Growing Ghana Though Own Resources: An Effective Tax System

Quite recently, in a move that will, perhaps, begin a wind of some transformation in the tax collection system in the country, Mr Henry Brandford Sam, Revenue Officer of the Enforcement and Debt Management Unit of the VAT Secretariat, led a team of officials from the Ringway Estate Local VAT Office to serve a warrant signed by the Commissioner of VAT to close down some companies that were in default of their tax element on the Value Added Tax (VAT).

Consequently, the M-Plaza Bus terminal at Avenor in Accra was closed down and its assets confiscated to the State following the refusal of the Management to pay up an amount of 374.9 million cedis as taxes it owed the Value Added Tax (VAT) Service.

The management of the Company was given up to 14 days to pay up the debt or else the Service would auction their assets to settle the debt. The amount involved charges in taxes levied on a number of coaches the Mariset Company Limited, operators of the M-plaza travel and tours services and owners of the terminal bought from the Neoplan Ghana Company two years ago. However, interestingly, information has it that the Management of Mariset immediately after the closure went to pay 150 million cedis and had made satisfactory arrangements with the Service to settle the difference. The VAT Service accordingly opened up the terminal for normal operation at 1900 hours on Thursday. Mr Sam explained that the action, taken under the Section 34 of the VAT Act 1998 (Act 546) was ongoing and should not be taken as victimization of any company "but an exercise designed to collect taxes for the State to be used for developmental programmes."

Perhaps, it was good Mr. Sam quelled any thoughts of victimization that may engage the minds of management or workers of the company. Sometimes, I think Ghana is the most liberal country in terms of negotiations on tax payment. It is only in Ghana (I think) where a tax payer can walk to the office of a tax collection agency and openly negotiate when s/he wants to pay his taxes. In most cases, such an attempt leads to perpetual non-payment of the taxes. Admittedly, in spite of the political arm-flexing that heralded the introduction and implementation of the Value Added Tax law, the VAT could be used for pushing development if the system is made broader, transparent, and its collection enforced so that groups and individuals do not escape the payment of taxes that could as well help with the development of the country. Is it explicable in anyway, why the management of the Mariset Company Limited rushed to offset part of the debt when the VAT Service closed down its premises? The sums of money the nation loses due to non-payment of taxes is incalculable. There are two sides to these goings-on: having seen the loopholes in the VAT collection system in the country, many individuals and companies have found a way to avoid the payment of taxes for so many years, and secondly, the VAT Service has been very dormant over the years in its VAT collection bid. For too long a time, the Service has hidden behind the media to issue empty threats at various registered companies that they risk a closure should they fail to pay up what is due the Service. The resultant effect of this situation is that there are several registered companies in the country, today, that have escaped the payment of taxes either because they have successfully been able to negotiate for the payment since Adam, or the Service has condoned this type of action for too long. I hope the action of the VAT Service will not only end with Mariset but begin a wave of activities targeted at getting lost revenue to the state.

For instance, sometime in 2003, the head of Public Affairs and Information Department of the VAT Service was reported to have said that the Value Added Tax (VAT) Service was positioning itself to ensure that some of the leakages in the revenue collection were corrected to make way for maximum collection of revenue in the country. Some of the measures were to include the surveillance and test purchase exercise, the institution of a complaint and information desk at all VAT offices throughout the country and debt collection exercise. After three years, the VAT Service is yet to do what it promised. I guess Mariset has been a few of the unlucky ones because it is just but one of the countless companies that has denied the nation some good development.

