PREAMBLE
Tax Justice which has not been part of the focus of Trade Union leaders in Ghana and the rest of Africa is now been brought into the limelight of Trade Unionism as a topical issue to deal with. The Tax Justice Network-Africa which has been at the forefront of advocating for a fair and equitable tax system in collaboration with the Public Services International together with other partners decided to bring together some Union leaders and expose us to the unfair tax systems, especially on the African continent and how it directly impacts on our own lives as well as the lives of our members. Hence the need for us to get involved, educate our members to join the campaign for a fair and equitable tax system in our various Countries.
Tax Justice is about Development, Social justice and fighting Inequality. Resource mobilization and the need to move away from Development Aid should be a concern to all because these Aids, Loans and others which most African Governments depends on heavily to fill their financing gap for development has resulted in unsustainable indebtedness and the loss of sovereignty. We lose more resources through harmful Tax Incentives, illicit financial flows, Tax Havens and Tax dodging than we get from Aid, Grants and others. Ghana loses about $1.2billion annually through Tax incentives, 41% of Trade tax as well as 28% of Direct tax and Value Added Tax (VAT) revenues are lost through harmful tax exemptions according to an Action-Aid report on Investments in Ghana.
Consumption and Wage tax has been the focus of most African Governments including Ghana which impose a higher tax burden on poor households and formal sector employees leaving the majority of Informal sector employees untaxed. This has resulted in weakening the bargaining power of Trade Unions because revenue from such sources of taxation is not enough. This is why the support of Trade Unions with the rank and file membership in tax justice campaign has become more imperative for income and job security.
TAX JUSTICE – THE GHANAIAN PERSPECTIVE
Majority of Ghanaians working in the Informal Sector as well as Small & Medium Scale Enterprises (SME's) are not paying taxes to the State. Examples include Landlords, Estate Agents, Commercial Drivers, Bus Conductors and the like. Of the more than 24 million Ghanaians, only about 2 million out of the about 12 million working population in the Formal Sector pay 97% of all taxes whiles the about 10 million in the Informal Economy pay just 3%. Enough punitive measures should be put in place to make it unattractive for citizens to either steal from the State or evade taxes. It is simply not enough with the current practice where people who steal from the State are just transferred or jailed for a few months only for them to come out and enjoy their stolen wealth. The State fails to recover the stolen money and even spends more money to take care of those who get incarcerated.
Ghana's average tax percentage is about 19% of the income earned by the working population and businesses but this could be as high as 57% in the developed world. Taxes are used to develop social services which the population needs so badly but the opposite is what we see in Ghana and other African Countries. Evidence abound that public funds were channeled into the planting of trees in the dry season at the Northern parts of Ghana and the rearing of guinea fowls whiles critical social infrastructure such as the Nsawam-Suhum-Apedwa stretch of the Accra-Kumasi highway remains in a shameful state. The Government of Ghana in collaboration with the Central Bank is rather printing money to finance Government expenditure instead of collecting taxes. This results in inflation, currency depreciation with its attendant low standard of living.
Ghana's one million unionized workforce fragmented into 72 trade unions defeats the word Unionism itself and weakens our collective resolve to bargain for better conditions of service, collective action and the like. Our concerns as Trade Unions is for fairness and equity in the tax policies of the Government and also the channeling of these funds into the provision of social services that will go a long way to help in improving the standard of living of our members and Ghanaians in general. The Government should pursue more Progressive Tax policies and reduce the Regressive ones that create inequality and impoverish more citizens. For example, Value Added Tax (VAT) and Excise tax are Regressive Tax policies because a poor farmer who buys bottled water pays the same amount of tax as the Managing Director of a multinational company who also purchases the same water to quench his thirst. Even though these two individuals belong to two different income brackets, they pay the same tax on the bottled water. This makes the poor farmer poorer.
Tax incentives alone according to Action Aid and ISODEC, Ghana costs the Republic GH¢2.4 billion or 13.1% of total tax revenue. This happens through tax holidays and location incentives for Companies, Capital incentives, Carry forward losses, Export processing zones, Trade tax exemptions, Head of State exemptions and other losses through Direct & Indirect taxes, International trade taxes and the like. These monies could have been used to improve on Ghana's social infrastructure, reduce the level of poverty and dependency ratio in Ghana. This would have freed the working few of some responsibilities, improve their purchasing power and standard of living.
TAX JUSTICE – THE UNION'S PERSPECTIVE
Educating both Union Leaders as well as their rank & file to know more about the tax policies being implemented by their various Governments around Africa is key in ensuring tax justice. For instance, the policy of Pay As You Earn (PAYE) being implemented by the Government of Ghana through the Ministry of Finance & Economic Planning (MOFEP) should be understood and the formula made known to all public sector workers. That way they can track the level of tax deductions from their income to ensure fairness & equity.
