Despite being one of the largest and reliable sources of revenue to the government of Ghana, tax revenue collection in Ghana is constrained by many factors. The tax to GDP ratio of Ghana remains far below what the government targets to achieve by 2023. The Government of Ghana’s target is to achieve tax to GDP of 20% by 2023. However, the tax to GDP ratio of Ghana as of 2019 was 13% and has since been below 15% (Malik et al., 2021).
Rev. Ammishaddai Owusu-Amoah, the Commissioner-General of the Ghana Revenue Authority (GRA), at the recently ended 2021 Ghana Economic Forum, stated that Ghana’s tax to GDP has now moved from 12% to 13%. This is a common phenomenon observed among developing countries, especially those in Sub-Saharan Africa. Tax revenue to GDP in developing countries is below 15% compared to 18 percent of emerging economies and 26% percent of developed economies (Lagarde, 2018).
One of the factors responsible for the low tax collection in most developing economies such as Ghana is due to widespread tax evasion. Tax evasion implies the efforts by taxpayers to evade the payment of taxes by illegal means. It is the use of illegal means to pay fewer taxes or no taxes at all (Slemrod & Weber, 2012).
According to the Commonwealth Association of Tax Administrators (CATA), when tax laws are highly complex it makes compliance burdensome for taxpayers, thereby making them less likely to comply with tax laws. Literacy also plays a role in how people comply with the tax laws. The uneducated often find it difficult to understand the need for full compliance. Public education on the importance of tax and the consequences of not complying with tax obligations is encouraged in this country as the GRA ramps up its efforts to gather more taxes more easily.
The perception of taxpayers about the tax administration with regards to how they are treated by the tax administrators and what the tax collected are used for is also an important factor in determining tax evasion. If the tax system is not transparent, people will not feel encouraged to pay their taxes. The recent efforts of the GRA to digitise their processes and do more press helps in this regard. A lot was learnt and better understood of Ghana’s tax intentions when Rev. Ammishaddai Owusu-Amoah, the Commissioner-General of the Ghana Revenue Authority (GRA), attended the 2021 Ghana Economic Forum and answered questions on a panel I moderated.
Also, the issue of limited resources and the capacity of our tax administration can be a major hindrance to tax collection in Ghana. The Government needs to ensure that there isn’t the problem of inadequate numbers of skilled personnel coupled with poor infrastructure and logistics, for that will affect GRA’s efforts. This challenge threatens to affect the ability of the tax collector to properly carry out their roles of enforcement, education, and collection effectively and efficiently. This can adversely affect the perceptions of taxpayers about the risk of evasion. They may perceive the risk of getting caught to be low likewise the consequences of non-compliance.
Another factor that fuels tax evasion has to do with the nature of the economy. In a predominantly cash-based economy, people are more likely to evade paying tax, since it will be easy to hide income and transaction activities. Moreover, in Ghana, the economy is largely cash-based, as a result, evasion has a very conducive atmosphere to thrive. Despite the advancement in mobile money and internet banking among others, the majority of the economic transactions that take place in the country are done in cash. Any factor that will adversely affect the compliance of taxpayers will encourage evasion to occur.
There are serious consequences that tax evasion imposes on an economy. It results in low revenue mobilization due to loss in tax revenue. This might explain why the tax to GDP ratio is still below the target of the government. The ability to collect enough revenue limits the government from carrying out its mandate to the fullest. It hinders the efficient allocation of resources and hinders certain sectors of the economy from receiving the necessary attention needed. This undermines government efficiency and hinders the growth of the economy likewise the welfare of the citizenry.
In addition, a further implication is that it can impose a different tax burden on taxpayers. Government or tax authorities may decide to compensate for the loss in revenue by raising tax rates. This increases the tax burden on the existing small number of taxpayers in the country. The evasion can become even more severe if the rate is high. It affects work efforts and causes savings to decline or even diversion of investment resources in the economy.
Widespread tax evasion imposes an extra cost on tax authorities, thus in trying to curtail the problem, the authorities will need to put in mechanisms to monitor the evader. This will require extra use of already scarce resources, which could be used for other productive ventures in the economy.
