Ghana's High Tax Regime: Ghana does not have an effective tax policy - Kwatia | The Big Stories
Ghana's High Tax Regime: Ghana does not have an effective tax policy - Kwatia | The Big Stories
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Transcript
00:00 Hello there again and it's good to have you back on the AM show.
00:03 But it's time now to bring you that special roundtable I've been talking about all morning,
00:08 the fact that Joy Business is bringing you this special conversation on Ghana's tax regime,
00:14 which is considered to be very, very high.
00:16 We're looking at the causes and exploring the possible remedies that could address this
00:22 situation.
00:23 And that's why we're having the discussion on the causes, the solution to Ghana's high
00:27 tax systems.
00:28 Our guests are ready, but Winston Amwa will be taking over from now to bring you that
00:33 conversation as it takes off right now.
00:37 Winston.
00:38 Well, thank you very much, Blessed Suga.
00:40 So we're about to get into that all important conversation about Ghana's high tax regime,
00:46 the causes and finding remedies.
00:48 And there's a discussion on the causes and solutions to Ghana's high tax system.
00:54 This morning we're joined by Professor Charles Aka, who is economist and associate professor
00:58 at the Institute of Statistical, Social, and Economic Research.
01:04 He's joining us in studio.
01:06 And we also get to be joined by George Kwetia, who is president of the Chartered Institute
01:11 of Taxation Ghana.
01:12 He'll be joining us via Zoom.
01:14 And Dr. John Kwachi is director of Research Institute of Economic Affairs, also joining
01:20 us via Zoom.
01:21 And I'm sure you may have heard this over and over and over again, that Ghana's tax
01:25 to GDP compared to our peers, not the best.
01:28 We've always talked about the situation where Ghana's 13% tax to GDP ratio, woefully inadequate.
01:35 We've cited examples such as Burkina Faso, that's over 20%.
01:40 We've talked about Congo, La Côte d'Ivoire.
01:42 Congo is at some 29.3%.
01:46 And La Côte d'Ivoire also around 15.5%.
01:50 So the critical question is, one, is it that we're not paying more taxes?
01:56 Is it a case of taxing the already burdened with more?
02:00 Or we're not widening?
02:03 And talking about widening the base, this is a conversation we've had over and over
02:06 and over again.
02:07 We've always talked about widening the tax net.
02:09 Why is it so difficult for us to widen the tax net?
02:13 This morning, that's a conversation we're having right here on the AM show, and is also
02:16 live on the Super Morning Show on Joy 99.7 FM.
02:20 It's Joy Business organizing this.
02:22 And my name is Winston Amwa.
02:24 And as already indicated, we have Professor Charles Aka in studio with us.
02:28 Prof, good morning.
02:29 Thank you very much for joining us.
02:30 Good morning.
02:32 And I believe that you're doing very well this morning.
02:33 Yes, there goes Greece.
02:35 Great, great.
02:36 Before we get into everything, and we're also joined on Zoom by Mr. Kwetia, who is the president
02:41 of the Chartered Institute of Taxation Ghana.
02:43 Good morning, sir.
02:44 Thank you very much for joining us.
02:46 Good morning.
02:47 Great.
02:48 And good morning to all viewers and listeners.
02:51 That's George Kwetia.
02:52 I'll be joined shortly by Dr. John Kwetia, who is head of research of the Institute of
02:57 Economic Affairs.
02:58 But let me start off with you in studio, Professor Charles Aka.
03:02 We've talked about this over and over again.
03:04 This will not be the first time.
03:06 Probably may not be the last.
03:07 Our hope is that this becomes the last time we're talking about this situation.
03:11 Consistently, we've talked about Ghana's tax to GDP.
03:14 In fact, as part of our IMF program, we want to raise it to some 18% by the time we're
03:19 done.
03:20 We've asked ourselves that simple question.
03:23 What is our problem?
03:24 First of all, is the 13 adequate?
03:26 Well, we say it's inadequate.
03:28 What could make it adequate?
03:30 Is it a case that we're not taxing the right sectors?
03:34 We have fewer taxes?
03:35 Well, the evidence says we have a lot of taxes.
03:37 What is the problem?
03:40 Thank you very much.
03:41 There are several determinants of this low tax capacity and tax effort.
03:49 So the first thing is to find out what are the determinants of a good tax revenue in
03:56 a country.
03:58 And one of them is the structure of the economy.
04:01 So i.e., if the economy is structured, formalized in a way that the economy is also growing,
04:10 then you can raise more tax.
04:12 So for example, you have a situation where a major part of economy is informal sector.
04:20 Another major part is mainly agriculture and trading, retailing, and wholesaling.
04:27 The formal sector, manufacturing, for example, industry, is totally not doing very well.
