How VAT is disadvantaging the poor and widening the inequality gap

The Valued Added Tax (VAT), introduced as an easy approach to help government mobilize resources for national development has been characterized as a retrogressive tax system, which is an inequitable to the poor who pays the same as the rich in the country.

A tax and development expert is proposing a review of most of the tax systems especially the VAT on consumable goods and basic services. The expert further describes most of Ghana’s tax system as unfair to the poor as it places a huge burden on them in terms of revenue mobilisation compared to the rich.

The Tax Justice Coalition as part of its advocacy to ensure that; every Ghanaian understands the tax systems, encourage compliance, discourage tax evasion, tax justice and equitable and transparent distribution of the tax revenues to benefit the poor and the rich in an equitable manner has called on all stakeholders (especially the media) to join hands to help it achieve its objectives. A key member of the Coalition has called for efforts by government to block loopholes that allowed, especially big and multinational companies, to evade taxes using several dubious accounting and financial management systems.

“The VAT is not a good instrument for addressing development inequalities because it made the poor and the rich to pay the same prices for goods, a situation, which further widened the inequality gap in the country”, Dr Steve Manteaw, the Co-Chairperson of the Ghana Extractive Industry Transparency Initiative has said during a presentation at a two-day capacity building workshop on tax and public financial management reporting for the media organized by the Tax Justice Coalition Ghana with support from the Open Society Initiative for West Africa.

He added that the poor were rather contributing more in terms of taxes for national development, citing subsidies in the energy sector which is meant to cushion the poor, rather tended to benefit the rich compared to the poor as it is in its current state.

He called for a tax system that guaranteed that people paid taxes based on their economic and income level to help address inequality in the country.

Meanwhile, the Head of the Ho Small Tax Office (STO) of the Ghana Revenue Authority (GRA), Mr. Anthony Dekagbe, has said the refusal by entities to honour their tax obligations is a threat to national security and must be considered a criminal act.

Key national services, including security, would not function effectively in the absence of tax revenue, which was also the lifeline to developmental projects, he said at a tax forum on Voluntary Compliance in Ho, which brought together sections of the taxpaying public and officers of the GRA.

“You are a threat to national security if you don’t pay your taxes. There will be no protection because our security services would not be paid. Key developmental projects would also suffer,” he said.

Despite tremendous efforts by the GRA in tracking down tax evaders, he said the goods sector still managed to dodge the tax net. He assured that, the Authority would continue to collaborate with security agencies in sealing the loopholes and enforcing tax compliance and would need more public support in widening the tax net.

Mr Leonard Shang-Quartey, Coordinator of Tax Justice Coalition Ghana assured of more collaboration with the media to strengthen their capacity on issues of tax justice to improve media coverage of the sector.

Some of the participants said while tax avoidance was not a crime, the processes leading to it such us over-invoicing and under-invoicing amongst others were crimes and must be singled out for prosecution to help curb the practice for the country to increase revenue mobilisation.

Also, Mr. Lord Lucas Vodzi, Deputy Coordinator of Tax Justice Coalition, called for proper communication of tax policies to make the public and business entities not to view tax officers as enemies.

“The GRA must have a more friendly approach. They must seek to build relationships with clients and businesses, and must engage them constantly for better understanding of the tax regime,” he said.

Source: Adnan Adams Mohammed