The government’s recognition of the widespread of this phenomenon and the unsatisfactory performance of tax revenue collection over the years has necessitated governments over the years to embark on several reforms geared toward improving tax revenue collection. However, these reforms have not yielded much significant improvement in tax revenue performance in Ghana (Osei & Quartey, 2005).
Moreover, technology trends over the years inevitably change how economies operate. This has a huge impact on many aspects of our everyday life including on tax administrations. Many governments and economies are adapting to these technological advancements to prove the collection, processing, tracking, and dissemination of information have helped enhance public service delivery. The government of Ghana has also recognized these developments and is adapting to the digitalization of the economy. Government is increasingly turning the economy digital as evident from its digital inclusion agenda. The government of Ghana has embraced digitization as a key policy goal and recently introduced a number of programs designed to develop a more digitally accessible public sector and promote transparency and efficiency, in order to drive the growth of the economy.
Digitization refers to the spread and the use of digital technologies the internet, mobile phones, and other tools and processes to collect, store, analyse, and exchange information digitally (Klapper et al., 2019). According to Baisalbayeva et al.,(2018), these technological trends have the power to increase taxpayer satisfaction, empower tax agency employees, optimize operations and modernize services. This will enhance the capacity of tax authorities and get access to information in real-time to carry out their activities efficiently. Digitalization of the Ghanaian economy likewise the tax administration will improve the tax system and enhance revenue collection. This will also mitigate the incidence of tax evasion in the country.
The just ended 10th edition of the Ghana Economic Forum organized by the Business and Financial on the 18th October 2021, was focused on the digitalization drive of the Ghanaian economy.
From the Commissioner-General of the Ghana Revenue Authority (GRA), in answering the question of how digitization will reduce evasion, he stated that they are already seeing the benefits of the digitization drive. He is of the view that combining digitization with compliance, the digitization reduces the number and makes it easier to identify those who are non-compliance which will help to prosecute the evaders. The Commissioner also disclosed that through this digitization of Ghana card and the taxpayer identification number (TIN), they were able to identify about nine million people who are eligible to tax, and per the date they have, they can locate those who are non-compliance.
Commissioner-General of the Ghana Revenue Authority (GRA) further went on to say that from their analysis, there is a potential eight billion cedis (GHS 8,000,000,000,000) that can be collected from non-compliant taxpayers in Ghana. Also, the introduction of introduced the Integrated Tax Application and Preparation System app (iTaPS) which is in use for filing tax via digital means is making compliance more convenient for the taxpayer. The authority is also working on a mobile application to facilitate the filing of taxes. These kinds of initiatives and systems can streamline the process of paying taxes and reduce compliance costs (Abdychev et al., n.d.; Artana & Templado 2018).
Rev. Ammishaddai Owusu-Amoah also states the process of digitization helps the authority to do data matching. According to him, through digitalization payment of tax will be less tasking, will eliminate the leakages that exist if there are too many manual interventions in the process of paying the tax, and ensure quick and easy mobilization. It is evident that digitization will broaden Ghana’s tax net and will also curtail the widespread evasion, thereby enhancing the countries tax capacity.
Another digital innovation that was discussed at the Panel 2 of Day 1 at the Ghana Economic Forum is the proposed Central Bank Digital Currency (CBDC) the E-Cedi. The E-Cedi is part of the Digital Ghana Agenda project. According to Mr. Kwame A. Oppong, the E-Cedi will facilitate offline transactions and is backed by the government. These initiatives and innovations are key to moving the economy from cash-based to digital which will help in addressing the problem of tax evasion.
The results that can be achieved through digitization of the economy and detecting tax evasion it an obvious one. Ghana stands to gain a lot with this digitalization agenda, especially in the area of tax revenue collection. Digitalization will enhance tax collection by providing quality taxpayer information, broadening the tax net, and synergies that can facilitate tax compliance for taxpayers and tax administrations.
Therefore, it is imperative for stakeholders to put in greater efforts to ensure that the various programs and initiatives that the GRA introduce are sustained and improved in order to continue the harmonization and standardization of the entire architecture of the Ghanaian economy.