The logo of the International Monetary Fund (IMF)
As part of efforts to boost domestic revenue mobilization, the International Monetary Fund (IMF) has urged the government to leverage underutilized tax handles such as alcohol, tobacco, and property taxes, as their contribution is far below expectation.
According to the Fund’s Article IV report, non-fuel excises make up a very small fraction of Ghana’s tax base, contributing only 0.1 percent of GDP in 2018 and 2019. By comparison, Uganda and Kenya raise over 2 percent of GDP in excise taxes.
Ghana’s tobacco excises amount to just 16 percent of the retail price, well below the average tax burden of middle-income countries and the WHO’s recommendation of 70 percent of the retail price. Hence, introducing reforms in the sin taxes – alcohol and tobacco, the IMF says, could generate as much as 0.45 percent of GDP, while still encouraging healthier behavior.
Another area of taxation the IMF strongly feels is underutilized, is property rates which, currently, raises revenue equal to a paltry 0.01 percent of GDP each year. The Fund is urging the government to leverage on its digitization agenda to boost revenue in this area, as this can increase the performance to 0.4 percent.
“There have been important recent efforts to digitalize the property register, with 7.5 million properties nationwide now electronically tagged. These efforts can now be leveraged to expand the property tax base, along with an increase in tax rates. Options for flat rate alternatives could be considered where property values are still to be determined or updated. Regional comparisons suggest that 0.3 to 0.4 percent of GDP could be collected from a reformed property tax system,” the report stated.
Currently, the country’s tax to GDP has averaged 12 percent in the past five years, making it lower than the 25 percent for middle-income countries, and far below the 20 percent minimum target for ECOWAS countries under the Eco currency system, to which Ghana is a signatory. The ratio further compares unfavorably to peer countries such as South Africa and Kenya with 5-year tax-to-GDP ratio averages of 26 percent and 16 percent respectively.
To further improve the situation, the IMF has advised the government to introduce simple structures and payment channels to encourage tax compliance and make it easy for people to pay their taxes with ease.
“Those who work in the informal sector should be provided with simplified payment platforms to register and pay their income tax without going through laborious documentation and processes. Tax support centers (physical structures) should be located closer to communities to assist in tax education and collection.
Plans to digitalize all payments to the government (including payments to GRA) will also be a critical step in reducing revenue leakage. Legislation mandating the use of electronic fiscal devices was introduced in 2018; implementation has been slower than expected and should be pursued in order to improve VAT compliance. In due course, the government could pursue further digitalization efforts including electronic filing of tax returns.
Finally, greater emphasis on risk-based compliance approaches is key to improving compliance and sustaining increased tax revenues. Improved compliance measures that target high-risk sectors (e.g., high-net worth individuals, extractive industries) and segments (e.g., large and medium taxpayers), in conjunction with improved taxpayer service, will increase revenues in the short-term and in the medium-term.”