Mr. Vitus Adaboo Azeem, Chairman of the Tax Justice Coalition (TJC), an
Independent Consultant, and a former Director of the Ghana Integrity Initiative, has noted that, taxation is the main domestic approach to providing governments with the funds needed to invest in development in order to reduce the country’s dependence on aid and other external resources.
He said it also ensures that, there is a predictable fiscal environment to promote growth. Adding that, “As a compulsory levy, citizens do not have a direct influence on the type of tax to be paid and how much to pay. In a democracy, it is usually proposed by the Executive arm of government and approved by the Legislature, the representatives of the citizens.”
To him, it is not sustainable for a country to rely heavily on external financing as it comes with conditions, restrictions and limitations that, in the long run, would be detrimental to the development of the country.
Therefore, to reduce dependency on external assistance, he said, a country must focus on domestic revenue mobilization (DRM). Explaining that, “DRM refers to the generation of government revenue from domestic sources, mainly from taxes. These could be either tax or non-tax sources (royalties, licenses, levies or other income). Taxation is not the only means to generate domestic revenue, but it is the most popular among countries.”
Presenting research papers at an expert roundtable on citizens action for improved Domestic Revenue Mobilization and Pro-Poor Spending and efficiency in revenue utilization, at the Coconut Groove Regency Hotel in Accra, on the 14th November, 2019, Mr. Vitus Azeem, said, “According to the IMF, a minimum ratio of 15% is associated with a significant acceleration of growth and development.
Thus, any country that achieves below a ratio of 15%, is not likely to be sufficient for reaching the goals to which so many countries aspire. However, in generating domestic revenue, the country must not only be looking at the revenue volumes but also the content of the tax system and its impact on the ordinary citizens and the economy.
This means that a country must balance a minimum target of 15% of GDP in taxes with a fair and equitable tax system. Tax policies should be structured in a manner that reduces distortions and inequity. Fairness considerations include relative taxation of different demographics (rich and poor, young and old, urban and rural).”
He said, many countries encounter several challenges in the collection of revenues to finance their own development.
He emphasized that, 35 of the world’s poorest 75 countries collect less than 15% of GDP in taxes while that of the Less Advanced Countries (LAC) globally collect 22.7%.
Mr. Azeem, further disclosed that, “In the 2006/7 fiscal year, Kenya estimated to collect about 21% of its GDP. However, tax experts estimated that it could collect 50% more tax than is currently the case, if tax evasion is curbed.
Uganda collects about 23% of its GDP while other African countries collect much less tax than these two countries.
Tanzania struggles with below 15%
However, a country like Greece is known to collect up to 45% of its GDP in taxes; Ghana’s tax-to-GDP ratio was 17.2% in 2015 and 17.6% in 2016 from 11% in 2000. The average for Sub-Saharan Africa is 18.2% of GDP.”
Noting that, a country where tax evasions and tax avoidance are high, governments would not be able to generate revenues required for its development agenda.
“In order for tax reforms to work, there must be political commitment and acceptance by all key stakeholders.
Countries that concurrently implement both tax policy reforms and revenue administration measures see better and more sustainable gains.
A workable strategy should be preceded by good fiscal reform measures that will build momentum for the coming tax reforms and from the holistic approach;
There would be a need to make tax administration simpler and more convenient to the taxpayer,” Mr. Vitus Azeem, stressed on.
He however, recommended that, government must show political commitment not only in its revenue mobilization efforts, but also in the fight against corruption in its revenue mobilization efforts, and as well as public education on the need to pay taxes should continue to be conducted on regular basis as people still do not see the need to pay taxes.
He said, “Ghana must have a consolidated framework for its natural resource sector that will ensure that the country derives maximum benefits from the sector and ensure efficient utilization of the revenues so generated. Ghana needs to start discussions on how to tax the digital economy as it has a wide reach in the country through the social media platforms.”
Mr. Vitus, also placed more emphasis on the need for the country to reconsider its decision to cede certain taxes to the MMDAs as these MMDAs are unable to exploit this revenue potential, especially with regards to property taxes.
“It is recommended that government takes the fight against illicit financial flows seriously, especially as it is a global problem and attracts international attention and support. It is necessary to consider the effects of its tax policies and administration on the poor and marginalized groups in society by making the tax system more progressive and to ensure tax justice,” he said.
On GRA, he underscored the needs to have a regularly updated database of tax payers in order to make it easy for the GRA, in collaboration with relevant institutions, to vigorously pursue and prosecute tax evaders and curb tax avoidance using the law and powers of the Commissioner General to pursue tax defaulters.
The paper also recommended that, government must review the exemption regime as promised in the 2019 Annual Budget and Economic Policy Statement.
“Tax policy reforms must be concurrently implemented with revenue administration measures in order to see better and more sustainable gains.
Mr. Azeem, however concluded that,
“Addressing poverty through pro-poor spending also means making efforts to reduce inequality. To address inequality, we must promote social and financial inclusion of vulnerable segments of the population by addressing: Gender inequality. The aggravating factors of exclusion of vulnerable groups such as illiteracy, healthcare, infrastructure, norms etc. Using mobile technology to improve targeting and expand the pro-poor programmes.”
On behalf of the Ghana Revenue Authority and the way forward on DRM, Dr. Martin Kolbil Yamborigya, Actg. Assistant Commissioner, DTRD Commissioner’s Secretarial, said, over the years various governments have tried through various reforms to increase domestic revenue mobilization. The latest one he said, happened in 2010, when the revenue institutions in Ghana were brought together.
Saying, “We had the Internal Revenue Service, Value Added Tax Service, and the Custom Excise and Preventive Service to come together to form the Ghana Revenue Authority. And one of the objectives was to ensure that we bring about efficiency in the tax administration, and to increase domestic revenue as well.”
Dr. Kolbil also added that, “We have tried to use various options and even though there had been improvements in terms of revenue mobilization, we haven’t still gotten to the desired result. So we’ll continue to have a lot of improvement.
Now, currently, what the GRA is doing, that was also read in this year’s budget is that, we are going into another phase of restructuring, and it may not be major as we did under the Revenue Authority Act, but there’s going to be a lot of restructuring. And there are three key areas that we are focusing on, and that if those areas are really worked on, then we expect that there will be increase in domestic revenue. Number one, we talk about People, we talk about Technology, and, we talk about Service.
These are the main drivers of revenue. In terms of tax laws, we have enough tax laws. We have enough tax positions to generate the needed revenue. So that is why we see that there’s no need bringing in new taxes, there’s no need bringing in new tax laws. But even within the existing tax laws that we have, if we are able to work on these three areas, the People, Technology, and Service, then we believe that we should be able to improve domestic task tremendously.”
The two paper presentation was commissioned by the Ghana Anti-Corruption Coalition, in partnership with OXFAM Ghana, as part of a project dubbed, “Citizens Action for Improved Domestic Revenue Mobilization (DRM) for Pro-Poor Spending and Efficiency in Revenue Utilization”.
The project seeks to stimulate citizens’ dialogue and awareness of how corrupt practices stifle improved DRM opportunities and to make proposals for policy makers to adopt them. It also seeks to identify loopholes in tax administration and public financial management and build a constituency around the need for transparent and proper application to the pro-poor sectors (education, agriculture and health, targeting women) for maximum public benefits.