04:34 So then that kind of structure already limits your ability to raise a very critical part
04:41 of tax handle, which is personal income tax.
04:45 So personal income tax is quite low.
04:48 Corporate taxes are also quite low because major part of the corporate sector is informal,
04:54 and therefore we haven't found innovative ways of taxing them.
04:57 So then there are few companies, large companies, that seem to be overburdened.
05:03 And also the economy has not been growing.
05:05 Over the last couple of years, we have not grown consistently beyond 5 percent of GDP
05:13 for say more than three, four years.
05:16 Many times you -- at the moment now, over the last three years, our growth is averaging
05:19 around 2, 3 percent.
05:22 It's forecast this year to grow less than 2 percent.
05:25 So the more the economy is growing, then if it is formalized properly, you can get more
05:31 tax revenue.
05:32 Because we are also not growing, you have a lot of huge unemployment, particularly young
05:36 people who have finished school.
05:38 They don't get a job for seven years.
05:40 So you can't raise tax revenue for them.
05:42 So it's the structure of the economy and it's the way to think outside the box to see how
05:48 do we bring in all the various sectors of the economy to contribute.
05:52 Property, for example, huge properties, very expensive, high-end properties all over in
05:58 the urban centers, Accra, Thama, Kumasi, Thakrade.
06:02 They are not contributing adequately to the tax revenue.
06:05 So if I get you clearly, part of the problem we are faced with is the fact that our economy
06:11 isn't growing at the rate that it should for us to be paying more taxes.
06:15 Yeah, that's a key part.
06:18 And for the economy to grow means that there has to be adequate investment.
06:22 The investment has to come in, for example, investing in the competitiveness of the economy
06:29 to make sure that businesses are making good profit, because the business make profit,
06:34 they pay tax.
06:35 And you have to make sure that all businesses are formalized or a major part of the business
06:39 are formalized.
06:40 You have to invest in the economy in such a way that there's good infrastructure that
06:44 makes people to be able to do business and earn good income.
06:48 You have to formalize the sector in such a way that people finish school and they are
06:52 able to get a job.
06:53 Then they can pay their income taxes.
06:56 So when that investment is lacking, and agriculture investment is also lacking, so even farmers
07:01 are not making good profits and they are not even formalized.
07:05 So then your ability to tax them is low because one of the determinants of tax revenue is
07:10 the GDP level or per capita income.
07:13 A per capita income in Ghana is about $2,300, $2,400 per annum.
07:19 So which means that if you divide the whole GDP by the 30 million people in Ghana, everybody's
07:26 annual income is just about $2,500.
07:29 So even if you tax it at 20%, your tax revenue is limited by the per capita income.
07:34 If the per capita income increased to say $5,000, or like Korea, about $33,000 per capita,
07:41 every Korean earns about $33,000 per year.
07:44 That's the total GDP of Korea divided by the total population.
07:48 Then even a tax of 10% on everybody raises quite a lot of revenue.
07:54 So if the economy does not grow, it limits the capacity to raise revenue.
08:00 That's one of the critical things.
08:02 We'll come to this shortly, but let me get to Mr. George Kwetia, who is president of
08:06 the Chartered Institute of Taxation Ghana.
08:09 What do you also think accounts for the low tax to GDP ratio?
08:14 Let me probably start by giving some context to this.
08:21 In 2010, tax to GDP was about 10.8%.
08:28 Then 10 years down the line in 2020, we got to this 13.4% that we are looking at.
08:37 By incidentally, it dropped to 12.3% in 2022.
08:43 If you look at the media review budget, the revenue forecast of about 108 million for
08:55 tax revenues.
08:57 Obviously, knowing that our GDP hasn't drastically changed, if not increased, then we are expecting
09:07 even a much lower tax to GDP growth in 2023.
09:15 So essentially, we are seeing a trend that after the 2020, we are having a kind of declining
09:27 GDP to tax, tax to GDP ratio, which is the issue that I guess we should be worried about.
09:40 Prof has alluded to a couple of reasons why we have a low GDP to tax, tax to GDP ratio.
09:53 And what I want to say here is that from our perspective, from the tax perspective, yes,
10:01 we do have issues relating to the economy, which he has shared.
10:07 It's a gradient and subsistence in nature.
10:10 And we all know that our tax laws essentially exempt agriculture, for that matter, farming
10:17 from taxes.
10:18 So if you have a greater percentage of the population in a sector, a very significant
10:26 sector that is not paying taxes, or is exempt from tax, obviously, then it means that you
10:32 are going to have a much smaller percentage of the population paying taxes.
10:37 We also have issues of, as he mentioned, with the foreign direct investments, where we have
10:48 big companies in the extractive industry actually commanding most of the tax contribution.
11:00 We have instances where these companies may be engaged in profit shifting, which relates
11:06 to transfer pricing, whereby little is left in this environment to attract tax.
