True, all governments depend on taxes. However, there is a tolerable limit beyond which the very existence of the productive sources of taxes becomes perilous.
Ghanaians have been expressing misgivings about the panoply of taxes that have been disproportionately imposed in a rather difficult year. Some have graver concerns.
Moses Quashie, a Ghanaian resident in London warned “we should also be concerned about blanket powers given the Commissioner of Tax to charge landed properties as securities for tax debt, power to request your statement of accounts directly from your bank, holding current and previous managers of an entity personally liable for the entity’s tax debt, holding receivers personally liable if the estates they administer cannot produce enough funds to discharge the estates tax obligations, tax on a deceased persons estate with no provisions whatsoever for inheritance, taxes on divorcees for what they gained out of a divorce and even taxes on lottery win.”
True, all governments depend on taxes. However, there is a tolerable limit beyond which the very existence of the productive sources of taxes becomes perilous. This ultimately affects capital accumulation for reinvestment in existing businesses and certainly dwarfs hopes for business start-ups. Worse still, the propensity for law abiding citizens to evade taxes soars.
Two important measurable indicators exist to guide our concerns; they can be found in the World Bank Doing Business Reports. Ghana’s ranking in the World Bank‘s Ease of Doing Business Index has been falling in recent years, particularly in the category of Paying Taxes and Ease of Starting a Business. In the 2015 report, Ghana ranked 102 in the World for its ease of Paying Taxes, whereas, in the 2016 report its ranking had fallen to 106. In the 2015 report, Ghana ranked 97 in the World for its ease of Starting a Business, whereas, in the 2016 report its ranking had fallen to 102.
There is empirical evidence that show us that countries with better and more efficient taxation systems have higher GDPs, reduced poverty and fewer bribes.
The proposed reforms for starting a business are important as we have also found empirical evidence indicating a positive correlation between a better Starting a Business ranking and higher GDP per capita and lower inequality. We are concerned about Ghana’s position and have suggested some proposals Ghana could adopt to make starting a business and paying taxes easier.
Starting with taxation, the first important rule is to exhibit prudent management of resources, however meagre. We have had numerous cases of impropriety associated with our tax revenue. There must be vigorous efforts aimed at narrowing the gaps that allow corruption to fester and punish corrupt public officials.
Given 2016 is an election year, we directly plead with the President to do the following.
a. Ask each minister and deputy/ies to list of all programmes and projects to be initiated and executed in 2016.
b. Ask each minister and deputy/ies to list of all programmes and projects already initiated and executed between 2012 and 2015.
c. Submit the listed programmes and projects to Ms Valerie Sawyer, the experienced technocrat appointed as an 'Administrator- General' or Validator of Value for Money Projects to conduct a stress test including Vested Interest analysis and with her limited team independently tell you what programmes and projects were poorly executed and what remedies and sanctions should be initiate to claw back allocated funds.
d. Regarding all new programmes and projects to be initiated in 2016 Ms Sawyer should decide which ones merit financial support given our precarious financial circumstances.
Whilst the above are easily doable, the following will require some calibrated plan and discipline to implement.
Install a fully electronic system to allow online VAT and NHIL payments. Additionally, extend this electronic system to allow for online filing of social security contributions. This will make paying taxes faster and easier, as recently shown by countries such as Kenya, Zambia, Mozambique and Morocco. Not only does it save time and efforts for taxpayers and authorities, it will also allow for automatic electronic storage of individual tax payment information, and hence provide a better overview of payment history or missing contributions.
Subsequently, train taxpayers in the use of the online filing systems. Besides offering training, hand out descriptive leaflets, provide information online and personal assistance at the Ghana Revenue Authority (GRA).
Madagascar leads by example and significantly improved paying taxes by educating the public on the use of online payment systems. By assuring the population is well informed about how to file taxes online, errors can be avoided and full efficiency benefits can be reaped.
What should be done to stabilise the business environment?
We propose implementing three reforms to stabilise the business environment, particularly encouraging start-ups.
While we recognise that Ghana has already established an option to register companies online, we feel that an upgrade of the current system is needed to increase its reliability and trustworthiness. An improvement in this system would save time and money in the long run for those registering and would be a more efficient system for the government, enabling them to keep electronic records. Five of the countries in Sub-Saharan Africa with higher rankings than Ghana for Starting a Business (Liberia, Mauritius, Cape Verde, Burkina Faso and Zambia) have established computerised systems that make the process easier.
In addition to this, we recommend creating physical one-stop shops where representatives of various relevant agencies would be located in one place. This would save time and make the process more efficient, as forms can be handed directly to the subsequent agencies.
All but one of the twelve countries in Africa ranked higher than Ghana have one-stop shops that enable entrepreneurs to do many procedures at one time and in one place.
Ghana could implement this by forming a physical one-stop shop, following in the steps of Burundi, São Tomé and Príncipe, Liberia and Burkina Faso, to name a few. For example, representatives for the Commissioner of Oaths, the Registrar-General Department and the Metropolitan Authority could all be located in one place, enabling the processes of acquiring the certificate to commence business and applying for business licenses to be handled within one day.
Finally, we encourage Ghana to either eliminate or reduce the amount of paid-in minimum capital. There have been many examples of countries that have adopted either measure, and have improved their rankings.
Mauritania eliminated the requirement for paid-in minimum capital in the last year, and as a result, improved their World ranking from 161 to 70 from the 2015 report to the 2016 report. Similarly, Burkina Faso recently reduced the minimum capital requirement and improved their World ranking from 153 to 78 in the last year.
In conclusion, many Sub-Saharan countries have adopted these policies and have thus achieved improvements in the World Bank’s Ease of Doing Business Index; we do not see a viable reason why Ghana cannot adopt the measures to create an easier business environment and become more internationally competitive.
We are convinced that the suggested policies will return sustainable efficiency gains, not only for administration, but also for every potential Ghanaian entrepreneur. An efficient and effective business environment will be beneficial for Ghana’s economy on the long run, raising its GDP and reducing inequality.
This publication is part of the Atlas Life Project, a joint IMANI and Atlas Network research aimed at improving the business environment in Ghana