One of the most agonizing problems which face a self-governing country like Ghana is the problem of national finance and the right of distribution of national burdens. The object of this article is to inculcate the broad principles which when observed can make taxation least harmful and bring success to the national economy, since it is in this success that lies the hope of the country to develop. Whatever changes may be made in the economic structure of the nation these principles can continue to be the guide to correct statesmanship in all fiscal situations.
Taxation has been defined as the confiscation by the power of the State of part of the wealth possessed by individuals for communal purposes. Any taxation therefore is a confiscation, but it is considered harmful when it becomes too confiscatory or too penalizing and that is when it deprives the taxpayer of too much of what he/she has legitimately earned by his/her own efforts and to that extent robs him/her of the means of making the most of his/her own gifts and the best of his/her own life in his/her own way. Taxation transfers this power from the free the taxpayer to the State.
The principles to be observed are as follows:
It should be brought home to every citizen a sense of responsibility for the policy and action of the State. This is effected by requiring every income earner, whose income is above the subsistence level, to make some definite contribution, however small, to the common burdens. The contribution demanded from those with incomes close to the subsistence level ought to be very small, but it ought to be definite so that everybody will know that he/she has a definite responsibility. Every citizen who earns a living can afford to contribute some pittance towards the upkeep of the state, which makes life itself possible for everybody.
The state should not take from the individual one penny more than it is necessary for the efficient service of the common interests of the state. The utmost care should be taken so that not a penny of the money raised to serve the needs of the State is wasted. Every claim for public funds for any purpose which is not necessary for the nation’s well-being should be strictly scrutinized. The taxpayers have a right to demand drastic reductions of all expenditures save those on essential national services such as education and healthcare. Every claim for military purposes beyond what is absolutely necessary for security should be regarded as a sign of reckless extravagance and must be checked.
The third principle is that no financial program should be made to impose the whole burden of national government upon those whose income is close to the subsistence level. It violates the first principle of taxation, and must be avoided at all costs. Taxation should also be graduated according to the capacity of the individual to bear the burden without loss of efficiency. This principle absolutely condemns the practice of raising the national revenue mainly by indirect taxes upon necessaries which is pursued in protectionist countries, for taxes upon articles of general consumption fall with special severity upon the poor. The ideal system is the one which, whilst a merely nominal tax is levied upon those just above the subsistence level, the rate is progressively increased until it reaches a very high level on undesirably large incomes. If taxes are levied on articles of consumption there is the unfortunate consequence that a poor widow with a large family may be called upon to pay (in the taxes on staple foodstuffs, e.g. rice and sugar) more than a prosperous artisan. For the same reasons any form of protectionist measures, such as by increasing the prices of imported goods and raw materials by any means is entirely useless and in fact can be harmful, unless local production both of goods and of raw materials is already well established. Indirect taxation, except for social reasons on certain luxuries, must be wholly abolished. Also income tax must begin from just above the subsistence level and not imposed only on an impotent minority.
The fourth principle is that all the wealth taken by the instrument of taxation from the pocket of individuals should pass to the Treasury, and be accounted for, and that none of it should be diverted into private pockets. This principle is violated by any system of protective duty. Protective tax can only be carried on to advantage only on luxuries, and they must be really luxuries.
The fifth principle is that taxation which penalizes thrift or interferes with industry should be avoided. Thus the requirement that information about taxpayer’s money in the bank should be given in income tax returns penalizes thrift by deterring people from opening accounts with a bank, or from making full savings in the bank. Undoubtedly possession of a bank account encourages thrift. Again the direct taxation of capital in normal times is unwise, because it creates a sense of insecurity which deters saving. At the moment of national crisis, however, when the people are stirred to high pitch of readiness for sacrifice, such device can be expedient. For this reason when taxes go up too high and become too numerous the only justification is a national crisis, otherwise they should be considered too confiscatory, and the people have a right to demand drastic reduction of all national expenditures except those on the highest essentials.
The sixth and last principle is that taxation made to serve a socially desirable purpose is to be preferred only on that ground. Into this category fall taxes upon luxuries, for example spirits, tobacco, and ostentatious cars as these do not increase the well-being of the community. When taxation rises in every department of national life and especially when it rises to alarming levels in the higher income groups some other ill-effects also follow. The rentier or upper middle class may be annihilated, if not completely, at least considerably. The middle class may be reduced to a pitiable condition and the more cultured leisured classes, which constitute such a great feature of society-great feature because they are often well-informed and the best disposed of any given society-may tend to disappear rapidly.+
Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.