11:13 We also have people evading taxes and avoiding taxes.
11:19 We have a very high informal labor force.
11:25 Statistics point to the fact that in 2020, for instance, the income tax from formal employment
11:35 as a percentage to self-employed was 17 to 1.
11:40 And it is even projected that this is going to move from 18 to 1, which means that from
11:47 the formal sector, which is a much smaller sector of our economy, individuals contribute
11:55 17, let me say, derivatives, CDs, as compared to self-employed person contributing one CD.
12:04 So that is also an issue, because you have the self-employed group being the greater
12:13 percentage of the population.
12:15 And if you are contributing one, as against 17 from the smaller employed group, then obviously
12:22 you're going to have a low tax to GDP ratio.
12:27 We also have, like Prof said, we have also a very limited tax base.
12:33 In terms of high unemployment, we have casual labor, temporary employees, or temporary jobs.
12:44 When you have an economy which is going through situations like this, then it means those
12:51 who contribute to your tax revenues are essentially a very small percentage of people.
12:57 We also have the challenge, I know you would get to this, where we have tax incentives
13:03 and exemptions, companies in the extractive industry have stability clauses in their agreements,
13:13 various model agreements that we sign as a country.
13:19 We do not design those model agreements.
13:22 They are designed by the developed countries, and it is just passed on to us.
13:29 And obviously, if you are not able to design your own form of agreement, you're being told
13:37 that there is a so-called best practice, and that is what is done globally.
13:43 And therefore, you are also pinned down to accepting those conditions.
13:48 Let me give you a typical example.
13:53 Before the advent of maybe formal tax system, royalties, we all know, when our great-grandfathers
13:59 lease out their land for farming, we had a system of a blue and a blue sign.
14:03 Therefore, royalty rate was hovering around 30 to 50%.
14:10 Now we have improved, we have grown, we have been knowledgeable, we have been educated,
14:17 and then we take royalties at 10%.
14:20 We've clearly shifted away from our own traditional way of, or let me say, our own homegrown base
14:28 of royalty computations to something that has been handed over by, let me say, by foreigners,
14:39 and we take it, we swallow it hook, line, and sinker.
14:43 We also have issues relating to the lethargic tax administration system we have.
14:50 We have a situation where for a very long time, we do not have a lot of specialisms
14:55 and specialists in the tax administration.
15:00 I've been in an environment where I've been part of a tax audit team, and this was a hospital,
15:07 and in that tax audit team was a doctor.
15:12 So obviously, if you are going to do an audit in the petroleum downstream sector, and you
15:20 have no clue as to what the engineers do and how they compute things, you would obviously
15:26 not be able to extract the level of taxes that you should, just because you do not have
15:33 the expertise of that particular industry.
15:37 So we also have, interestingly, our laws are so cautious, structured, that focuses on companies
15:45 as against individuals.
15:47 We all know that individuals and sole proprietorship or enterprises constitute the significant
15:56 percentage of the business community.
15:59 But when we are passing our tax laws, we tend to focus on companies as against enterprises
16:08 and individuals.
16:09 A typical example is our growth and stability levy.
16:12 Clearly, under the law, entities are defined to exclude individuals, and individuals do
16:20 not necessarily mean the individual person, but it's individual's business.
16:28 And enterprises are also proprietorships.
16:32 The entities which are not registered as companies are individual entities.
16:39 Withholding tax, for instance, individuals are precluded from withholding tax.
16:45 So even if you are dealing with somebody as an individual and you're paying, the law precludes
16:51 you from withholding.
16:52 And even though if you had had that mandate to withhold it, it would have contributed
16:57 to the tax net.
17:00 Our laws do not give that opportunity.
17:03 We also have instances of frequent tax policy changes.
17:10 We don't even have a national tax policy, an effective national tax policy as yet.
17:16 And with frequent changes, you also have uncertainty in the environment, and it reduces the level
17:25 of compliance because it always takes some time for people to appreciate, understand,
17:31 and then be able to do the right tax computations whenever you change tax laws.
17:37 We can learn from the experiences we've had as a country, especially with respect to when
17:45 we're introducing VAT and e-levy.
17:48 There's very little consultation.
17:50 Mr. Kwetia, just before you continue, you've talked about all the problems that we're going
17:55 through.
17:56 So based on all of these challenges...
17:57 Yeah, so all these things contribute to a low tax base.
18:02 So with all these factors that you've enumerated, and based on the multiple levies and taxes
18:11 that we have, is it your view that currently we have enough taxes in place, or we have
18:18 enough tax measures, as in multiple levies and taxes in place, to raise the requisite
18:26 tax revenue?
18:28 Sure.
18:30 Let me just share an issue with you.
18:37 We had a World Bank conducting a study in 2020 with respect to Ghana's tax gap.
