GRA’s 3rd Strategic Plan is modelled after the 2nd Strategic Plan, to enhance corporate governance, efficiency and effectiveness of internal processes and procedures through technological innovations, deepen the integration between domestic and customs division and intensify staff professional development, thus ultimately increasing the Authority’s revenue mobilization capacity in ways that are fair and transparent.
It is interesting to know that despite several measures adopted in times past, the Ghana Revenue Authority still struggles to meet its annual tax revenue mobilization targets on consistent basis. It is for this reason that the authority has devised strategic plans to meet future targets, while dealing with loopholes and lacunas in the tax administration system.
A comprehensive analysis reveals some hindrances and challenges as well as some strengths which the GRA could capitalize on to increase revenue generation while offering a win-win situation for both taxpayers and for the state.
The country’s economic growth over the last decade has been appreciably impressive. Growth over the period 2008-2017 averaged 7.25 percent. Following a world-beating peak of 14 percent growth in real Gross Domestic Product in 2011 on account of the commencement of oil production in commercial quantities, growth however dropped from 9.29 percent in 2012 to 3.72 percent in 2016; recovered in 2017 to 8.5 percent but slipped back to 7 percent last year. Growth is projected to reach an annual average of 6.8 percent between 2019 and 2021.
Revenue trends in the last decade
Despite the slow growth in revenue mobilization in Ghana, taxes contribute heavily to the overall revenue structure. The composition of tax revenue has also seen a shift from a hitherto overreliance on trade taxes to significant improvements in both direct and indirect taxes. From 3.8 percent and 1.9 percent respectively in 2008, direct tax-to-GDP and indirect tax-to-GDP ratios have climbed to 6.9 percent and 3.7 percent respectively as against trade taxes which have remained hovering at around 6 percent over the period. This can be attributed to the measures implemented by government to improve tax administration and compliance, and the elimination of some nuisance taxes related to trade in order to boost domestic production and consequent value creation.
Ghana’s tax revenue structure is mainly made up of direct tax, indirect taxes and trade taxes. These represent 95 percent of overall tax revenue. As at 2015, direct taxes represented 41 percent of total tax revenue, indirect taxes represented 22 percent and trade taxes represented 36.9 percent. But in 2017, government implemented wide ranging measures such as the paperless clearing system at the Ports to improve the business environment and to promote the ‘doing business agenda’. As a result, trade taxes contributions in 2017 increased to 43.2 percent compared with a decline of indirect taxes contributions to 19.7 percent from 22 percent in 2015, with direct taxes maintaining 41 percent contribution to the total tax revenue.
With regards to personal income taxation, Ghana ranks alongside Cote d’ Ivoire, Kenya, Senegal, Cape Verde and Swaziland in terms of contribution of payroll tax to GDP.
With regards to consumption taxation, domestic Value Added Tax remains a small percent of total tax revenue. The average contribution of 11 percent in 2015/16, is low compared to, for example, the nearly 30 percent it contributes in Jamaica. Ghana’s VAT contribution to GDP falls below Kenya’s and substantially below Senegal and Cape Verde. However, the country’s VAT rate of 17.5 percent is comparable to that of many countries.
Rebasing GDP and the implication for revenue mobilization
Rebasing affects the benchmarking of all national indicators and not least, for the purpose of revenue mobilization, are the metrics of revenue generating capacity of the economy. Declining tax ratios relative to GDP highlight gaps in tax efforts and tax yield of the economy. The 2010 rebasing of the economy, for example led to 60 percent expansion of the economy and the subsequent classification of Ghana into a lower middle income country, no longer deserving of the huge international development aid it had hitherto been receiving – but with a significant drop in tax revenue to-GDP-ratio. The latest rebasing, using 2013 prices, expanded the economy by about 25 percent in 2017. As a result the revenue to GDP ratio in 2017 declined from 16.6 percent to about 13 percent. This caused the country’s tax efforts to drop further in the overall ranking in longitudinal comparisons with comparable sub-Saharan African countries. Indeed, the average ratio for Ghana’s peer lower middle income countries is 25 percent, twice Ghana’s own ratio following the latest rebasing of the economy.
This means that despite rapid nominal growth in the economy, domestic revenue mobilization has lagged considerably behind, highlighting greater urgency to grow tax revenue. The rebasing makes the original target of raising tax revenues by a percentage point a year – so that by 2021, tax to GDP ratio would be at least 20 percent – not achievable.
