IMANI Centre for Policy and Education and the Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ) on May 12, 2021 held the 3rd IMANI-GIZ Reform Dialogue on “Business Taxation and the Road to Ghana’s Post-COVID Economic Recovery”.
The dialogue focused on reducing the total burden of business taxation across multiple sectors, rationalising the tax exemptions regime, and using digitalisation and other initiatives to improve tax compliance.
Participants comprised tax practitioners, entrepreneurs, government representatives, policymakers, industry leaders, academics, trade experts, and allied entities.
Tax compliance, enforcement and decreasing levels of education on taxation were some of the critical issues raised. Also, recommendations on various digital economy strategies that government can use to address the challenges were provided, as summarised below.
- The Legislature and Executive should work together to fast track the passage of the Tax Exemption Bill, which has been stalled since 2019, to address the challenges with the current exemption regime.
- Verification visits that existed under the Value Added Tax (VAT) Service with complementary tax education during such visits should be revisited.
- Government should fast track the automation of revenue collection processes and pursue data integration across the various government revenue institutions.
- There is a need to deepen the culture of issuing and receiving receipts among businesses as a way to improve the tracing and collection of VAT and other tax revenues.
- Government could explore and implement policies and programmes that position Ghana as a competitive location for Head Offices of regional or sub-regional institutions.
- Entrepreneurs and their associations should engage tax practitioners and consultants to educate their members on the various opportunities and benefits in the tax laws for them
Key discussion points
- The total burden of taxation on businesses
The initial area of concern was the total tax burden on businesses in Ghana.
- Professor Godfred A. Bokpin, IMANI Fellow and Professor of Finance at the University of Ghana Business School, noted that Ghana could raise more tax revenue without introducing new taxes. He argued that Ghana’s theoretical tax frontier (tax potential) across the various tax handles is between 24-25 per cent (GHS104 billion) of GDP instead of the current 12.4 per cent (GHS54 billion). He made the case that this should provide the empirical basis for setting targets for the Ghana Revenue Authority going forward. The country needs to close the gap, and the incidence of the taxes on citizens will be far less. He further argued for a comprehensive package of taxing wealth from property, capital gains, inheritance and net worth.
- Mr Sheriff Ghali, CEO of Ghana Chamber of Young Entrepreneurs, noted that the youth do not have capital but need to receive investor support. He quizzed why the government does not give tax exemptions to address such issues. Also, he called for a tiered-based tax system for small businesses instead of the current corporate income tax of 25 per cent for all. He further noted that while there is a tax exemption regime in place for young entrepreneurs, it has not been implemented. He notes that when young entrepreneurs request for benefits under government programmes like the national entrepreneurship and innovation plan, authorities indicate there is nothing like that. Other speakers, however, noted that most of the issues he raised are already embedded in the law, and the only problem is with the enforcement and tax education.
- Mr Daniel Neur, Head of Tax Policy Unit at the Ministry of Finance, argued that the problem with the entrepreneurs is a culture of not using consultants or getting information from people. He asserted that there is so much tax information on the GRA website, and there is even an abridged form of the tax laws.
- Rationalising Ghana’s tax exemptions regime
Discussions on the need to rationalise the exemption regime engaged the attention of the audience. Speakers noted the improvement in Ghana’s tax system but indicated some additional issues that needed to be addressed.
- Dr Charles Addae, Commissioner for Strategy, Research, Policy and Programme at GRA, noted that from 2009 to 2020, about 31 policies related to tax exemptions and incentives had been announced in the budget statement. These are aimed at solving the exemption-related challenges, namely: (1) granting incentives without recourse to statutory legislation; (2) negotiation and granting of exemptions without the knowledge and inputs of the Minister of Finance; (3) exemptions without any sunset clauses; (4) exemptions granted on foreign supply of goods and services that can be sourced locally; (5) abuse and transfer of exemptions to third parties; and (6) inadequate monitoring and review of tax incentives.
- Ms Ayesha Bedwei, Tax Partner at PwC Ghana, added that a good tax exemption regime enhances productivity and encourages highly capital-intensive projects. She argued that the various agencies and bodies need to be linked to achieve the needed benefits of the exemptions. She notes that while some exemptions are granted, they are sometimes done on the blind side of GRA, creating enforcement challenges. She called for real-time and seamless collaboration among the revenue agencies and ministries.
