Last week, PriceWaterhouse Coopers, PWC , organized a short training programme for journalists on tax revenue mobilization and administration in Ghana. What we find most enlightening is the sheer extent to which tax laws, meant to rope in the overwhelming majority of individuals, enterprises and institutions in Ghana are simply not being enforced
For example, the laws governing tax administration in Ghana already allow for the taxation of the aspects of activities by churches – and other religious institutions including traditional worship institutions such as shrines – that are not based on charitable activities. Simply put, where such religious institutions are making money for themselves and their owners, such income is meant to be taxed, but where such revenues are used to help others, only then does the law allow for it to be tax free.
Similarly, there are tax laws that allow for the taxation, using self-assessment of all sorts of informal sector enterprises, from retail traders and susu collectors, through drinking and chop bar owners and bakeries, to commercial transporters, tailors, hairdressers and butchers. But they are simply not being enforced.
The result is that, for instance, in 2018, whereas formal sector companies contributed GHc6.917 billion to the state’s purse, in the form of income taxes, and their employees and public sector workers added on another GHc16.614 billion, self employed people, who are far more in numbers than any of the other two groups, contributed a mere GHc430.554 million.
The question therefore is: in a situation where the State desperately needs to maximize its tax revenues to take Ghana “Beyond Aid” and finance the many ambitious development and social intervention programmes of successive political administrations, but keeps falling well short of its tax revenue targets, why are the laws not being enforced?
The political class would immediately point to the logistical problems involved in extending tax administration to the informal sector. However, tax experts correctly point out that if government can collect limited withholding taxes from many of these tax-eligible informal sector people and enterprises, using flat rates rather than full assessments, why can the State not go the whole hog and insist on income assessments, whether self or state done, to collect their proper fair share.
The sad truth is that successive governments simply lack the political will to enforce the existing tax administration laws as they apply to the majority of Ghanaians who operate in the informal sector, and who, being accustomed to not paying taxes, readily threaten to move their votes elsewhere if they are taxed as they should be. This situation is worsened by the willingness of the political opposition at any time, to use this to score political points by declaring such tax mobilization efforts to be unfair and promising not to apply taxation if voted into power.
Faced with this proposition, each successive government in Ghana develops cold feet – better to be in power with a fiscal deficit than lose it in trying to do the right thing. Afterall, there is an alternative – adding to the public debt and this has become more attractive than ever before now that incumbent governments have discovered they can borrow long term on commercial terms and repayment of the principal would be the problem of their successors.
This attitude has to stop and the only segment of the population that can indeed stop it is that which has to bear the brunt of the problem, – those currently paying tax. They too have votes and their starting point could be to threaten to use them in the same way as the informal sector tax evaders.
This is an unsavoury strategy – two wrongs do not make a right – but it may be time for them to justifiably stand up for themselves.