A recent briefing paper by the IMANI Center for Policy & Education has highlighted the importance of government’s digitization agenda in its revenue mobilization drive.

According to IMANI, pursuing diversification and digitalization aimed at improving tax collection could add GHS24 billion to the government’s coffers every year. This, IMANI said, is enough to build several schools, roads, hospitals and other critical national infrastructure in the country.

“Pursuing diversification and digitalization to improve tax collection could add another 6% of GDP (USD4 billion or GHS24 billion) per annum opportunity”.
IMANI

As such, IMANI advised government to aggressively pursue its digitalization drive whilst backing it up by educating businesses and citizens. It also urged government to scale up revenue mobilization from VIPs, High Net Worth and Ultra High Net Worth Individuals in the country.

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Tax collection in Ghana

Meanwhile, IMANI stated that tax revenue generation remains one of the most central activities of any nation. It explained that the state collects taxes and efficiently redistributes the resources as part of its allocation function.

However, since independence, Ghana has struggled to collect enough taxes relative to the size of its economy. As such, the briefing paper examine avenues through which Ghana can use tax policy to increase revenues while also supporting business growth and industry competitiveness. This is especially so, in the context of the Ghana Beyond Aid and post-COVID.

The analysis focused on a historical examination of Ghana’s economy and tax structures. It also assessed the initial tax policy response to the COVID-19 pandemic. Additionally, it highlighted the role of tax policy in supporting recovery from the pandemic.

Interesting revelations

According to IMANI, Ghana’s economy has recorded modest growth over the past two decades. However, efforts or measures to improve or collect more taxes do not commensurate. The paper finds that the current structure of Ghana’s economy reflects a large degree of informality, which poses significant challenges in terms of tax collection. This makes the country’s tax-to-GDP ratio falls below most of its peers on the African continent.

“The informal economy is about 38% of GDP, while over 80% to 90% of the workforce are in the informal sector. Ghana’s tax effort measured by the tax-to-GDP ratio currently stands at less than 14%. In comparison, peer African countries are between 17% to 20%. The Ghana Revenue Authority (GRA’s) Strategic Plan targets a tax-to-GDP ratio of 17.5% within 3 years ending 2022”.
IMANI

Specifically, IMANI finds that the highest share of tax revenues in Ghana comes from taxes on goods & services other than VAT. Value added taxes (VAT) followed whilst Non-tax revenues remain the least. The Think Tank averred that Ghana’s Non-tax revenues are twice lower than that collected by other peer African countries.

Meanwhile, IMANI noted that the newly introduced taxes are likely to increase the cost of production for businesses. These taxes include the COVID-19 Levy, Financial Sector Clean-up Levy, Energy Sector Recovery Levy, and the Sanitation and Pollution Levy.

“The increasing burden of taxation continues to be a major issue of concern for captains of industries, as reflected by the results of multiple studies. The prospects for Ghana’s post-COVID recovery remains high; however, they are strongly dependent on the effectiveness of policies to improve the business climate”.
IMANI

Other measures to improve revenues

To improve revenue collection, aside digitization, the Centre believes Ghana must aggressively work on increasing non-tax revenues. IMANI stated that government can achieve this by monetizing indiscipline in the society. The government can do this by increasing fines, penalties and forfeitures, and property taxes.

Furthermore, IMANI recommended the urgent need for Parliament to pass the Tax Exemptions Bill, pending before the House since 2019. With this done, the Policy Think Tank believes it will help streamline Ghana’s tax exemptions regime and minimize abuse.

Moreover, IMANI stated that the inequality worsening effect of the pandemic strongly calls for a just, equitable and functioning tax system. This, according to the Think Tank, requires a more progressive tax structure supported by an efficient administrative system.