Accra, Sept. 6, GNA - Mr David Adom, Commissioner of the Internal Revenue Service (IRS), told a forum in Accra on Monday that Ghana's total revenue and grants for 1998, amounted to 3,338.4 billion cedis.
Out of this, tax revenue accounted for 2,728.5 billion cedis (81.73 per cent) while the IRS, which is responsible for direct tax administration in the country, contributed 785.44 billion cedis (28.79 per cent) of tax revenue. Mr Adom, who was speaking on "Revenue mobilisation for national development: Challenges and prospects", at the 10th "Speaker's Breakfast Forum" in Parliament, said income tax administration in the country has undergone tremendous improvements in recent years.
He said from a total collection of 8.08 billion cedis (2.36 per cent of Gross Domestic Product) in 1985, annual collection increased steadily to 785.44 (4.49 per cent of GDP), last year. The Commissioner attributed the substantial increases in direct tax revenue over the past 12 years to a number of measures.
These included the combined effect of making the main revenue agencies, the IRS, Customs, Excise and Preventive Service and the Value Added Tax (VAT) Service, autonomous bodies to remove the bureaucracy of the Civil Service and create room for more effective and efficient performance.
Other strategies were the reduction in tax rates on personal and corporate incomes to make for voluntary compliance and the effective planning and monitoring of the assessment and collection functions of the IRS. Mr Adom noted that while annual collection as a percentage of GDP has been increasing steadily from 2.36 per cent in 1985 to 4.49 per cent in 1998, cost of collection as a percentage of revenue mobilisation, has decreased from 4.5 per cent in 1996 to 3.62 per cent in 1998
Mr Adom told the forum that in spite of the recent successes in revenue mobilisation, the forces of globalisation and new technology threaten to weaken the ability of the IRS to sustain the good collection performance. He said there is a keen competition among developing countries to attract investors, using tax incentives to attract foreign capital.
He noted that while these incentives may succeed in attracting investment and thereby create employment, very liberal tax incentives lead to substantial revenue loss. According to Mr Adom, in Ghana, the very liberal capital allowance granted to some companies in addition to the indexation of the residual values of their assets, has in effect, rendered some big companies not liable to tax.
He said the rapid growth in the size and form of business conducted over the internet and other communication networks, has raised a number of concerns for the formulation of tax policy and effectiveness of existing administrative procedures and techniques.
This is the direct result of the nature of electronic-commerce transactions, which blur frontiers, changes the character of income and result in the loss of audit trail. "These reduce the taxman's ability to check the accuracy of profits reported by taxpayers and narrow the tax base", he added.
Mr Adom mentioned schemes for tax avoidance, irregular flow of resources taxation of the informal sector and the inability to establish the 'tax court', as other challenges to increased revenue collection. He expressed regret that some self-employed persons, including professionals and affluent in the society, belong to a category of taxpayers, who contributed only 5.2 per cent of total revenue collection in 1998 while employees contributed 29.8 per cent during the same period.
"This poor performance by this difficult to tax group is due to problems with taxpayer identification, illiteracy and poor record keeping and sometimes, wilful intention of these potential ttaxpayers to evade tax".
The Commissioner said there is a provision in the tax laws to establish a special court to try tax cases but unfortunately, this has not been established, causing delays in the adjudication of tax disputes.
He announced that a draft bill, designed to bring together all the laws relating to direct taxation, has been prepared and may soon be placed before Parliament for consideration. He said the Internal Revenue Bill seeks, among other things, to consolidate and modernise the existing income tax laws.
The draft legislative proposal in addition, has simplified the laws and introduced measures to deal with new schemes of tax avoidance, such as income splitting, transfer pricing and thin capitalisation. Mr Adom said the IRS has drawn up an extensive tax education programme for all taxpayers, especially the self-employed, on the need to honour their tax obligations.
In addition, he said a taxpayer identification number has recently been introduced to facilitate tracking 'disappearing' taxpayers, and urged the tax-paying public to co-operate with income tax administrators by voluntarily providing information on tax-evaders.
He said the IRS was mindful of the task ahead and that measures have been taken to equip the staff sufficiently to counter the activities of tax evaders. "With improved assessment and collection effort, modernised tax laws, regular flow of resources and the support of a tax court, "the hurdles will be cleared one after the other.
"I foresee a future when direct taxes will contribute more to revenue than indirect taxes", he said.Mr Ezekiel Asamoah, Acting Commissioner of the VAT Service, noted that effective and efficient revenue mobilisation poses a very big challenge to all governments, especially in developing countries.
