President of the Chartered Institute of Taxation, George Kwatia, has expressed the need for government to ensure a more simplified tax system in the country.
According to him, this will invariably help address the teething challenges with tax collection and revenue accruals for government in developing the country. He revealed that government must equally ensure that more investments go into closing the tax gap.
“If you want to also look at other areas that we can also improve, I think we need to have a simplified tax system that makes things easier, especially for the informal sector to appreciate and comply. There should be some level of increased transparency and people should know how much their taxes contribute to the development of the country.”
George Kwatia
Highlighting the significance of a more simplified tax system, Mr Kwatia indicated that due to the fact that Ghana runs a centralized system of government, more often than not, taxpayers are indifferent in their tax obligation. He explained that because there isn’t enough education on what their taxes are also used for, they tend to evade the payment of these taxes.
Additionally, he explained that people also have crude attitude towards tax payment because they do not see in their immediate environment what the taxes are used for. In light of this, he encouraged government to engage taxpayers more on the use of such taxes.
“So, I will say government should look at improving tax compliance, government should also look at ceding some amounts to the district and regional assemblies for them to undertake infrastructural projects within the communities the taxes are extracted from, and that obviously, will engender a good level of compliance to be able to increase tax revenues and for that matter our tax to GDP.”
George Kwatia
Furthermore, Mr Kwatia highlighted the need for government to broaden the tax net. He indicated that because the country is saddle with a host of exemptions, it has impacted on government’s revenue. With this, he emphasized the need for government to broaden the tax net to curb these exemptions or possibly eliminate them altogether.
“I know we have had our exemption tax act passed which is good, but we can do more by way of reducing the level of exemptions that we have.”
George Kwatia
Challenges in Ghana’s tax system
Elaborating on the challenges within the country’s tax system, Mr Kwatia expressed concern over tax laws which essentially exempted agriculture and for that matter farming from taxes. He stated that if a greater percentage of the population in a very significant sector is not paying taxes or exempt from taxes, it translates to a much smaller percentage of the population paying taxes.
Also, he highlighted the significant issues with foreign direct investments, especially with big companies in the extractives industry commanding most of the tax contributions. With this, he revealed that there are cases where most of these companies engage in profit shifting which relates to transfer pricing, whereby little is left in the environment to attract taxes.
“We also have people evading and avoiding taxes – we have a very high informal labor force. Statistics point to the fact that in 2020 for instance, the income tax from formal employment as a percentage to self-employed was 17 to 1 and it’s being projected that this is going to move from 18 to 1, which means that from the formal sector which is a much smaller sector of our economy, individuals contribute let me say GHC17 as compared to a self-employed person contributing GHC1.
“So, that is also an issue because you have the self-employed being the greater percentage of the population and if they are contributing GHC1 as against GHC17 from the smaller employed group, then obviously, we are going to have a low tax to GDP ratio.”
George Kwatia
Moreover, Mr Kwatia underscored also the very limited tax base in terms of high unemployment, casual labor and temporary jobs in the country. He stated that when the economy goes through situations like this, it means those who contribute to the country’s tax revenues are essentially a very small percentage of people.
This, he insisted, must be addressed by government to ensure a more conducive environment for tax payments, which will translate into high revenue for the country.
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