Blanket Tax holidays given to Multinational Companies should be reviewed to include clauses that will task such Companies to employ a certain number of employees over a period of time. Government Agencies should be resourced to monitor such Companies to make sure they are not transferring their profits gained as a result of the tax holiday abroad but rather investing it in expanding the business to employ more Ghanaians. By so doing, Government will earn revenue from the income taxes of the employees.
Research has proven that in making a decision about which economy to invest in by Multinational Companies and Investors in general, tax incentive is the least or not at all considered. Such Investors want to make sure there is availability of Labour, good roads or transportation network to transport their products to the consumers, rule of law, availability of power or electricity as well as market for their produce. All these are not provided by the private sector but Government through taxation. So tax holidays rather deprive Government of the needed resources to provide these infrastructures that will attract the Foreign Direct Investments (FDI's) they are busily calling for around the world.
Government should come up with pragmatic and innovative policies to expand the tax net to include the majority of informal sector workers so as to improve Ghana's domestic revenue whiles using those revenues judiciously to benefit the same people paying those revenues. This will go a long way to increase tax compliance in Ghana as the people can see and feel what their taxes are being used for. Any employee that spends much of his/her income on consumption is carrying a higher tax burden due to the use of Regressive taxation by Government.
This means that majority of our members or Ghanaians in general after paying the Direct tax/Income tax on their salaries also end up paying more than 40% of their take home pay back to the Government as Indirect tax through VAT. This coupled with the high dependency rate in Ghana makes most workers live from hand to mouth, thereby impoverishing them. This is unfair and Regressive, that is why we must advocate for Government to change these tax policies and bring in Progressive ones which is fair and equitable.
TAX INJUSTICE AND THE EFFECT ON TRADE UNION COLLECTIVE BARGAINING
Workers or Trade Union Leaders who are at the forefront of bargaining for better remuneration and conditions of service for their members should not do so or can't do so without having access to the Companies Value Added Statements (VAS) aside the traditional Financial Statements. Value Added Statements highlights the wealth that has been created by the employees of the company and how that wealth is distributed. It is simply calculated as the Turnover/Sales minus the Input cost. For instance, if Company A manufacture toothpaste and in a year made sales or had a turnover of GH¢200,000.00 and they spent GH¢80,000.00 as Input cost or the cost of producing those toothpaste, then the Value Added/Wealth created by Company A would be GH¢120,000.00 (GH¢200,000.00 - GH¢80,000.00). This helps workers to bargain effectively for their fair share of the Value Added.
Meanwhile Companies, Multinationals as well as Governments especially in Africa and Ghana to be precise are using innovative ways like Tax Dodging (TD), Transfer Pricing (TP) and Profit Shifting (PS) to either erase or reduce the Value Added so that workers can't ask for an upward adjustment in their salaries/wages. This makes workers feel that they are not working hard enough, it disempowers them and reduce or artificially removes their bargaining power. In some instance, some workers even agree to a pay cut. These negative Value Added are actually artificial and not real. Corporate tax is normally on profits made and so if a Company continues to make losses through Profit shifting, the Government makes no revenue there in terms of corporate tax and by inference, development suffers. A clear example of this Tax Dodging system was when Accra Brewery Ltd (ABL) was making losses whiles in their books, there was a vigorous expansion drive by the Company. The question was how can a Company which was making losses be expanding at the same time?
In Profit shifting, Multinational Companies decide to set up Holding Companies in Tax Havens. These Holding Companies end up charging their subsidiary Companies where the economic activity is taking place management fees, branding fees and all kinds of charges that eats up all the Value Added artificially, making workers in those subsidiary companies lose their bargaining power whiles the Government also lose the corporate tax that it could have gotten from such subsidiary companies.
In Transfer pricing scenario, Company B which is based in Ghana and manufacturing soap was making profit of GH¢50,000.00 which workers were bargaining for their share every year. Management of this Company decided to set up a Holding Company in Switzerland (Tax Haven) and transferred the soap's brand and management services to the Holding Company which in turn charged them the US Dollar equivalent of GH¢50,000.00. So in the end, Company B makes no more profit for workers to bargain for their share of that wealth created. Another way is that if the soap produced was supposed to be sold at GH¢5.00 in order to make profit, the Company management will sell it at GH¢2.00 to the Holding Company with the Holding Company selling the soap back to Ghanaian consumers at GH¢5.00. So Company B in Ghana will make no profit or post a loss whiles the Holding Company makes all the profit to the detriment of hardworking workers of Company B.