He said to maintain the buoyancy of the revenue system, there was the need to examine the tax regime periodically and make the necessary reforms that would bring improvement. Mr Asamoah, who also spoke on "Revenue mobilisation for national development: Challenges and prospects", the theme for the forum, said the implementation of VAT in 1998 was against a background of a failed attempt in 1995 to implement the new tax system.
He mentioned some of the shortcomings of the 1995 attempt at implementing the VAT as inadequate consultation, poor timing, high rate of tax and inadequate publicity and education and said these had been adequately addressed in planning the implementation of the new system in 1998.
He said the VAT, which is a broad-based tax mechanism, is expected to improve the tax system as a whole. Mr Asamoah said the coverage of VAT to the distribution sectors of the economy, makes it possible to recoup any tax that may have otherwise been lost at the earlier stages of importation or production, through evasion.
He said one major constraint in the quest for improved revenue mobilisation, was inadequate resources, adding that lack of adequate resources has sometimes been compounded by the irregular manner in which quarterly subventions were made. "This situation adversely affects the performance of the revenue institutions.
"Motivation of staff to make them resist any temptation to collude with taxpayers to evade tax is another major challenge faced by tax administrators, an issue, which is not often given the attention that it deserves", he saidParliament Forum 6 Accra Mr Asamoah told the forum that revenue institutions have to educate and sometimes organise training sessions for taxpayers on the existing tax laws and regulations and how they affect them.
"Taxpayers should also know the benefits they are entitled to under the tax system, their rights and obligations. "It is only when the taxpayer gains confidence in the tax system that a reasonable degree of voluntary compliance can be achieved. "It is very necessary that compliance is made easy and evasion less attractive if we are to encourage voluntary compliance and curb tax evasion", he stressed.
Mr Asamoah noted that the proposed establishment of a Revenue Agencies Governing Board to monitor and co-ordinate the activities of the revenue institutions should augur well for information-sharing and effective utilisation of resources.
Nii Okine Adjei, Commissioner of CEPS, in his presentation, re-echoed the call by the previous speakers for increased budgetary allocations to the revenue institutions to enable them to improve their performance to meet national aspirations.
He suggested the introduction of stringent provisions in the existing tax laws, including both fines and jail terms for tax evasion and smuggling. The CEPS Commissioner noted that it has almost become acceptable for people to dupe the system and get away with it and said some seriousness should be made to bear on tax laws so that offenders are dealt with drastically.
In his introductory remarks, Dr George Apenteng, Executive Director of the Institute of Economic Affairs, noted that over the past three years, government revenue as against expenditure, has been in direct contrast. Dr Apenteng said, for instance, in 1997, total government revenue amounted to 2,674.0 billion cedis while expenditure totalled 3,848.2 billion cedis.
In 1998, government revenue increased partly due to increases in tax revenues, however, compared to expenditure, there was a shortfall. He observed that in the past, external sources of funding had been prominent in the government budget to fill the gap, but such resources are now drying up.
There is, therefore, the need to look internally to raise the needed revenue for national development. "It has become imperative to look at ways of maximising revenue collection from internal sources in view of the dwindling export proceeds, especially from gold and cocoa, resulting from the falling prices of the two commodities on the world market".
In a welcoming address, Mr Justice Daniel Francis Annan, Speaker of Parliament, said it is very crucial at this time of the nation's development, that education on tax payment is intensified for the public to wake up to its tax obligations. "People will obviously not want to pay taxes if they are not well educated to accept the need to do so.
"Equally important, people will be reluctant to pay their taxes if they perceive corrupt practices among public officials or people charged with the responsibility of utilising the monies so generated for the common good. "It is, therefore, necessary that collectively, we exhibit honesty and avoid corruption in the performance of our individual and collective roles", he said.
Mr Justice Annan pledged Parliament's preparedness, through its committee system, to combat corruption, but said the legislature will require the support and co-operation of the public. The Speaker said that the forum has been instituted to give a boost to the expanded outreach programmes of the legislature, which include the annual public forum and the regional forums on the House.
The programmes, he said, are aimed at affording members of the public the opportunity to inquire into the work of Parliament, criticise it where necessary, and put forth constructive suggestions for the consideration of the House.
The Speaker's Forum brings together experts, stakeholders and opinion leaders from various sectors of the economy to brainstorm on matters of national importance.
Mr Annan said the forum does not only seek to identify problems, but more importantly, to discuss how such problems can be solved collectively.
On tax exemption, Mr Justice Annan said the time had come for a clear definition of policy on the issue and a realistic approach to resolve such cases, especially those relating to non-governmental organisations and goods meant for relief-related activities.
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