- Mr Seth Terkper, Executive Director, PFM-TAX Africa Network and Former Finance Minister, explained that Ghana’s ever highest tax revenue to GDP was 13.4 per cent in 2015. It is towards the end of 2023 and 2024 that we may be reaching the target of 18 per cent revenue to GDP. The average revenue to GDP is 15.9 per cent (tax revenue to GDP at 12.3 per cent) for the period 2013 to 2020. In order to raise this to 18 per cent, Ghana must implement either home-grown like broadening the tax net and enhancing enforcement, or externally supported policies from development partners which come with conditionalities. He notes that when the government can generate enough revenue, it will be able to use that to service debts instead of recourse to borrowing, which has been the case for the past few years. He raised concerns about how the temporary taxes like the National Fiscal Stabilisation Levy and the Energy Sector Levies (ESLA) have become frontline tax items instead of being retired. He advised the government to focus on the major tax handles like corporate income tax (CIT) and VAT to raise more revenue in the short term.
- Improving tax compliance
- Dr Abdallah Ali-Nakyea, Director at Ali Nakyea and Associates, noted that revenue generation was high in the past because when the VAT Service existed, they were conducting consistent quarterly verification visits to all taxpayers, which increased compliance levels. However, with the integration of the revenue institutions, such verification visits are not being done. The focus now is only on time-consuming tax audits, which do not always lead to increased compliance. Also, during such verification visits, GRA had the opportunity to educate taxpayers. He also noted that Ghana has a major challenge in enforcing its tax laws. He indicated that when the current government came to power, they suspended all exceptions and everyone with an exemption was supposed to pay, apply and justify. It was clear that not everyone could come for their refunds which shows that such exemptions were not right. However, that policy was terminated, although it was saving the country a lot of money. There was an exemption bill that went to parliament in 2019 but has still not been passed. He argued on focussing on the low hanging fruits to deal with the current budget before the 2021 budget expires. He argues that when the loopholes are blocked, the government may not even need to increase taxes on businesses to allow them to grow in this COVID-19 era.
- Mr Seth Terkper noted that distortions in the tax system are creeping into administration and compliance. Using the VAT flat rate scheme example, he quizzed the rationale for extending a small taxpayer scheme to large taxpayers and wholesalers. He further argued that the government had lost the input tax credit handle and input tax credits, meant to achieve self-policing and establish an audit trail.
- Ms Ayesha Bedwei noted that the current VAT system is complicated. She said that the feedback from industry is that Ghana’s VAT scheme is difficult to understand, and there is some evasion due to the largely bureaucratic processes – that is, firms have to file several returns. She called for a simplification of the VAT system in Ghana. She also proposed a head office tax regime to encourage businesses to use Ghana as a head office location – particularly for Fast-Moving Consumer Goods (FMCG) and manufacturing firms that operate across Africa or West Africa.
- Mr Daniel Neur notes that for the point-of-sale (POS) devices, they rolled them out in 2018, but there were few changes in technology that they have to consider. Nevertheless, a different strategy is to look at a more comprehensive invoicing system for VAT and all the other taxes. He noted a VAT gap study that showed significant lapses; the Ministry is currently addressing these issues. He noted that a Prosecution Unit had been set up to consider the legal issues. He argued that many past cases were lost not because GRA had a bad case but because the Authority itself did not follow its procedures. There is thus a need to ensure procedures are followed to enhance the strength of court cases and to improve chances of securing prosecutions. He further noted that efforts regarding the implementation of the Independent Tax Appeals Board (ITAB) are ongoing, and they hope to appoint the members of the Board by June 2021.
- On digitalisation, Dr Charles Addae noted several initiatives being undertaken at GRA. He stated that the current Integrated Customs Management System (ICUMS) is working fine despite some initial implementation challenges. There are about 4 phases of the ICUMS, and the second phase is being executed to implement all the technical functions eventually. There are also efforts to develop comprehensive enterprise systems for support services like procurement, freight management, and others. There are efforts to use the systems to enhance efficiency and effectiveness. The main challenges are with the Domestic Tax Revenue Division (DTRD). The initial strategy was to use the Total Revenue Integrated Processing System (TRIPS) platform, but later there were challenges as data was not captured well. He noted a new system being put in place to replace TRIPS. Also, GRA wants to replace all the tellers in the GRA office so that people will have to pay through banks or mobile money. There are also efforts to capture data and enhance the analytical capacity at GRA. He notes that there are efforts to create a data warehouse to leverage both external and internal data. There are also discussions with the Social Security and National Insurance Trust (SNNIT) and Driver and Vehicle Licensing Authority (DVLA) to enhance data exchange. Finally, he mentioned initiatives to create a conducive environment for businesses to quickly file and pay their taxes online. GRA is partnering with about 20 banks to enhance the ease of using bank payment for tax purposes in this regard.