18:49 And the bottom line of that study was the fact that Ghana, with respect to three taxes,
18:57 which is import duties, corporate tax, and VAT, we had a tax gap of about 20%.
19:05 If you take 2021 GDP estimate of about $77.6 billion, if you work out the 20% on the $77.6
19:19 billion, and you translate it to its CD equivalent, depending on the exchange rate you use, we
19:27 are talking about $155 to $170 billion as tax gap.
19:35 If you look at total tax revenue, as I've mentioned, for the revised one for 2023, government
19:42 is only looking at $108 billion, plus you have a tax gap of about $55 to $70 billion.
19:52 So obviously, if you really are a country that wants to invest and make sure that you
19:59 are robbing the right taxes, in my view, it's not about more taxes, but it's rather an investment
20:06 into making sure that you close the tax gap.
20:09 And if we are able to do so, for instance, we should be able to double our tax revenues
20:16 from the neighborhoods of $180 billion to almost $250 and even more billion.
20:27 Let's take that point again.
20:28 You say we don't need more taxes.
20:30 What must we do?
20:31 As I say, we look at the tax gap and then try to close it.
20:38 So more investment should go into closing the tax gap.
20:42 But if you want to look at other areas that we can also improve, I think we need to have
20:51 a very simplified tax system.
20:53 That makes things easier for, especially the informal sector, to appreciate and comply.
21:00 There should be some level of increased tax transparency.
21:06 People should know how much their taxes contribute to the development of the country.
21:14 We know we run a centralized system of government.
21:18 And more often than not, you get all these excuses, if I should call it, quote unquote,
21:24 that yes, we take your taxes from Accra, but we built a hospital in Borga Tanga or Tamale
21:30 or in, let me say, Bidiani.
21:34 And people don't tend to appreciate that because the person is living in Accra, paying taxes,
21:42 and then it's used to develop the country as a whole, which is good.
21:46 Now incidentally, there isn't much education and there isn't much to talk about with respect
21:53 to the investments that the tax monies are used for.
21:58 And if it is so, then you will realize that people have a very cold attitude towards tax
22:03 payment because they do not see, especially in their immediate environment, what their
22:08 taxes are used for.
22:09 So I would say government should also look at, in trying to improve tax compliance, government
22:15 should also look at ceding some amounts to the district and regional assemblies for them
22:23 to undertake infrastructural projects within their communities that their tax is extracted
22:29 from.
22:30 And that obviously would engender a good level of compliance and we will be able to increase
22:38 tax revenues and for that matter, our tax GDP.
22:41 We've been always talking about broadening the tax net.
22:46 We are saddled with a host of exemptions.
22:49 Maybe the way to broaden it is to curb these exemptions or possibly eliminate.
22:53 I know we have had an exemption tax act passed, which is good, but we can do more by way of
23:05 reducing the level of exemptions that we grant.
23:08 There's been a study by UNTAC which proves that actually exemptions do not even yield
23:19 any investments at all.
23:22 FDIs do not necessarily be attracted by tax exemptions.
23:28 If a mining company has the geological database of gold in a given area, that is what they
23:38 are interested in.
23:39 That will not change the investment decision, even if you grant or do not grant them exemptions.
23:49 And we can also look at reducing evasion and equipping our people to be able to appreciate
23:58 the nuances of profit shifting and transfer pricing, avoidance schemes.
24:06 We also need to look at our penalties.
24:08 Our penalty in the law, in my view, is not punitive enough to deter people from not complying.
24:17 So there are a host of other things we can talk about.
24:20 I don't want to be leading the point.
24:24 Of course, one, two, can say maybe there are some areas, talking about new taxes, maybe
24:29 there are some areas that we need to look at.
24:33 We know that businesses are getting more digital.
24:37 And as a country, we need to look at digital services tax and quickly come up with our
24:44 own position by way of how to tax digital services.
24:49 Exactly.
24:50 That's one thing the Ghana Revenue Authority has been talking about, they say they're doing.
24:53 But let me bring in Professor Akaradis.
24:56 He's talked about all the challenges.
24:58 But I want to start off something with you.
24:59 You've talked about the fact that if we're to grow the economy.
25:03 First of all, if we grow the economy, if we increase our GDP, automatically, once there's
25:08 more activity, we'll have more taxes.
25:11 So let's look at what we have been talking about.
25:14 We've been playing, I mean, currently our GDP projected to end the year at $800 billion
25:18 a series.
25:20 So that's about $70 billion, if I could put it that way.
25:24 So at this rate, what rate of growth must we have to be able to achieve the 20% that
25:32 we talk about, all things being equal with the current tax regime?
25:37 Well, so it's expected that the country grows by the consistency of the growth and also
25:46 the level of growth.
25:49 In our history, for about two decades, we've been growing around an average of about 5%.