Governments in Africa and the Ghana Government for instance also indulge in the creation of artificial negative Value Added and Transfer pricing which weakens the bargaining position of Labour. For instance in the year 2014, when Organized Labour through the Public Sector Joint Standing Negotiation Committee (PSJSNC) went to bargain for an upward review of the salaries of public sector workers, the Government of Ghana said there was no money. The wealth that the working people of Ghana have all contributed to create was given to Savanna Accelerated Development Authority (SADA), SUBAH Infosolutions, ISOFOTON, Construction Pioneers, RLG and Woyome among others and so workers ended up with Cost of Living Allowance (COLA) instead of a salary increase. This has worsened the standard of living of the Ghanaian worker, reduced their purchasing power in the mist of rising cost of living.
Trade Unions must therefore join the campaign against Tax dodging, Transfer Pricing and Profit shifting, demand increased accountability and corporate governance transparency as well as develop the capacity of our rank and file to understand the effects of Tax dodging on their income and lives in general. Workers must inform appropriate State authorities when we see our Companies indulging in some of these malpractices. Tax injustice creates inequality, it's socially divisive, economically deficient and morally unjustifiable. It is said that when you visit a Nation and you see it's people building walls around their houses, then it clearly shows there is inequality in that Country. In fact, the higher the walls, the higher the level of inequality.
TAX JUSTICE AND THE INFORMAL ECONOMY
Taxing the informal economy remains a big challenge for the Government of Ghana and other African Countries. A study undertaken by Friedrich Ebert Stiftung (FES), a Non-Governmental Organization (NGO) shows that the lack of registration of informal sector businesses, their lack of book keeping and others contributes to the Government's inability to tax the sector. It came out during their study that majority of workers in the informal economy had either basic or secondary education and so could be educated and sensitized on the need to contribute their quota to national development.
Whiles 83% of respondents agreed to the fact that they need to pay tax, they cited the bureaucracy and confusion in the tax administration system as a major hindrance to them honoring their tax obligations. They leaving their businesses and wares to go and pay their tax was also one major concern that came out of the study. Labour Unions should organize workers in this sector and educate them on their tax obligations whiles calling on Government to come up with innovative ways of taxing this huge sector. For example, trained Tax agents could be sent to the markets, small businesses and the like to educate them on simple book keeping whiles they take the tax and issue them receipts. This will remove the bureaucracy and the burden of walking to pay the tax themselves. Ghana could be self-sufficient and will not need any development aid from so called Development partners if pragmatic steps are taken to put in place a fair, equitable, efficient and effective tax policies.
TAX JUSTICE AND THE DECENT WORK AGENDA
The concept of Decent Work is based on the understanding that work is not only a source of income but more importantly a source of personal dignity, family stability, peace in community and economic growth that expands opportunities for productive jobs and enterprise development. This is based on the Fundamental Principles and Rights at Work, Full & Productive Employment as well as Enterprise Development, Social Dialogue and Social Protection for all.
Harmful Tax Incentives and the lack of Regional Tax Harmonization results in harmful tax competition among Nations. Businesses take advantage of this and shift from one Country to the other, affecting the creation and sustainability of productive decent employment for young people as well as Social Security. This is because once Businesses move, jobs are lost, incomes are lost as well as Social security payments. Trade Unions must call for an effective tax incentive system and co-ordination across the ECOWAS sub-region to stem this trend.
The lack of input into the formulation of tax incentive policies from all stakeholders including Trade Unions results in defective policies that grants long years of tax holidays to Investors without any attachment of employment creation or the development of monitoring mechanisms. These results in huge losses to the State and so as Trade Unions, we must impress upon our Governments to come up with the right Tax Incentive policies that will create decent jobs and wealth for our people.
Abuse of International Tax Systems such as Transfer pricing, Tax Dodging, Tax Havens as well as poorly regulated Global tax information with exchange agreement framework directly affect the right to Collective Bargaining, Decent Productive Employment creation, Social Dialogue and Social Protection for all.
The involvement of Trade Unions in fighting for Tax justice is long overdue taking into consideration the effects of Tax injustice on our members and the general population. Educating our rank and file on the need to campaign for justice in the Tax Administration system will go a long way to improve the purchasing power, standard of living and strengthen our Collective Bargaining process. The time to act is now.
Long Live HSWU of TUC-GH!! Long Live TUC-GH!! Long Live PSI!! Long Live Tax Justice Network Africa!! Long Live The Republic of Ghana!!
Prepared By:
Brother Badu-Boateng Ernest
Ashanti Regional Chairman
HSWU of TUC-Ghana
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