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The tax regime, its challenges and practical solutions (Part 2)

Plausible Solutions to Ghana’s Tax Problems

The following paragraphs discuss key measures that can be adapted to address the aforementioned challenges.

  • n developing countries, national treasuries must act in concert with tax authorities to rationalize the tax exemptions regime. This can be accomplished by defining the scope of tax exemptions through appropriate tax provisions and providing the necessary management of these exemptions.

For instance, IFS (2019) proffers that existing tax exemptions must be re-examined based on cost-benefit analysis and value-for-money scrutiny. A chronic issue concerning the problem of exemptions is tax incentives given to foreign companies. Tax authorities should ensure the monitoring of their activities as it is known they change company names when their tax grace period elapse to evade taxes.

Duration for tax holidays must also be rationalized. Thus, the tax exemptions regime can be improved by appropriate legal and statutory provisions and effective administration. Ghana introduced the Tax exemptions bill in 2019 but it is yet to be passed into law. The good tax performance of a developing country like Ghana is contingent on an enhanced tax exemptions regime.

  • Tax authorities must embark on serious tax education and tax literacy programs to improve revenue generation in Ghana. Such an effort will promote a good tax culture, and boost tax morale among citizens, leading to high tax compliance.

Tax education provides the opportunity for people to know various taxes they are obligated to pay ─ this contributes to greater certainty which is a characteristic of a good tax system. Enhancing tax literacy will change the attitude of citizens towards paying taxes. According to OECD (2015), efforts directed towards improving the education of taxpayers lead to improved tax compliance; lessen distrust, and transform hostile relations between taxpayers and tax authorities into amicable ones.

Besides, the deliberate introduction of the concept of taxation in basic and high schools will brighten the fortunes of revenue mobilization in Ghana, in the medium to long term. For instance, a cursory glance of the Social Studies syllabus, as an example, in high schools does not explicitly spell out and adequately provide information on tax laws, the scope of benefits of paying tax, tax procedures, and the rightful duty of citizens to become taxpayers.

Taxpayer education in Ghana will provide information about tax laws and procedures; shift the mindset of citizens towards taxation; and improve revenue generation through voluntary compliance (IFS, 2017).

  • An efficient tax system capable of generating optimal tax revenue depends on a transparent, credible, and effective tax administrative regime. Improving tax administration is a difficult problem. Notwithstanding, tax authorities must embark on proper collection of information, utilization of adequate physical infrastructure and resources as well as requisite training of tax officials.

For instance, proper collection of information on growing sectors of the economy will inform tax policies geared towards broadening the tax base. Tax officials must also be properly incentivized to boost their morale and minimize corruption tendencies. IFS (2017) suggests that decentralizing the responsibility of informal sector taxation to sub-national government bodies will ease administrative rigidities. T

ax authorities must also ensure effective enforcement of tax laws concerning penalties, defaults, and tax compliance. Efforts should be geared towards making taxpaying procedures and simple and feasible to garner  high rate of compliance. This leads to the ultimate point of employing technology and computerized systems by tax authorities.

The proliferation of technology in all spheres of life has improved the quality of life. Likewise, the adoption of technology in the tax system in Ghana, and other developing economies, will boost domestic revenue mobilization. Information Technology can help with the building and management of tax databases, appropriate identification systems, and provide tools to monitor individuals and transactions.

It is laudable that Ghana has implemented the Tax Identification Number (TIN) system in Ghana. Bird & Zolt (2008) posits that technological improvements in a tax system reduce compliance and delays concerning tax payment. The use of technology decreases delays in standing in a queue to pay taxes.

Using mobile technology in tax collection will limit contact between tax officials and taxpayers eliminating risks of connivance and corruption. Tax authorities can broaden the tax base to rein in on the compliance issues with the underground economy – which will result in more tax revenue from the informal sector. The benefits of employing technology in the tax system are enormous and a panacea to the chronic low tax performance in Ghana, and other growing economies.

Summary and Conclusion 

A sub-Saharan African tax commissioner went to buy a bicycle for his son. The seller asked if he would like to get a receipt and pay a 15 percent higher price or take the bike with no receipt at a lower price. The tax commissioner paused and thought… (Awasthi & Brumsby, 2019).

The ensuing anecdote captures key contributions to low tax performance in SSA countries, such as Ghana. Thus, a large underground economy, pervasive corruption, and administrative difficulties, among others, undermine revenue mobilization efforts in developing economies. Nonetheless, the application of measures such as tax education, technology use, and improved administrative systems will change the status quo, especially in a post COVID-19 pandemic world.

The writer was an immediate past National Service Person (NSS) at the Department of Finance, University of Ghana Business School, and also a former student of the Department of Economics, University of Ghana. His email address is frankkaikins@gmail.com.

REFERENCES

Armah-Attoh, D., & Mohammed, A. (2013). Tax Administration in Ghana: Perceived Institutional Challenges. Accra: CDD-Ghana.

Awasthi, R., & Brumsby, J. (2019, January 9). World Bank. Retrieved May 31, 2020, from blogs.worldbank.org: https://blogs.worldbank.org/governance/taxing-shadow-economy

Bird, R. M., & Zolt, E. M. (2008). Technology and Taxation in Developing Countries: From Hand to Mouse. National Tax Journal, 61(4), 791-821.

Egyin, K. B. (2011). Assessing the Challenges of Tax Revenue Mobilization in Ghana: A case of Sunyani Municipality. KNUST, Institute of Distance Learning. Kumasi: KNUST.

Institute of Fiscal Studies. (2017). Mobilizing Adequate Domestic Revenue to Support Ghana’s Development.

Institute of Fiscal Studies. (2019). Enhancing Revenue Mobilization in Ghana Through Compliance.

OECD/FIIAPP (2015), Building Tax Culture, Compliance and Citizenship: A Global Source Book on Taxpayer Education, OECD Publishing, Paris, https://doi.org/10.1787/9789264205154-en.

Osei, Robert Darko; Quartey, Peter (2005): Tax reforms in Ghana, Research Paper, UNU-WIDER, United Nations University (UNU), No. 2005/66, ISBN 9291907545

Stiglitz, J. E. (2010). Development- Oriented Tax Policy. In R. H. Gordon, Taxation in Developing Countries: Six case studies and policy (pp. 11-36). New York: Columbia University Press.

Source: The B&FT|Ghana
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