In not too distant tomorrow, Ghana would be exiting from the boarding gate of donor aid and attain cruising altitude without donor aid. Ghana beyond is possible only when government can enhance domestic revenue collections and clamp down on tax holidays to multinationals. Certainly, domestic revenue mobilization holds the key. Generally, Ghana does not collect enough taxes. Tax to GDP ratio is less than 17%; compared with a 19.1% average in Africa, 22.8% in Latin America and 34.3% in OECD member countries.
Ghana Beyond Aid means that the government must work to double its efforts in revenue mobilization that is not regressive taxation. According to research conducted by Oxfam Ghana, Ghana collects approximately 55% of its taxes from indirect taxes. Indirect taxes in the form VAT, excise levies and customs duties are seen to be regressive and impact negatively on the poor. Progressive taxation hinges on the foundation that the more you earn, the more you pay. That is to say that the rich pays more than the poor. The same cannot be said of indirect taxes.
One source of revenue that we have not explored deeply is that of property rates. Property rates is a direct tax meaning the person owning the property is taxed directly. It is also progressive, in that the properties of higher value pay more. The country stands to raise a conservative estimate of 5 billion Ghana cedis annually from property rates if its collection is maximized and its challenges are addressed.
The responsibility of property rate collection lies with the Municipal, Metropolitan and District Assemblies (MMDAs). Property rates are collected annually as part of the Internally Generated Funds (IGF) for the development of social amenities, local services, and infrastructure at the local levels. It is a tax on immovable properties such as land, buildings and improvements. Over the years, District Assemblies have been unable to maximize revenue collection, collecting less than 30% of their revenue targets, due to varying challenges from ignorance of the population to the lack of a database to monitor and track properties and their owners. Addressing these challenges and implementing property rate reform can be the necessary tool we need to wean ourselves from the feeding bottle of donor money..
Property Rate and Development
Around the world, property rates, formally known as property taxes, are used to finance an array of services from waste management to education. In the UK, for example, council tax is used in conjunction with the government funds to provide education, social services, cultural services, environmental services, and local planning. This includes, but is not limited to, flood defense, highway and transport services, police and crime commissioner, as well as fire service. The more revenue raised at the local level, the less reliant each council is to the central pot.
The over reliant on the District Assembly Common Fund seems to provide a comfortable cushion and promotes a lax attitude towards IGF.
Under an effective and efficient property rate collection regime, Accra Metropolitan Assembly (AMA) is estimated to raise 2 billion Ghana cedis annually which can be used for the betterment of health, education and sanitation facilities. Districts can improve public schools in their localities by providing security, employing supervisors and opening community libraries. They can also provide waste management services in the Zongo areas, streets with lights for safety and construct public washrooms with no extra cost to residents. Providing these services at no cost to the national coffers would curb the government’s borrowing from Shylock lenders.
The ability of MMDAs to maximize revenue lies with individual actions as well as ensuring proper administration is in place. Where there is a shortfall, there is a corresponding loss in revenue. MMDAs face five key challenges.
The first being defaulters; many who are either unaware of the legal requirement to pay property rate, or simply disregard payment all together. Government institutions, which are by law not exempt from paying property taxes, have also been accused of not paying property taxes.
The second challenge is a lack of enforcement and reprimands for wrongdoing. When individuals default in payment, the Local Governance Act, 2016 permits the sale of the defaulters’ property, a fine and even jail time at the discretion of the Courts when rates are not paid. However, this is not put in practice. The same reprimands are given to collectors who engage in fraudulent practices that may undermine collection of revenue. This lack of enforcement and poor monitoring encourages many to forgo payments and breeds collectors’ corruption.
The Way Forward
The way to tackle these challenges is through civic education, administrative reforms, and a strong willingness to improve the current regime. MMDAs need to put in place mechanisms that ensure efficient and effective collection of property taxes. Creating of regional databases of properties and their owners at the local levels, collaboration between and among Ministries, Agencies and Departments (MDAs) such as the Lands Commission, Ghana Postal Service and Government Revenue Authority (GRA) and enforcing the law order to end the corruption that takes place on behalf of the collectors and negligence on the part of the taxpayer.
Additionally, a transparent monitoring and evaluation structure must be put in place to track the progress of districts in tax collection. This should include notifying the public on what the taxes collected was used for, a comparison of expected revenue to actual collected revenue of taxes, and a comprehensive breakdown of how properties are assessed and calculated. This element of transparency would in turn encourage individuals to continue to pay their taxes as they see its benefits across their communities.
Ghana cannot continue to rely on aid money forever. Our hopes of becoming a middle-income country is largely dependent on how much internal revenue we can we can generate. Countries such as the US and the UK generate 3% and 4.2%, respectively, of their GDP from property taxes; and the OECD countries average 1.9% of GDP from property taxes. As of 2016, Ghana’s property tax to GDP stands at 0.03%. With these measures in place, we are guaranteed a path to success in developing our localities, supporting development policies and determine our Ghanaian path to success.
Hilary Luna Enos-Edu is with CUTS International Ghana. CUTS Ghana is a research and advocacy public policy think tank which works in the areas of consumer protection and education, governance, economic regulation, trade and development, regional integration, competition policy and law, etc. CUTS can be contacted through | Office: +233-30-224-5652 | Email: [email protected],