New tax bills to entrench Ghana’s 80:20 tax paradox
The Ghanaian government’s move to introduce new taxes as part of its efforts to secure a $3 billion bailout from the International Monetary Fund (IMF) has come under scrutiny from tax consultant, Dr. Abdallah Ali Nakyea.
According to Dr. Ali Nakyea, the government’s new tax measures are not widening the tax net, but rather deepening it, entrenching Ghana’s 80:20 tax paradox. This paradox refers to the fact that 80% of tax payers contribute only 20% of tax revenue, while 20% of tax payers contribute 80% of tax revenue.
Dr. Ali Nakyea has cautioned that the new tax measures will place an additional burden on the 20% of compliant taxpayers who already contribute a significant portion of tax revenue. Instead of increasing the tax burden on compliant taxpayers, Dr. Ali Nakyea suggests that the government should focus on roping in the 80% of non-compliant taxpayers who currently contribute only 20% of revenue.
The tax consultant has also called on the government to reverse some tax incentives and block illicit financial flows from the public purse. He argues that the government should consider asking sectors that currently enjoy tax exemptions to contribute towards national revenue. Even if the contribution is small, it would make a difference in rebuilding the country’s finances.
Dr. Ali Nakyea points out that the country loses approximately $3 billion annually to corruption, according to reports by the Ghana Integrity Initiative and CHRAJ. Furthermore, Ghana is also losing $2 billion from illegal mining, according to a report by the African Center for Energy Policy (ACEP).
Combining the two reports, it is evident that Ghana is losing a substantial amount of money due to corrupt practices and illicit activities. If the government could clamp down on these practices, it could potentially reduce the need for an IMF bailout.
To widen the tax net and bring in much of the informal sector, Dr. Ali Nakyea suggests implementing the second schedule to the Income Tax Act 2015 (Act 896). This schedule proposes that informal sector taxpayers should contribute a percentage of their turnover towards VAT and income tax, similar to the growth and stabilization levy. Dr. Ali Nakyea believes that if informal sector taxpayers were to contribute even a small percentage of their turnover, the government would have a wider tax base, and revenue would increase.
Dr. Ali Nakyea’s analysis of the Ghanaian government’s new tax measures raises important questions about whether the measures are fair and effective.
The consultant believes that the measures will deepen the tax net and burden the compliant taxpayers further. Instead, he suggests that the government should focus on reversing tax incentives, blocking illicit financial flows, and implementing the second schedule to the Income Tax Act 2015 to widen the tax base. Only then can the country start to rebuild its finances and reduce the need for IMF bailouts.
