Lead partner of PFM Tax Africa Network, Seth Terkper, has advised government to adequately equip statutory tax collection body, the Ghana Revenue Authority (GRA), to enable it tax the new economy for increased revenues.
According to Mr Terkper, government’s inability to effectively tax the new economy which include construction, financial services, oil among others, is a contributory factor to the low levels of revenue generated in the country.
Making the assertion at the recently held second edition of the PFM Tax Africa Network Dialogue Series, Mr Terkper who doubles as a former Minister for Finance, noted equipping the GRA in terms of policy formulation to effectively tax the new economy through tax handles like the VAT, will result in broadening the tax base and ultimately leading to increased revenues.
“We must recognize that the new economy was previously not in the tax base and it wasn’t also the biggest portion of the economy, agriculture was. But now the services sector which forms the new economy is now the largest portion of the economy and it has its own structure, and the GRA must be properly equipped to deal with the new economy and tax it because their training and audit techniques and others are all about the old economy and not the new economy,” he stated.
“Effectively taxing the new economy will be broadening the tax base and increasing tax revenues,” he added.
Speaking further at the dialogue series, Mr Terkper opined that another reason for low revenue generation levels in the country is due to policy distortions to the country’s major tax handles, particularly the VAT.
According to him, these policy distortions are impeding its (VAT) ability to generate the needed revenue for government.
The policy distortions Mr Terkper pointed out was the separation of the GETFund and NHIL from the VAT and their conversion into straight levies.
According to him, the exclusion of GETFund and NHIL from VAT and imposition on goods and services as straight levies and the subsequent charge of VAT, denies businesses the needed input tax credit and refunds and also adds to the high costs of goods and services which makes businesses uncompetitive.
The denial of input tax credit and refunds for businesses, he noted, results in tax evasion and avoidance contributing to low levels of revenue generation from the tax handle.
The inability of the VAT to generate the needed revenue due to the policy distortions Mr Terkper further noted, is witnessed by the declining revenue share of VAT in the country’s total taxation.
Ghana’s tax revenues as percentage of GDP for last year was 14.5 percent which is below the 20 percent tax revenue to GDP recorded in middle-income countries in the Sub-Saharan region.
This year, government is targeting to raise some Ghs 74.2 billion in tax revenue, which in percentage terms translates into 16.7 percent of GDP.