25:55 That's the best we have achieved.
25:57 And times where when we found oil in 2011, we had about 11% to 12% growth, and then it
26:05 came down again.
26:07 For many, many periods, we grew around less than 3%, 4%, 5%.
26:14 My estimation shows that if we do the right kind of investment, we should be targeting
26:21 about 7% GDP growth for a decade.
26:24 How we are able to, and I don't think that's possible under an IMF program, because the
26:30 IMF program actually brings in austerity.
26:33 But the IMF program says to increase our taxed GDP to 18%.
26:37 Yeah, that's the target.
26:38 Yeah, within the medium term.
26:39 Are you saying that is not feasible?
26:41 It's not feasible because the only way to do that is to impose new and additional taxes,
26:46 and that brings us back to the question we have.
26:48 The IMF is asking that VAT must be increased.
26:51 So VAT is increased from 12.5% to 15%, which is actually counterproductive in a high inflation
26:58 environment.
26:59 We introduce more excise taxes on companies and businesses, which is counterproductive
27:04 in a high inflation environment.
27:07 So you can increase your taxed GDP ratio by imposing high taxes and more taxes, but that
27:13 again is counterproductive because it stifles-
27:17 How is it counterproductive?
27:19 Help me understand.
27:20 Because taxes affect incentives.
27:24 So if you take, for example, income tax.
27:26 So income tax affects labor supply.
27:28 Okay, if I'm going to work and I know that 30, 50% of my income is going to go into tax,
27:35 now, already as an economic rational being, you decide whether it's worth it.
27:39 Should I go and work and pay half of my income to tax, and I don't know what they're going
27:43 to use the tax for?
27:44 So all things being equal, the lower tax rate creates an incentive for people to supply
27:49 labor.
27:50 In the same way as a business, corporate tax.
27:52 No business want to work and pay 50, 60% of their profit into tax.
27:57 So we need low tax rate and a higher or bigger tax base.
28:02 That's what other countries are doing.
28:04 What we are doing is raising more additional tax.
28:06 When you buy a commodity now, apart from the VAT that's 15%, you have about another 6%
28:13 additional taxes.
28:14 Get fund, you know, COVID, all of that.
28:18 That 6% is applied before VAT is applied on that.
28:22 It's not, that's not what's supposed to be done in other countries.
28:28 So if you want to have a VAT, you have a VAT, 15%, 16%, that's all.
28:32 You don't impose so much taxes on petroleum products.
28:36 So my taxes are the customs.
28:39 All of those things incentivize people to evade or to avoid or to go into bribery and
28:46 all that kind of thing.
28:47 So the best way to grow your tax revenue is actually to formalize, to make sure that you
28:55 broaden the tax base, which means that if everybody is contributing towards their tax
29:01 revenue, you can reduce the tax rate.
29:03 And as you said, you need to simplify the tax system, which means that you don't need
29:07 five, six, seven different taxes on a product or on commodities or on a company.
29:14 If it's one or two, that's it.
29:16 It's very simple enough for people to grow.
29:18 Then let the economy grow.
29:20 As the economy is growing, economy can only grow by investment, by savings, by profit,
29:25 by people getting employment and getting good income.
29:28 At the moment, that's not the case.
29:30 So you see that, and you mentioned about the informal sector.
29:34 The informal sector for me is quite huge because it contributes almost 67 to 70 percent of
29:42 self-employment, of employment in Ghana.
29:45 So if we don't find an innovative way of bringing in the self-employed sector into the tax net,
29:51 we will continue to have high corporate taxes and high income taxes and high VAT because
29:57 then we are just looking at the small formal sector.
30:00 But in Professor Aka, as we talk about all these challenges, the reality also is that
30:04 the Ghana Revenue Authority has been exceeding its targets.
30:08 So in 2022, they achieved a target.
30:15 Their target was 71.95 billion.
30:18 They raised some 75.71 billion.
30:22 That's exceeding their target.
30:23 So the question is, if we're exceeding our targets, isn't that an indication that we're
30:27 doing well?
30:29 Why they need to impose more taxes?
30:32 Well, the question is who set the target?
30:36 The government.
30:37 The government?
30:38 I mean, the executive set the target for the Ghana Revenue Authority.
30:42 They're those who think, maybe we're not setting an ambitious target.
30:47 Yes, that's the issue.
30:48 So you think our targets are not ambitious enough?
30:51 Somebody's setting the question, they're marking himself.
30:55 So the Minister of Finance gets an estimate from the Ghana Revenue Authority and the Ghana
31:00 Revenue Authority says, this is how much we want to achieve.
31:03 And you need to ask, so look at the budget in 2023 and see how much they want to raise
31:06 from property taxes.
31:08 Less than 200 million Ghana citizens.
