Need for extensive reorganisation of tax administration in Ghana

I have read with interest 2 news items on Ghanaweb in relation to tax matters in Ghana. The first is in the 22 April 2009 edition of Joyonline titled 8% rent tax for landlords and the second appeared on 29 April 2009 titled IRS embarks on revenue collection at Madina market .

In the first article, Mr Francis Akoto, Chief Inspector of Tax Training at the IRS, is quoted as saying that IRS (Internal Revenue Service ) has realised that successful administration of a rent income tax will broaden the tax collection base, since relatively few income earners are continually being burdened with taxes. Ghana he said boasts a working population of 7 million but only 1.5 million people are income tax payers.

In the second article Mrs Sarah Duah appealed to all tax payers to pay their taxes promptly and file tax returns. It was also noted that during the exercise at Madina market “ most sellers were reluctant to pay their taxes to the extent that some even abandoned their goods on hearing of the arrival of the IRS officials”.

The revenue a government is able to collect is in many ways linked to what it is able to do. Without adequate revenue, all things being equal we may not be able to adequately develop or main the infrastructure, roads, schools etc. It is therefore important that government finds ways of increasing its revenue and broadening the tax base may be one of the measures it can adopt to increase tax revenue. Other means of increasing tax revenue include changes to the structure of taxation; and extensive reorganisation of the tax administration system. It appears that in Ghana far more emphasis is being placed on expanding the tax base or changes to the structure of taxation to the neglect of reforming of the tax administration system. There is a limit to how far the tax net can be cast. However there is always room for reaping dividends from efficiency measures. In my view the biggest problem facing the tax system in Ghana is the need for an extensive and thorough reorganisation of the tax administration system.

It is not a secret that the current taxation system has many loopholes that can be manipulated by tax officers, taxpayers and businesses for their own benefit. Indeed the loopholes are so big one can drive a fully laden articulated truck through it. On many occasions the business community has accused tax officers of abusing their power, thus forcing companies to pay taxes far above their official rates, but quite a portion of those payments only end up in the pockets of tax officials. The market women at Madina also made the same complaints. Let me digress and ask a question, why do we persist with sending tax collectors to collect cash some of which never make it into government coffers? This could be a rhetorical question as it may be possible to argue that this is because of the large informal sector with poor accounting records. Many businesses or income earners are not registered and even some of the registered businesses have poor accounting and tax records. However, it must be noted that the introduction of the VAT was intended to assist in broadening the tax base to capture the informal sector but many agencies registered for VAT collect the taxes but do not pay into IRS. Quite often we hear of operations which then bring to light some tax defaulters but nothing is heard about it for a while.

On filing of tax returns, under section 72 the Ghana Internal Revenue Act 2000 (Act 592), an eligible Ghanaian must file a return within 4 months of end of the tax year. May I ask IRS what programs are in place to assist taxpayers to file tax returns and how many people filed tax returns in for 2007? In Australia, 31 October each year is the deadline for every tax payer to file a tax return unless they are using a tax agent who has filed their tax program with the Australian Taxation Office. To facilitate this every employer must provide each of his or her employees with an original and duplicate summary of income which shows gross income and tax deducted. There are program s that will generate this information. The person attaches the original to his or her tax return and submits to IRS for assessment. If after assessment a refund is deemed to be paid, this is paid into the person’s bank account or by cheque. On the other hand if after lodgement of the tax return it is found that the person has not paid enough tax, the person must pay the tax liability by a due date. Interest is charged after the due date and defaulters are pursued with the full rigours of the law.

Under section 119 of Act 592, the Commissioner is to provide persons subject to tax, a Tax Identification Number (TIN). A person must show the Tax Identification Number in any return, notice, or other document used for the purposes of the Act 592. I am aware that attempts were made to introduce a single taxpayer TIN as required by law but this failed. I am not sure why but I believe for an efficient and effective tax administration system it is important to introduce a single TIN. The public sector could be the starting point of the exercise. In most advance countries every income earner has a Tax File Number or Social Insurance Number of some description without which you are not to able to gain lawful employment. In Australia every business including Government business enterprises and self employed persons must have an Australian Business Number (ABN). Every public service agency (equivalent of Ministry or Departments in Ghana) also has an ABN and even taxi drivers have ABNs.

Under Act 592 an employer must submit a return by 31 March each year. How many employers obey this law and how many enforcement actions have been undertaken: There are severe penalties in Act 592 for making false and misleading statements, aiding and abetting, failure to pay tax or lodge tax returns. Employees of IRS also face penalties if they directly or indirectly ask for, or receive a payment or reward in connection with their duties (Sections 152 and 153.). However there is very little enforcement action for breach of all these regulations. There are many laws in Ghana that are not obeyed and it appears we either selectively enforce the law or turn a blind eye to them. As a friend once said the only law that is obeyed in Ghana is that which says that males must not go into female toilets and vice versa everything else is up for grabs.

In summary to ensure that government has enough revenue to undertake its activities, IRS needs to do the following: (a) ensure more efficient tax collection system without necessary adding further burdens upon the taxpayer; (b)educate every one in country on the importance of paying taxes (I recall such issues were taught and discussed during Civics lessons in middle schools); (c)improve the tax administration that is IRS must ensure all eligible taxpayers file tax returns, have tax revenue programs and administer them fairly and efficiently and manage the associated risk; (d)enforce existing laws and in this IRS must produce an enforcement procedures and practice manual; (e)reduce corruption and the incidence of revenue intended for government going to line the pockets of officials (f)examine the tax laws and where necessary prepare advise Government on possibleamendments.

In my opinion higher tax revenues can be reached, without additional burdens on businesses, taxpayers and the economy if there is political will to resolve the problems in the current taxation system, introduce a single TIN and reduce corruption by improving upon governance and accountability.

Ebenezer Banful Canberra Australia