Tax Exemptions Bill will narrow the huge gap in the tax system – IEA

Policy think thank, the Institute of Economic Affairs (IEA) has urged Parliament to pass the Tax Exemptions Bill with urgency. The Bill is currently before Parliament for Consideration.

According to the IEA, the passage of the Bill will narrow the huge gap in Ghana’s tax system.

Speaking at the IEA’s review of the 2021 Budget, the Director of Research at the Institute, Dr. John Kwakye, said “the political will to pass the bill seems to be lacking – we urge Parliament to pass the bill with urgency, to plug a big hole in the tax system”.

He said “the informal sector accounts for nearly 30% of GDP, but a large part remains outside the tax net”.

Dr. John Kwakye further noted that “we should be taxing businesses that employ at least a few people, like the mechanics, hairdressers, tailors and other artisans, and instead, leave out the small businesses like ‘kayayoos’, ‘kenkey’, ‘waakye’ and ‘ice-water’ sellers who have tiny incomes.”

The research fellow said Ghana’s tax rate is high but the nation is not accruing enough revenue because of the low efforts in mobilizing tax revenue.

“We all know that Ghana’s personal income, corporate income and indirect tax rates are relatively high. Our low revenue effort is not due to the fact that our tax rates are low but it’s rather due to the fact that the government has failed to collect a lot of taxes”.

“Ghana has chronically struggled to mobilise enough revenue to fund its expenditure requirements. In the process, we have had to borrow for supplementary funds and this has escalated our debt burden. This situation has to change,” Dr. Kwakye emphasized.

Ghana’s tax revenue to GDP is very low compared to the Sub- Saharan African average.

According to Dr Kwakye, Ghana’s tax revenue to Gross Domestic Product was 11.5% in 2020 and is estimated to reach 13.24% in 2024, yet the average tax revenue to GDP for middle-income countries is over 25%. Ghana’s total revenue to GDP was also14.3% in 2020 and is expected to rise to 16.9% in 2024. The average total revenue per GDP for middle income countries is about 30%. This means there is a fall short.

He added that Ghana loses over GH¢5 billion every year through tax exemptions, a reason the Institute of Economic Affairs wants Parliament to urgently pass the Tax Exemptions Bill to plug a big hole in the tax system.

Earlier, a tax expert and senior lecturer at the University of Ghana Law School, Dr Abdallah Ali-Nakyea, urged the government to take a second look at the tax exemptions regime if it wants to rake in more revenue for the state.

The bill has been proposed to streamline the tax Exemptions in the country. The 7th Parliament failed to pass it when it was first laid in the House in 2019, sparking an outcry from Civil Society Organizations (CSOs), prominent among them is the Tax Justice Coalition (TJC) which has recently proposed fresh and additional recommendations after the bill was reintroduced to Parliament by the Minister of Finance.