To get back on target, the GRA now needs to increase revenue by a more ambitious growth of 2 percent of GDP annually. Achieving this significant revenue growth agenda requires serious commitment from the tax authority to the mobilization effort.
Strengths, weaknesses, threats and opportunities
It is in this context that the 3rd strategic plan seeks to provide new directions to strengthen revenue administration to fulfill the GRA’s mission and to enable it meet its targets.
Meanwhile the GRA while preparing the 3rd strategic plan, has identified certain strengths and opportunities, but at the same time several weaknesses and threats that may hamper the implementation of the strategy.
Even as the Authority is basking in government’s full backing, a sound legal framework, wide geographical framework, unique tax payer identification (TIN), collaboration with other institutions and strong relationships with international development partners, it however has many weaknesses that may not work in its favour regarding the quest to mobilize bigger revenues for the state.
The ineffective segmentation of taxpayers and monitoring of a large informal sector, over centralization of authority at head office, inability to harmonise related tax laws, inconsistency in tax procedures leading to the use of discretion, poor internal communication systems, incomplete, inadequate and fragmented automation, weak IT skills of staff, ageing workforce, poor performance management framework, and the lack of succession planning among others, remain major weaknesses of the GRA.
Notable opportunities which the GRA could utilize to its advantage include an untapped large informal sector, available and willing developmental partners to work with, extensive use of Nation Builders Corps, and making extensive use of digital address systems to mobilize revenue. Despite the several opportunities, challenging border controls, poor record keeping and payment culture of taxpayers, negative public perception of staff integrity, lack of structured risk management programmes, tight schedules for implementing government initiatives including the paperless process, first port rule, aggressive tax avoidance and evasion by potential taxpayers continue to threaten the GRA’s drive to enforce tax laws in the country.
These threats have necessitated the introduction of some recent initiatives by the GRA to whip up interest and consequent compliance levels towards tax payment among the public. Quite recently, the authority has introduced a number of measures such as the Cargo Tracking Notes (CTN), operation collect, name and shame, the tax stamp policy drive and tax stamp authenticator, tax education campaigns and project GREAT among others.
Despite these measures the GRA however, in the last couple of years, has still struggled to meet its annual revenue targets. In 2018, the authority failed to meet an annual target of GHc39.8 billion and the Authority is still not sure whether a GHc45 billion target for 2019 would be met, having fallen 9.5 percent short of its target for the first half of this year. On September 4, the GRA launched the operation collect, and a name and shame initiative as the final tax administration measures required for 2019 to meet its revenue target. The authority however indicted the BNI, National Security and EOCO for contributing to revenue leakages at the Ports. EOCO, has however since refuted the allegation of being involved in any `wrong doing.
Summary of the 2017 organisational review
A GRA organizational review was first mentioned in the 2nd Strategic Plan from 2015-2017 and was initiated in January 2018.
Priority areas for the 2nd Strategic Plan was to increase TIN registration by five million taxpayers, identify new sources of revenue (rent tax, unregistered businesses and tax payers), conduct a study into the informal sector to bring it into the tax net, increase data exchange with other key state institutions such as the Social Security and National Insurance Trust, and the use of third party data, minimize revenue leakages in suspense regimes, review port release processes among others. But despite more than 50 priority areas in the 2nd strategic plan, compliance level has been less than five percent.
One problem still facing tax administration in Ghana is that of inconsistency and unpredictability. For instance, in 2018 the Ministry of Finance introduced a luxury tax on vehicles with engine capacity of above 3.0. This was on the basis that these inordinately petrol guzzling vehicles predominantly 4X4s are primarily used by the rich. However, the tax was met with inte3nse protests by the business community who justifiably pointed out that the tax had increased their business costs on work horse vehicles – indeed most pick ups for instance fall into this category. At the mid year budget review for 2019 government consequently withdrew the tax.
Another example is the recent revision to the tax code whereby the VAT rate for retailers was lowered from 17.5 percent to three percent. However, firms report they need special permission to sell at three percent and so this is not guaranteed.
Even now government is reviewing the reduction in benchmark import values by 50 percent, introduced in April this year, used in assessing import duty payments, which local industrialists point out has made them less price competitive against imports. Government itself has an incentive to reverse it – it has resulted in a sharp shortfall in import duty revenues below target.
Now the 3rd strategic plan is to be implemented. Gradually, GRA ‘s tax administration is improving and expectedly with it compliance. An era where Ghana can achieve the average tax revenue to GDP ratio for middle income countries, of 25 percent is now within sight even though it will still take time to actually get there.