First Deputy Governor of the Bank of Ghana, Dr. Maxwell Opoku-Afari, is advocating for an enhancement in the country’s tax administration.
He pointed out that Ghana’s tax-to-GDP ratio ranks among the lowest when compared to its counterparts.
Using the example of 2020, Dr. Opoku-Afari highlighted that the ratio of tax revenue to GDP was 13.4%, whereas the African average was 16%, Asia and the Pacific region was at 19.1%, Latin America and the Caribbean stood at 21.9%, and the OECD region had a considerably higher ratio of 33.5%.
This discrepancy, he emphasized, underscores the necessity to broaden the tax base, upgrade tax policies, and refine revenue administration systems to boost revenue generation.
During his address at the National Development Conference organized by the Church of Pentecost, he noted that expanding the tax base entails encouraging more individuals to fulfill their tax obligations and reducing tax exemptions.
He also suggested introducing incentives for businesses that comply with tax requirements, thus fostering a culture of tax discipline. He asserted that the Revenue Assurance and Compliance Enforcement initiative would effectively reduce revenue leaks and augment domestic resource mobilization while ensuring adherence to tax obligations.
Furthermore, Dr. Opoku-Afari indicated that the recent introduction of the Ghana card provides data on a greater number of employees and entities falling within the tax bracket. This situation demands that the Ghana Revenue Authority actively engage and incorporate these potential taxpayers into the tax system. The increased enrollment, he noted, could potentially alleviate the per capita tax burden by eliminating superfluous taxes, while simultaneously bolstering the tax-to-GDP ratio from a broader base.
Addressing the efficiency of property tax collection, Dr. Opoku-Afari highlighted that Ghana has yet to fully exploit taxes such as property taxes. He opined that the rapidly growing real estate sector could significantly contribute to domestic revenue mobilization through efficient collection methods.
He urged the government to leverage digital technologies to improve fairness, efficiency, and accountability in tax collection.
Regarding taxation of the informal sector, the first deputy governor acknowledged that, akin to other African nations, Ghana faces uneven tax distribution due to a substantial informal sector that lies outside the tax net.
Citing a World Bank study, he pointed out that nearly 90% of the labor force in Sub-Saharan Africa operates in the informal economy, in contrast to the OECD countries where the figure is less than 15%. Furthermore, the informal economy constitutes almost 40% of GDP in Sub-Saharan Africa, as opposed to just 18% in OECD countries. This situation poses challenges to the efficiency and fairness of the tax system, ultimately affecting tax morale and revenue.
He stressed that a significant informal sector signifies that existing tax systems, inherited from Western countries, may not be effective in resource mobilization. Hence, he recommended introducing revenue administration reforms to improve tax collection.
Drawing inspiration from Georgia, Dr. Opoku-Afari cited the introduction of a simplified tax regime based on annual revenues for Micro, Small, and Medium Enterprises. Micro enterprises were exempted from income tax, and Small Enterprises could opt for revenue-based taxation at rates of 3% or 5%, rather than profit-based taxation. This was among several tax reforms in Georgia, including the elimination of ineffective “nuisance taxes,” the replacement of progressive income tax rates with a flat rate of 20%, and a reduction in corporate income tax to 15%.
He mentioned that the revenue lost due to lower tax rates was offset by a broader tax base, improved compliance, and stringent enforcement. While acknowledging that the specifics of the Georgia reforms might not be directly transferable to Ghana, he emphasized that tailored reforms could generate additional revenues to support government initiatives.
Finally, Dr. Opoku-Afari strongly recommended addressing the issue of tax exemptions. He highlighted the IMF’s suggestions, which encompassed eliminating VAT exemptions (estimated at nearly 2% of GDP), phasing out tax holidays and exemptions, strengthening measures against profit shifting, and reducing customs exemptions. He also advised reviewing generous tax incentives offered to multinational corporations to attract investments, with the aim of ensuring a sustainable increase in tax revenue.