To further ensure the increase of the tax revenue that government derives from the Micro, Small and Medium Enterprises (MSME’s), the Private Enterprise Federation (PEF) is advocating that government considers introducing a tiered income tax system which would encourage what the Foundation regards as equity and fairness to the MSME’s sector.
Currently, MSME’s constitute about 94 percent of the informal sector. However, their tax contribution is just four percent of the government’s revenue from tax, which stands at about 14.9 percent of income tax revenues.
In an interview with Goldstreet Business at the Nationwide Consultative Meeting on Tax Reforms for Domestic MSME’s last Wednesday in Accra, the CEO of PEF, Nana Osei- Bonsu indicated that if government is able to make the tax system equitable and fair, players in the MSMEs sector will comply with their tax obligation.
“The fairness is affordability; if its affordable, the tax contribution from this sector may be possibly increase to 40 or 50 percent, and if the contribution increases, government revenue increases,” Osei- Bonsu said.
In questioning the fairness of the tax system, where everyone is made to pay 25 percent tax, he stated that, “25 percent on income of GHS 1,000,000, the impact is little compared to the impact of 25 percent on GHS 10,000 income because the residual that allow businesses to go about their business is very little, and it doesn’t allow them to do what they need to do.”
To this end, he urged the government to look at introducing a corporate tax tier system for the MSME’s which would be in the form of lower income tax rates for smaller companies with the applicable tax rate rising in correlation with an enterprise’s size and revenue streams.
Osei-Bonsu recommended the need for segmentation and segregation of different grouping into different tax brackets, to make it affordable for them to pay their taxes.
“Once its affordable, tax compliances become voluntary, and government doesn’t have to chase them and therefore cost of tax administration would be lowered,” he said.
He asked that Ghana Revenue Authority embarks more on tax education, explaining that, “when people get to know about their obligations and responsibilities and opportunities within the tax laws, they would be able to take advantage or pay their fair share.”
Osei-Bonsu noted that the consultative meeting is meant to help the Federation identify the difficulties that the various Enterprises encounter in compliance to tax obligations, so as to articulate a most effective way to address them in a position paper that would be discussed with government at a later date.
By Joshua W. Amlanu