Navigating ourselves out of the tax conundrum: Policy makers must begin to think outside the box

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The writer

It was that, on November 17, 2021, when the Minister of Finance, Kenneth Kuntunkunikun Ofori Attah, presented the budget statement and economic policy of the government for the fiscal year 2022 to parliament for consideration and approval for implementation.

As the world would have it, the presentation of the statement has generated the much anticipated controversy, with part of the society firmly in support of virtually everything contained in it, while the other half of society has vehemently expressed opposition to the entire budget.

Though Ghana is, and has never been shy of controversy in relation to budgets and governments’ economic policies, the 2022 budget will go down into the annals as one of the most controversial statements ever to be presented under the fourth republican era.

Budgets, ‘lay manly’ explained, is the statement of intent of the government of the day on how it proceeds to raise revenues from its citizenry and how these revenues will be expended on behalf of the very citizenry on whose behalf these are collected.

In summary, the budget only tells a projected income and expenditure trajectory of a country for a particular period- usually one year.

Projections and challenges

Interestingly, while the sources of raising the projected revenues are limited, the items of expenditure sum up into ad infinitum, and rightly so, because basic economics teaches us that, human needs are many, but, the resources to satisfy these needs are limited.

Basically, there are three main sources of raising revenue for a state, and these are either through taxation (direct and indirect taxes), borrowing (domestic and international), or exports (foreign exchange).

While there is a general consensus on these three as the main sources of revenue generation, the first two- that is taxation and borrowing have often degenerated into unending controversies in Ghana, leaving the third option as the most desirable for most Ghanaians.

Even though all three sources of revenue have been exploited concurrently over the years in Ghana, the lack of innovation and ingenuity means our governments have had to rely heavily on borrowing to deal with the deficit which often arises as a result of the gap existing between revenue and expenditure.

Unfortunately, borrowing often exacerbate the problem of the existing gap, as interest payment keep ballooning, taking a drain on the limited revenues, thus leaving taxation and export revenues as the only sources with little or no direct negative impact on the macro-economy.

Although taxation is undesirable, it remains the most reliable source of revenue for any government. Not only does effective and efficient taxation promote development, but also remains the surest way of ensuring self-reliance.

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There is no denying the fact that, tax revenues have and continue to play an important role in development especially in the advanced society.

It is important to emphasize that, most of the countries classified as developed countries today, really are not endowed with much natural resources, but have been able to provide robust and modern infrastructure to underpin their development.

Interestingly, all these have been attained through efficient and effective tax systems. The irony of the situation is that, while most third world countries desire the status of their developed counterparts, they have always been averted to issues of taxation.

The introduction of any form of tax has often been met with agitations, a situation peculiar to most developing countries of which Ghana is no exception.

Chaos and agitations

For many countries in the developing world, introduction of taxes has always been met with chaos and agitations. Right from the colonial period through independence to the present, the citizenry has opposed the introduction or imposition of levies and taxes. For example, when the British Colonial Administration introduced the Poll Tax Ordinance in the then Gold Coast in1852 for instance, the people vehemently opposed it citing poverty and inability to pay among others as their reasons for their opposition. But is it really the case that Ghanaians are anti taxation?

The available evidence clearly suggests that even though Ghanaians do have some aversion towards the imposition of tax, their real concerns are rather against the type of tax systems implemented and at what rate. It is important to stress that, Ghanaians by and large do know and appreciate the fact that, government requires revenues to deal with their everyday concerns. However, the inability of those tasked to collect the taxes on their behalf to do so effectively is what is a challenge to most Ghanaians.

Secondly, the over reliance on indirect taxation at the expense of direct tax as a means of raising revenue implies that a few people are made to shoulder the burden of the larger majority. It is estimated that only about 8per cent of Ghanaians within the tax bracket are made to pay their taxes and even then collection of such is a challenge.

Another challenge is the feeling among the large majority of the people that, the little that is collected is often mismanaged at the expense of the real needs of the people. It is in the light of these concerns that the new E-levy- a form of indirect tax introduced under the government’s budget and policy statement for the fiscal year 2022 has once again become the centre of controversy.

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Although this new form of taxation is not the only concern of Ghanaians with the budget, it seems to be the major issue as its implementation is believed to have a wider implication for the populace. The E-levy as it is stated in the budget, is intended to tax the digital economy with the sole aim of roping in the informal sector into the tax net.

However, the fact still remains that players both in the formal and informal sectors already pay indirect taxes, examples of which are the Value Added Tax (VAT) on vatable consumptions, ad valorem and the general levies and taxes on petroleum products. To this end, it is important to point out that, while the E-levy on the face value looks laudable it fails in its true essence of roping in the informal sector into the tax net.

E-Levy

Invariably, we must come to terms with the fact that any attempt to further use indirect tax (E-Levy) as a means of roping in the informal sector into the tax net will be defective on the assumption that the purpose of its introduction will not be attained.

Rather, it is likely to further increase the tax burden on the already overburdened taxpayer in the formal sector. The imperatives of a fairer and impartial form of taxation, is one that aims at the incomes of all the working population in the society with indirect taxes as a compliment.

For example, why should the rice seller at Papaye, KFC, Starbite etc and all its workers pay taxes on their incomes, while in the same vein the rice seller at Esther’s Kitchen, and similar table top sellers who equally operate within the food economy and their workers not pay taxes on their incomes?

Similarly, why should the driver at the State Transport Company (STC), Agate Transport Company, Nestle, Unilever etc have his income taxed, whereas his counterpart operating under the Ghana Private Road Transport Union (GPRTU), PROTOA, Uber, the Bolt etc’s income not be taxed?

A tax regime that is able to identify all income earners for collection is not only desirable, but also fair and equitable. However, for a state to be able to collect taxes from its people, it must first gain their trust, and this it has to do by demonstrating that, every penny collected in their name is used for their development. The pain of paying tax is assuaged by such physical development as good roads, modern hospitals, good schools, housing and basic social amenities among others.

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The government therefore owes it a duty to convince the citizenry that it will utilize whatever it collects under the new E-levy for its intended purpose. But even before the new tax kicks in for implementation, managers of the economy will have to dig deep into their arsenals to ensure that the introduction of the E-levy is the very last indirect tax to be introduced in the country and it shall remain so until innovative ways are put in place to build a comprehensive tax system where all income earners are captured within the direct tax bracket.

More so, it is important for every citizen to recognise that, development and provision of essential services in the country will be difficult to undertake without the expected taxes. It is the duty of all qualified citizens to ensure that they pay their taxes as their contribution towards building a great society for all.

Building consensus

For now, the government must work to build consensus on the new tax, iron out the differences and fine tune it in order to get the buy-in of all Ghanaians towards the smooth rollout of its implementation.

Paying taxes is a civic responsibility and Ghanaians must all embrace the new dawn and wake-up to our responsibilities, but even as the citizenry wake up to this new realisation, those paid from the taxes, must realize that they are paid to think outside the box to offer unimaginable solutions to societal problems and not to choose the easy way out as always. The E-levy though laudable, is just, but another form of indirect taxation which does not address the conundrum of expanding or casting the tax net wider.

At best, it only gives government more revenues, but further burdens the estimated 8per cent who have and continue to carry the tax burden of the nearly 31million people. Indirect taxation is a compliment to direct taxation, but where it becomes the substantive rather than the compliment, then it exposes the lack of ingenuity in the country’s tax administration. Duty bearers must rise up to the occasion, think outside the box and find a lasting solution to the tax conundrum to free the few while raking in the much needed revenues for national development.

 

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