31:12 See how much they want to raise from self-employment.
31:14 So that's already quite too low.
31:17 And of course, that will be achieved.
31:19 What we need to do now probably is for Parliament to begin to set the target for the Ghana Revenue
31:25 Authority and to have people to be employed who will achieve the target.
31:30 If they don't achieve that target, maybe they face some consequences, some penalties.
31:34 If we don't do that, we employ people.
31:35 And the same thing happens at the Assembly.
31:37 We have MMDAs, the city chief executives.
31:40 They're supposed to raise revenue from property taxes from rates.
31:45 They're looking at raising some 165 million from property taxes.
31:51 But if you do an analysis, and I did some analysis, if you do property taxes, for example,
31:57 my own analysis I did, 167 million.
32:01 Just according to the Ghana-- 165 million.
32:05 Million.
32:06 Yes.
32:07 So look at that.
32:08 According to the Ghana Population Census, there are about 8.5 million plus completed
32:15 residential structures in Ghana.
32:18 1.7 million of those structures are in greater Ghana.
32:21 So Accra alone has about 1.7 million structures.
32:26 Now if you do the analysis, what the government is saying is that even if you decide that
32:31 all this 167 million is going to be raised from Accra alone, forget about Kumasi, Takwa,
32:36 then the rest of the economy, divide the 167 million by the structures in Accra, you get
32:43 each property is going to pay just about 97 Ghana CD a year.
32:48 So which means that this is quite low.
32:50 Just Accra alone.
32:51 If you decided to raise just about 0.25% on the properties in Accra, you'll be raising
32:58 about 11 billion Ghana CD by my analysis.
33:01 Just even focus on East Lagoon, airport residential, wetlands, and here.
33:07 And look at all the real estate.
33:08 When I was coming, people were advertising real estate.
33:10 They are quoting them in dollars.
33:12 So you can buy property in East Lagoon for $200,000.
33:16 One million Ghana CDs.
33:18 And if people are not asked to pay property rates, then you set a target of 167 million.
33:25 When you are supposed to raise, you could raise as much as 12 billion from property
33:29 taxes alone, from Accra alone, by my analysis.
33:32 So property tax actually holds a huge potential if we were just even picking Accra, Kumasi,
33:38 Takwadi to start with.
33:40 If we cannot even roll out the whole country, it's okay.
33:42 Just focus on Greater Accra, Kumasi, Metropolis, and Western Region, Accra, second to Takwadi.
33:49 And let's value the properties that are in Greater Accra.
33:54 If you even do it for just Accra, East Lagoon, airport residential, Osu alone, the properties
33:58 there, and value them and say that we are going to impose a tax of 0.5% or 0.1% or 0.05%
34:06 on the values, you will not be talking about 167 million Ghana CD in a year.
34:11 So that's actually low.
34:13 The same thing, look at self-employed, how much they are trying to raise from self-employed.
34:16 And you see that again, the self-employed-- - Self-employed is 856 million.
34:22 - 856 million.
34:23 - Yeah.
34:24 - There are 9.9 million self-employed people in Ghana.
34:29 9.9 million self-employed.
34:31 Okay.
34:32 That's 9.9 million.
34:33 6.6 million of them are formalized, i.e. they have employees.
34:38 So when somebody has a self-employed, whether it's a hairdresser or it's a barber or it's
34:42 a mechanic that has apprentices and has two or three employees, that's not an informal
34:47 sector job.
34:48 That's a business that is within the community.
34:52 It's in Adenta, it's in Osu, it's in a structure.
34:55 It's not even a hawker.
34:56 This is not something, it doesn't take rocket science for this self-employed business to
35:01 be registered and for them to pay the appropriate tax.
35:04 I did a small calculation by a barber.
35:06 The barber I go to where I barber my hair.
35:09 - Yes.
35:10 - Yeah, and this barber has been there for more than 15 years since I've been living
35:13 in Adenta.
35:14 More than 15 years.
35:15 When I go there, haircut is 20 Ghana city.
35:19 I ask him, "How many people do you barber a day?"
35:21 He say, "At least 10 people."
35:23 On Saturdays and Sundays, he gets as much as 30 people come into barber.
35:27 By my calculation, every month he gets about 9,000 Ghana city.
35:32 That's more than a teacher salary.
35:33 That's more than a nurse.
35:34 That's actually almost equal to what a professor takes.
35:37 When you are taxing the university security officer who earns about just 800 Ghana city,
35:42 the nurse or the cleaner in Kolobu who earns just about 700 Ghana city, and you impose
35:47 income tax on him, and then you have people doing business like barber, hairdressers,
35:51 mechanics who are not in the bush.
35:53 They are right in the community.
35:54 They've been there for 10 years, 20 years, and you cannot raise, they are earning as
35:57 much as 9,000 a month, 20,000 a month.