If you know about the politics of tithing in the Church, every Christian (at least those who believe in it like me) is to give one-tenth of his/her earnings for the work of the Gospel but even in the sacred Sanctuary, many people either escape its payment or do not see the rationale behind any such action. Similarly, the average Ghanaian is not a fan of paying taxes. Not many understand why after doing business for a period they have to give a pittance to the state that provided the resources (space, legal backing, etc) and facilitated the growth of the businesses. Thus, many private companies have escaped registration with the VAT Service and only resorted to occasional closure of stores anytime there is news that some task force from the VAT Service is striking. What this means is that the hair-dresser or the CD recording engineer will shut the shop as if s/he has never done any business. Does this ring any bell about the TV licensing system where people hide their TV sets anytime there is a task force to enforce the collection of fees? But just as the Bible says “Can you rob God?, so I want to ask, for how long can we rob the country of the benefits of being in the class of the model countries that we all crave to move to? None of the countries that have become model economic powers has developed without the payment of taxes. In the USA, (a nation that prides itself as the richest in the world and has been a benefactor of Ghana since Adam) nothing goes untaxed and no one does business without properly registering with the appropriate agency. America lives on taxes and so are other economic giants in the Western orientation. The payment of taxes is inextricable with the development people talk about in America. No one escapes taxes and it doesn't matter one's political position or economic standing Our tax system is fraught with a lot of unfairness and some injustice. More often than not it is the poor and not the rich who get taxed. Most of the successful businesses owned by individuals have escaped the payment of taxes because there is no shred of record on them and the type of businesses in which they are involved. Instead, it is the poor teacher, journalist, or the average civil servants whose names are captured by the system, who get taxed at the end of each month. The ugly side of this situation is that afraid of being rounded by the system, many individually-owned businesses attempt to plug all the loopholes by paying some money to some officials of the tax agencies, robbing the state of huge sums of money. Interestingly, the percentage of taxes from the poor workers in Ghana that end up going to the state is only meager and can only do a little of what is needed to push the development agenda of the country. Our tax net is too narrow and the interest so deep.

Sadly, we are in a country where even information concerning the country's population has never been complete. As it stands, no one is sure if Ghana's population is indeed, 19, 20, or 22 million. This situation is worrying and has so much of an impact on the tax situation in the country. How can you ensure that people do not escape the payment of any form of taxes if you don't have an effective system that will make sure that each individual of the country is captured in a national identification system? Wouldn't it be surprising if anyone told you that the head of a family does not have information about those in his/her immediate family?

I have not read the bill introducing and advocating for the National Identification System (NIS) but such a system, to me, should be the best in years and should facilitate an effective tax system in the country. The system should ensure that the Statistical Service, for instance, will have a fair idea as to the number of people in the country, and if this is keyed into a computer system, the tax agencies can feed on that to facilitate their work in the country. Any such system should be tied to the naming of streets and buildings in all locations so each area will be covered under the wider net the system will create. The fact remains that no such system begins without some problems and this is the reason the implementation of the NIS, if it becomes a law, will have some teething problems too. However, a system as good as the NIS will not be successful if the nation sticks to its manual methods of keeping records, where information is easily doctored. It must be occasioned with a computerization of the country's system linked to a central system where all information keyed into the system can be accessed. The difficulty, here, will be making the system a national program which will capture all the areas in the hinterlands. However, but that should not be insurmountable; the computerization can begin from the urban centers like the Accra, Takoradi, Tamale, etc. so that the likes of Hweehwee's and Bunkpurugu's follow later. The benefits of any such system will provide authorities of the country with some good information about who lives where and what type of businesses they engage in at any point in time. Fortunately, the cost of any such system can never match the benefits that the nation stands to gain if it effectively puts into place any such program.

If our political leaders are really interested in real independence and not just freedom, then we need to fall on taxes paid by people in the country to develop Ghana. If real development will come to Ghana then Ghanaians need to take their destiny into their own hands and pay taxes for that purpose. As things stand, the number of people or organizations that have successfully escaped the payment of taxes might be more than those who do so and this is not looking good for the nation. Any candidate who canvasses for the support of people for a Presidential spot should make the system an issue, and the electorates must demand answers from their leaders about how they intend to deal with the issue. I have already noted that Ghanaians are not used to taxation and for that reason there is the temptation of politicians out-smarting the electorates by putting a political spin on it but someone must take the bull by the horn and pull it to the riverside. I am not happy whenever the nation goes abbegging for funds to undertake minor development projects. These funds could be generated by Ghanaians, and used to service the needs of Ghanaians. Our tax system must be revamped; it must be devoid of politics and family connections and our politicians must stand up to the issue and deal with it.

The secret to doing this effectively, though, is EDUCATION.

Views expressed by the author(s) do not necessarily reflect those of Highana