Thinking outside the box, the route to effective Revenue mobilization.
The fiscals basically deal with revenue and expenditure of the government. As a developing country, our challenge is to move away from the fiscal doldrums thus finding effective ways of mobilizing more revenue and judiciously undertaking prudent expenditure in order to avert the chronic fiscal deficit. To boost the revenue component in the fiscal balance computation, donor support, proceeds from divestiture and efficient tax regime are the available options. Of the three, efficient tax regime is the best. Aside revenue mobilization, taxation plays a very cardinal role in shaping the distribution of benefits; it takes from the highest income earners to the people in low economic strata and also allows government to discourage others by altering relative prices thereby encouraging certain economic activities.
Statistically, 6 mn people out of the 25 mn Ghanaian populations are to pay tax. Out of the 6 mn figure, abysmally 2 mn people (a figure that is below 50% of the taxable population) actually attempt to pay tax. This condition actually brings to bear the real fiscal challenge of the country and until we take practical steps to salvage this, our clamour for development, self-reliance and economic growth will just be a wishful thinking (pipe dream). The local economy is largely informal; over 70% of the labour force is informal and the sector houses 75% of local economic activities. Meanwhile the relative share of tax of the sector has been abysmal over the years (from 21.27% in 1983 to 6.6% in 1999). ?For example, in 2007, 88.7% of government revenue from income tax came from the formal sector (PAYE) whiles very infinitesimal figure (11.3%) came from the self-employed and the informal sector. Lack of viable ventures coupled with high unemployment rate also negatively impact on revenue mobilization. Not only that, poor revenue mobilization institutions and their associated inefficiencies resulting to huge revenue loss is still an unresolved issue. Our compromised points of entry (various investigations on boarders by Anas and the Tiger Eye group corroborate this assertion) and sometimes governments own inefficiencies; Poor foresight, lack of appreciation of the Ghanaian tax regime coupled with draconian Acts passed by the Parliament of Ghana militate against huge revenue mobilization hence the fiscal shortfalls.
I am of the total conviction that Ghana?s problems in general exist because of the inability on the part of leadership to soberly do a soul searching exercise and onward fashion a clear target and strategy to boost revenue mobilization. I shudder to fathom why government is suffocating already struggling small scale businesses with tax hikes, I can?t comprehend why people have to go to church for a thanksgiving service for going through the hell at our harbours in order to clear goods. It still beats my imagination and reasoning why an import duty in Ghana is more than the cost of the good bought plus shipping cost (especially for imported cars and machinery). If all these challenges persist, where lays the candour in somewhat audacious visions for industrialization, private sector development, Foreign Direct Investment and overall development agenda?
In reality, I appreciate the difficulties government face after prematurely blowing our low middle income status (though debatable) to the whole world. The grants and donations we hither to received are not forthcoming obviously because we heralded our low middle income status with trumpets and vuvuzelas all for political expediency. To put it bluntly, there is a fiscal gap and we need to find money to meet this gap but I humbly ask (rhetorically though) at what cost do we want to bridge this fiscal gap? This Akan?s adage aptly puts this question in context ?s3 wo twa wo nsa we a, na wonnwee nam bia?. To wit, if you amputate your hand and chew, you have indeed not enjoyed any meat.
WINDOW OF ESCAPE
I think government will do itself and the country a great deal of service if it explores workable but easy ways of raising revenue without necessarily over burdening the current 2mn somewhat loyal tax payers (including importers) with non tax hikes.
Firstly, Government must as a matter of urgency find money to finalize the National identification systems. Credible tax regimes revolve around credible database and credible data makes strategic revenue mobilization decisions easier. For about 71/2 years, Ghana is shamefully unsuccessful in constructing a credible national database. I humbly ask what developmental decisions is the NDPC taking? What informs their decisions? How does GRA strategize and what are the inputs that go into their strategy? I ask these questions knowing very well the challenges the Ghana Statistical Service faces. Until we take the National Identification system and the street naming exercise serious, I think we should forget about efficient revenue mobilization, vibrant banking industry and development in general.