36:00 Some of them count a lot, about a million Ghana city in a week, and you don't find a
36:04 way of taxing them even 5% of their revenue every month.
36:09 You will not raise your tax revenue.
36:10 Then you now go and concentrate on the former sector, people like me, small businesses,
36:16 and impose high taxes on them, increase VAT to 15%, impose a lot of excise duties that
36:21 is now crippling businesses.
36:24 You will not grow the economy.
36:25 People will find a way of avoiding and evading the tax, and you come back the same way, not
36:29 achieving your target.
36:31 So I just wanted to show that even if you look at the budget, the targets are not ambitious
36:36 enough.
36:37 Our tax effort is too low.
36:39 It's inadequate.
36:40 That's why the World Bank analysis he was mentioning shows that if you take even corporate
36:45 tax, the gap, the tax gap is about 84%, which we are raising only just about 16% of the
36:53 potential.
36:54 We could have raised more revenue from the corporate sector than we are doing.
36:58 If you come to VAT, it's the same thing.
36:59 If you come to import duty, which there's a lot of evasion at the customs, we could
37:04 have raised about 30% more revenue from import duty than we are raising.
37:08 So we need to look at the tax administration and reform it and set them ambitious targets
37:14 and let them raise the revenue.
37:16 Otherwise, we'll keep going to IMF because when you don't raise enough revenue, you need
37:19 to borrow.
37:20 And if you don't borrow from your central bank, you need to go and borrow from the international
37:23 capital market.
37:24 So, let me get the point clearly, it's your view that if we do, for instance, if we were
37:29 to formalize, even let's put that aside, if we were to collect taxes from the self-employed
37:36 who are already formalized, we'll be good to go.
37:39 We'll be good to go because you have almost 10 million self-employed and let's say some
37:45 of these self-employed people, you may not be able to really raise taxes, but there are
37:50 about 6 million of them that are, they may not be registered as companies, but they are
37:56 formal.
37:57 Formal in the sense that they have a location, we know the people, now we have Ghana Card,
38:04 most of them have Ghana Card, they have a phone number, they have employees, they have
38:08 apprentices.
38:09 So these people can be formalized and we have to charge the MMDAs to do that because they
38:16 are located in the Accra Metro, they are located in Adenta, they are located in Madina.
38:22 So we, instead of asking the MMDAs to depend on the common fund as their main source of
38:27 revenue and then we don't set them any target, they are not competing, we need to take the
38:32 China model.
38:33 In China, for example, they meet the communes or what we call the districts and assemblies
38:39 to be competing every year.
38:41 So appointment to be a DCE is based on your tax performance.
38:46 So we know that and what we need to ask the Ghana Tax Card Service to try to do for us
38:50 is to, instead of giving us a GDP for Ghana, is to begin to give us GDP per region and
38:55 GDP per MMDA.
38:57 So we need to know what is Adenta's potential GDP, what is the GDP to contribute.
39:01 So let's suppose if Adenta, the GDP in a year, in Adenta for 2023 is say, let's say 10 billion,
39:09 then we can say, okay, there's a lot of business activity, properties, commerce going on in
39:15 Adenta.
39:16 There are a lot of high income earners in Adenta.
39:19 Your GDP as a contribution to Ghana's GDP is about 10 billion.
39:24 You must raise about 20% of that GDP in tax revenue for you to continue to be a DCE.
39:30 And that is a competition for all the districts.
39:33 And when you bring that competition, competition, because now Adenta will be competing with
39:37 Ghana, they will contribute a higher ratio.
39:39 And they know that if I don't reach my target, I will face a penalty or I'll be fired.
39:44 Another person will be appointed to take the place.
39:46 That kind of competition already enhances revenue mobilization.
39:49 The thing about decentralization, you're right, is that it's supposed to lead to some competition
39:53 between the districts.
39:56 And so in the delivery of public service and public good, if your district is doing very
40:00 well, the other district will be forced to also do well.
40:04 And a part of the world, also because these persons are appointed and there is no form
40:10 of assessment, nobody's going to come back and say, "You did not perform.
40:15 Go for the next person."
40:16 And all we do is just to wait for government to appoint them.
40:19 That's actually the problem.
40:20 Let me bring in George Kwetia in at this point.
40:24 He's been crunching the figures.
40:25 He is the president of the Chartered Institute of Taxation.
40:28 Look, in other jurisdictions, taxes that will be implemented three, four, five years from
40:34 now, discussions are already being had.
40:38 In our part of the world, it looks like every time we look for money and then we quickly
40:42 gather and say, "Which area can we tax?"
40:46 The question is, what is Ghana's tax policy?
40:50 Do we even have one?
40:53 And how is that helping us in achieving our tax or revenue targets?
41:03 Thank you again.
