consider allocating more resources to the GRA to enable them to do more. A massive investment in an efficient tax administration can result in increase in tax revenue.
- Enhanced Collaboration with relevant Stakeholders
Consultation is a crucial aspect of tax policy formulation. Engagement with stakeholders such as business owners, tax professionals, and the broader public can ensure that the policy is well-informed and balanced, addressing the needs and concerns of those affected. It enhances transparency and compliance, as stakeholders are more likely to support policies they had a hand in shaping. The engagement can help in identifying potential unintended consequences and practical challenges in implementation, enabling policymakers to refine their approach before enacting new tax laws. In Ghana however, the process seems to be a request for input from the public without any feedback mechanism. Submissions from the public may or may not be considered, and there are no means of knowing why the suggestions were not considered. Businesses in most cases get to know about tax policies when such policies are presented in the budget statement. It is recommended that, government partner with local leaders, trade associations, and community organizations particularly those in the informal sector since their influence and networks can help at the implementation stage. This will eliminate the confrontations mostly experienced when the GRA goes to enforce tax laws, as we saw in shutdown of shops in Accra and Kumasi recently. Instead of a confrontational approach, adopt a collaborative stance, understand their challenges, and co-develop solutions.
- Tax Expenditure and Public Investment
How the government allocates tax revenue is critical. Investment in infrastructure, education, and healthcare can enhance tax compliance. When the citizens know how their taxes are used, they will comply.
Balancing the need for tax revenue with the desire to protect business growth is a continuous and evolving process. Striking this balance is essential for the country’s economic development and the well-being of businesses and its citizens. 2024 tax reforms should aim at collaboration with businessesto ensure tax polices supports rather than hinder business growth whiles maintaining revenue mobilization.
By Francis Timore Boi Esq, Mytimore@yahoo.ca
(The writer is a Tax Consultant and a member of the Chartered Institute of Taxation Ghana)