Strict implementation of property and rent tax laws. The law stipulates that at the end of the year, property owners pay must between 0.5% to 3% of the value of their properties as tax. It is the duty of the MMDA?s to see to its implementation. Rate Impost?(expressed in decimals) is the percentage rate (between 0.5% and 3%) charged on a property?s value. The rate applied to a property is influenced by certain factors. First is the classification of the zone in which the property is situated. The rating authorities zone the city into first, second and third classes, based on certain socio-economic considerations such as existing amenities. Another factor that determines a rate impost is the purpose for which the property is used: thus whether residential, commercial, industrial or mixed use. Even where the product of the rateable value and the rate impost is less than that minimum charge, the minimum charge applies to the property for the given year. The Land?s valuation Authority is to make sure that the market value of all lands and houses are determined at the end of every year. As a point of fact, I cannot recollect the first and last time this government peristalsis performed its duty in the Accra Metropolis. And the intelligent question that follows this sad but altruistic situation is if even market values of houses in Accra are not determined for efficient property tax mobilization, where in Ghana is this followed? And if properties are not valued in Ghana yearly, by what mechanism does the MMDA?s able to levy accurate taxes on property owners? In the year 2007/2008, the A.M.A shamefully and lazily charged a flat rate of between GHS (50 to 100) without conducting any valuation for the proper tax to be levied. This figure is woefully inadequate. For example, if we are to price and average house in Trassaco valley at GHS 500,000 and we levy say 2% averagely as tax, it means the A.M.A. should have taxed GHS 10,000 as property tax. Let?s compare this with the higher bracket GHS 100 they charged as property tax in 2007/2008.
On rent tax, the question is how many landlords pay the stipulated 8% rent tax from their rent proceeds? Do we as a country have the database for landlords and the rental activities that they undertake for all the MMDA?s? I am of the conviction that if we are to think and do things right, property and rent tax has the capacity to shoot our tax revenues by not less than 60 percent.
Finding efficient ways of mobilizing revenues electronically. ?In situations, where there is human to human interface, there exist high degree of compromise and corruption. In situations where there is not enough and credible supervision, the tax collectors do what they like. This accounts for the compromised nature of our various points of entry. To avert this, the nation must embrace water tight softwares that make it easier for electronic collection of tax revenues especially at our ports. Again, politicians must be advised that tax mobilization is a serious business that goes to the very route of development hence sending party apparatchiks who have no tax knowledge to the ports to collect taxes only to trouble and frustrate serious businessmen must end. Creation of unnecessary taskforces at our ports only aggravates the situation rather than ameliorating it. There are also devices that can be used to track all monies collected on the field by the officials of the MMDA?s for and on behalf of GRA. This will go a long way to improve collection efficiency thereby reducing revenue loss.
Proactive and thinking government. Government is to solve problems. In fact, the national challenges are enormous but it?s incumbent on leadership to find ways to circumvent these challenges. Over the years, what I see lacking in leadership is the boldness to leverage on its integrity, credibility and purchasing power to get things done. We seem to hastily adopt policies that usually have short term benefits without critically delving into the long term consequences of those policies. For example, I find it very difficult to fathom why mining companies and other multinationals enjoy 5 years tax holiday while these companies are allowed per our laws to repatriate their profits. This is a double dagger for economic assassination. All these are policies that are having a negative impact on the socio-economic health of Ghana. If multinationals are to enjoy 5 year tax holiday, government must take proactive steps to negotiate with these businesses to reinvest their profits either in their businesses or other leading sectors of the economy. This will go a long way to increase employment thereby increasing government?s income tax revenue basket.
Boosting public confidence by ensuring judicious use of resources. There are two cardinal things that influence the actual amount of tax revenue collected in any given year. They are people?s capacity to pay and their willingness to pay. The capacity aspect touches on whether the people levied the tax have the financial muscle to contribute the tax. The willingness aspect is also crucial. It touches on the zeal and eagerness with which the citizenry pay the tax. Public confidence goes a long way to determine the willingness to pay. Although theoretically, the tax payer should not expect direct benefits from his/her tax contribution, if someone pays tax and he/she has reasons to believe that the tax paid are misapplied, misappropriated and recklessly utilized, the willingness to pay subsequent taxes become questionable. For example, if all tolled roads have no pothole challenge, majority of the citizenry (road users) will welcome any road toll increase. Unfortunately, if the citizens feel that the system is not undertaking relevant developmental activities from their tax revenue, they become very skeptic about paying tax. To boost public confidence, government must understand its social contract with its citizens. Thus if citizens play their role by contributing taxes, government in turn must put the tax revenue to judicious utilization.
ABOUT THE AUTHOR
Bernard is a Policy/Investment Analyst, Founder Goshen Investments
Head, PESC, CCDworld. Contact 0244176355, Email. [email protected]