Monday, 26 March 2018

Ghana Beyond Aid: tax experts propose solution

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Adnan Adams Mohammed

The President Nana Akuffo Addo administration has declared a ‘Ghana Beyond Aid’ agenda to propel the country’s governance on self-reliance.
But, many have doubted the success of this agenda within this immediate time due to the fact that, there is nothing being right or differently from previous administrations in the direction of guaranteeing self-reliance.
However, some tax experts have said if the government is able to implement, effectively and efficiently administer tax policies, it could rake in much revenue.  
Mr Ali Nakyea, a renowned tax consultant and lecturer at Ghana Law School has proposed a five point strategy which would help the government implement its home grown policies in a way of achieving the objective of “Ghana Beyond Aid”
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He said effective tax administration and economic policies will yield the ‘magic results’ of Ghana Beyond Aid.
The tax expert outlined a five tax administration strategies which included: government and other institutions ensuring that everyone who are required to pay tax comply with the law and pay their taxes; all leakages of revenue through illicit financial flows, tax evasion, under invoicing, wrongful exemptions among others should be curtailed to shore up government revenue; corruption should be addressed by recovery of the sums involved before punishment. This can be started with prosecuting to recover monies from those that the Auditor-General has already issued Surcharges to and they have not responded.
He also proposed a review of some of the tax exemptions in contracts and agreements; and keeping tax regime certain and stable to ensure steady growth and flow of domestic resources to replace aid.

Aside these tax administration policies, there is the need for national agenda: he quizzed that, “what is the policy difference between forging Home Grown Policy approach of the NDC (to avoid imposed austerity packages) and Ghana beyond aid approach of the NPP?

He is of the view that, the country should look at policies and its implementation from nationalistic perspective and not political gimmicks to score political points while, no results is being achieved.
“Indeed with this, Ghana would definitely not need foreign aid any longer”, he stressed.
Consequently, CUTS International Ghana is calling on government to enhance domestic revenue collection so it can reduce the short-term borrowing.

CUTS Ghana, a research and advocacy policy think tank in Accra is of the view that, although domestic revenue mobilization has gone up, yet there are a lot of economic activities in the country that are not taxed.

Due to huge gap between government’s revenue and expenditure, all governments have had to rely on borrowing to meet the funding gap. However, huge borrowing exposes the country to high debt servicing and this leaves nothing for infrastructure development.

Tax to GDP ratio in Ghana is 17%; compared with a 19.1% average in Africa, 22.8% in Latin America and 34.3% in the OECD. Investment in the operations of the Ghana Revenue Authority (GRA) holds the key to enhanced domestic revenue mobilization.

According available statistics, Ghana collects approximately 55% of its taxes from indirect taxes which include VAT, excise duties and customs duties), which have been found globally to be regressive, and around 30% of its tax from VAT. This regressive nature of taxation means that the poor pays the same effective tax rate like the rich. This worsens the plight of the poor and vulnerable who are to be protected by government’s policies under social protection.

From this backdrop, the country coordinator for CUTS Ghana Mr. Appiah Kusi Adomako is urging the government to explore and deepen its effort in raising more revenue from progressive taxes.

He was emphatic that economic inequality is on the increase in Ghana, which is also impacting on the fight to reduce extreme poverty.
“Large parts of the Ghanaian population remain locked out of the gains from growth. This is compounded by large inequalities which also exist within Ghana based on region and rurality. It is crucial that government works to address this spiralling inequality” he opined.

Launching the advocacy campaign on Fiscal Policies to address inequalities in Accra, last week, Mr. Adomako said, taxation is a matter of taking money and redistributing it across the country. That is tax and spend is the duty of every government. When done properly, it reduces inequalities. A good tax system is progressive.

The highlights of research conducted jointly by CUTS and Oxfam indicated that, tax exemptions and deductions to multinational firms in Ghana amount to an average of US$1.3 billion yearly. This represents two-thirds of the education budget and 80% of the health budget.

Tax experts have cautioned of how the country is bleeding of millions of dollars annually from tax agreement with some countries.
Ghana has signed treaties with 12 countries, these set low rates for the taxes Ghana can deduct up front from companies headquartered in these countries before they can start shifting profits out of Ghana, and therefore reduce Ghana’s tax revenue.

These have had less effect on reducing tax revenue than in other countries, because Ghana has set very low withholding tax rates (between 8% and 20%) which are generally similar to the ceilings in the treaties (this means, Ghana has deprived itself of withholding taxes).

Moreover, a research associates at CUTS Ghana, Mr. Isaac Yaw Obeng explains the research report saying the study estimates that “two-thirds of the overall inequality reduction is accounted for by spending on education and health: spending on education is the most inequality-reducing (accounting for around two-thirds of the reduction in Gini from government spending), partly because Ghana spends a high share of its education budget on pre-primary, primary and junior secondary schooling, which benefit lower-income groups”.

He added that, though the education sector budget has increased by 11% from GH¢ 8.33 billion in 2017 to GH¢ 9.26 billion in 2018, much of the increment went into the payment of compensation compared to goods and services and capital expenditure. The share of allocation to compensation increased significantly from 91.4% in 2017 to 98.5% in 2018. Investment in teaching and learning infrastructure holds the key in narrowing the inequality gap.

On the areas of health, Mr. Yaw Obeng said “given that health and education account for two-thirds of the reduction in inequality as a result of social spending, it is absolutely vital that any reductions in health spending are reversed, and greater allocations help scale up access for the poorest, and ultimately move towards universal health care.

Moreover, the existing health budget needs to work better addressing inequality and to increase inefficiencies in the system. Increased funding to the NHIS to reduce out of pocket expenses on healthcare of the poor whose healthcare needs rest on the scheme”.

CUTS Ghana, which is a public policy think-tank working in the areas of trade and development, competition and economic regulations, and governance and consumer protection across Asia and Sub- Saharan Africa, is therefore urging government to free up funds for anti-inequality spending by: reducing the debt service burden and make revenue mobilisation a top priority. She urged on the metropolitan, municipal and district assemblies to maximize revenue from property rates to support education, healthcare and sanitation and not to overly rely on the central government for all their needs.

It wants government to clamp down on tax exemptions, and enhance domestic revenue mobilization with a strong emphasis on progressive taxation which helps to redistribute income and do more to address geographical inequalities through better constructed financing formulae, to overcome continuing urban-rural and North-South divides.

The tax and trade experts believe that, with effective tax administration and revenue management, the country could generate enough resources to help support the needed development and to be self-reliance.