41:05 I guess I had alluded to this issue or this challenge as to whether we do even have an
41:12 effective national tax policy.
41:17 If you talk to the policy unit of the Minister of Finance, they would assure you that, yes,
41:26 there's one in the pipeline.
41:28 It is awaiting the minister's approval before it will be made public.
41:38 That is the feedback I get because I specifically asked this question.
41:42 But yes, you're right.
41:44 If we had a tax policy, a national tax policy, we would all be guided by that policy, like
41:53 you rightly say, that if even within that policy we spell out timelines for which tax
42:01 laws or policies will come into force, then we all know.
42:08 By incidentally, here we are, things are shrouded in some kind of environment that's not very
42:18 transparent, let me put it that way.
42:22 Things that you would expect probably people to be bold to tell you that, "No, we don't
42:28 have one."
42:29 You always get the excuse, the typical Ghanaian palace.
42:34 It is being worked on.
42:35 We are working on it.
42:36 It is in the pipeline and all those kind of things.
42:40 But I think it is high time we have a tax policy and all stakeholders will be interested
42:47 to ensuring that we all abide or go by the policy.
42:54 Incidentally, taking into account the various manifesto of ruling governments and those
43:03 kind of things, we tend to also get surprises because somebody will say, "Well, I promised
43:09 ABC and that is the only way I can achieve it."
43:15 Probably it suits various governments for us not to have a document like that which
43:23 we can pin them down to.
43:25 I totally subscribe to the fact that we need to have a national tax policy.
43:33 If we don't have it, as I see it to be, we have to quickly put one together and approve
43:43 it and get all stakeholders to contribute to that policy document.
43:54 But you also talked about the stability clauses and agreements in some of the agreements within
44:00 the extractive sector.
44:03 Now this is a major issue.
44:05 Going forward, how do we deal with these?
44:07 Well, I think going forward is good.
44:11 You are asking going forward because those agreements have already been crystallized
44:17 and we do not have the capacity to apply taxes retrospectively.
44:25 So it is increasingly a big challenge, even if you introduce new taxes, it is a big challenge
44:33 if you can succeed in getting any contributions from these companies that have their stability
44:41 clauses enshrined in the agreement that they've signed with government.
44:45 Because those agreements obviously take precedence over our local laws.
44:52 We always see in the various enactments that we introduce as new taxes that where there
45:00 is a contradiction between this act and any other act, blah, blah, blah, this particular
45:06 act takes precedence.
45:07 But it doesn't work that way because you already have a legally binding agreement with an entity
45:14 where they've already put in all these stability clauses.
45:19 So yes, it is a big challenge to us in trying to improve our revenue drive because these
45:26 companies have been around and they will still be around with us, but then they obviously
45:32 will stick to the agreements based on whatever stability clauses they have and push for their
45:41 rights.
45:42 If you don't want to incur financial losses and losses by being sent to an external arbitration
45:50 or whatever or court, then you just have to back down.
45:57 We have had instances where recently an oil company wanted to push, a power producing
46:06 company wanted to push to take Ghana to court, an outside court.
46:13 And obviously you know that as a country it is also not good enough, an image for the
46:20 country when you have investors complaining that you turn your back on contracts that
46:32 you have committed yourself into signing.
46:35 So stability clauses are a very big challenge to us and it is going to be increasingly difficult
46:43 as I see it to deal with that.
46:45 But going forward, I guess some of the things we need to do is to have sunset clauses in
46:51 these agreements such that if we sign any agreement with a stability clause, there should
46:57 be an end point or a given time to say that this agreement has to be revisited or this
47:05 agreement ends on this date and we have to renegotiate.
47:08 If we don't do that, then we are going to have these stability clauses running ad infinitum
47:18 which is not good for us.
47:20 We also need to get our people to really understand and appreciate when we are signing these agreements
47:30 because my experience in our environment is when you are dealing with the foreign direct
47:39 investors, they come in with the top notch experts to really discuss and negotiate these
47:47 agreements.
47:48 We rather probably do not even have the expertise in this area and our politicians or our political
47:56 leaders go and get these documents signed without really appreciating the nuances of
48:02 what they have signed.
48:03 I'm not saying that they are naive but I think if you are dealing with an expert, a seasoned,
48:12 well-trained guy in a particular industry negotiating with you and you have just very
48:20 little knowledge about that industry, I guess you already have set yourself up to fail.
48:27 We need to build that capacity and use that capacity we build in getting these agreements
48:37 underway, going forward.
48:41 Thank you very much Mr. George Kwetia who is President of the Chartered Institute of
48:45 Taxation Ghana and a big thank you to you also Professor Charles Acker for making time
48:50 to join us.
48:51 That's all from us.
48:52 My name is Winston and what's coming up is Newsdesk.
48:54 Have a lovely day.
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