Ghana News Agency (Accra) – The Institute of Economic Affairs (IEA) says well-coordinated and comprehensive policies are required to ensure a recovery after the COVID-19 pandemic.
The institute said the recovery would be difficult and protracted, as the disease has caused extensive disruption to Ghana’s economy, severely affecting businesses, jobs and livelihoods.
The IEA, in its summary of policy initiatives to the government, including fiscal, monetary, natural resource, agricultural and industrial policy, says it believes that these policies are key to achieving both an immediate recovery and long-term growth.
Fiscal policy
On fiscal policy, the institute says revenue mobilisation must be at the forefront of recovery efforts, and that persistent rigidities in both revenue and expenditure must be addressed. There is a long-standing problem with revenue mobilisation, it says.
“Ghana’s situation of low tax revenues does not arise from the fact that it has low tax rates. On the contrary, Ghana’s personal income, corporate income and VAT rates are relatively high,” it says.
The institute says the problem of low tax revenues was rather due to tax losses, which experts estimate to be roughly 10% to 12% of GDP.
The IEA argues that the informal sector remains almost entirely outside the tax net and notes that although the activities in the sector are mostly small in scale, the sector accounts on aggregate for nearly 30% of GDP.
“It cannot be completely ignored when it comes to taxation,” it argues. “We should be taxing the mechanics, hairdressers, tailors and other artisans, who employ at least a few people, rather than kenkey, waakye and ice-water sellers, who have tiny net incomes.”
To ensure that adequate taxes are collected from the informal sector, the IEA says, the sector must be integrated into the tax system by formalising its activities.
It says the government’s initiative to digitise the economy is well directed to bringing the informal sector into the tax net, but this effort should be supplemented by leveraging new information and communication technologies, such as mobile money and other tech platforms.
Solution to tax evasion
The institute says that tax evasion is pervasive in Ghana and that the act is often perpetrated through connivance between taxpayers and tax officials.
It argues that the way to deal with the problem is to institute a strict surveillance system, backed by a strong sanctions regime for offenders, under the aegis of the commercial courts.
Property taxes have huge potential for Ghana, given the sprawling mansions in urban centres, but these are barely collected, it notes.
The collection of property taxes should be made the responsibility of metropolitan, municipal and district assemblies (MMDAs), it proposes. MMDAs should be incentivised to collect and retain part of this money as internally generated funds.
They should also be authorised to use these funds at their discretion to finance development projects.
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