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WIDENING THE TAX NET: Over 200 Tax Experts and Lawyers look for solution

The Chartered Institute of Taxation Ghana will on Thursday 2nd September 2021 bring together over 200 tax experts, lawyers, and accountants to deliberate on tax policies dealing with widening the tax net in the informal sector.


With revenues slumping and COVID-related expenditures rising, experts have called on the government to widen the tax net and much attention has been on the informal sector as the sector where most operators escape income taxes. This has led to the government adopting tax policies in the form of indirect tax where people are unable to evade the taxes. But when it comes to income tax, though the informal sector forms a greater portion of Ghana’s GDP, the contribution to tax revenue is insignificant. Ghana’s tax- to- GDP ratio of 13% in 2019 remains far below the government’s target of 20% by 2023. Significant attention has been to expand the tax net to close the deficit gab currently being experienced in Ghana.



The informal sector presents potential benefits in tax revenue due to its size and contribution to GDP, but tax policies over the years have neglected this area and instead focused on indirect taxes. A recent study by the World Bank (November 2020) indicated that potential tax revenues from sole proprietors who usually operate in the informal sector could amount to 12.6 percent of GDP.


The seminar presents a good opportunity for experts to take stock of the existing tax system and to draw attention to new thinking about how to strengthen informal sector taxation in Ghana.


Other experts are of the view that, the continues reliance on indirect taxation affects the poor very hard because indirect taxes such as VAT, CST, NHIL/GETFUND Levies and Covid Levies are regressive in nature. However, the government is unable to collect enough Direct taxes, hence the only way to bridge the deficit gab is to adopt indirect tax policies.


The program which will be held virtual is under theme : TAXING THE INFORMAL SECTOR AND IMPLEMENTATION OF THE MODIFIED TAXATION SYSTEM TO BOOST DOMESTIC RESOURCE MOBILIZATION

Over the years, successive governments have introduced several strategies in an attempt to tax the informal sector and to broaden the tax base, but these have failed to bring in the required revenue. About 86% of Ghana’s workforce is in the informal sector, but currently, the informal sector contributes less than 5% of the total tax revenue and because the informal sector does not get taxed properly, the overall tax burden is very unevenly distributed across the economy.


Some experts are of the view that, Parliament has shown comparatively little interest due to the potentially high political cost.


Whiles others blame the GRA for not doing enough to tax the informal sector, some GRA officers also believes there are major operational difficulties especially the lack of bookkeeping and a large number of unregistered businesses.


Operators in the formal sector continue to call on government to ensure fairness in the tax system because businesses will prefer a proper balance in the tax burden among sectors of the economy.


Artisans, food vendors and self-employed can escape direct taxes easily whiles employees cannot escape taxes on their income. These inequities under the current tax system are unfair to those in the formal sector. For those in the formal sector, Taxing the informal sector may also be essential to sustain tax morale and tax compliance among larger firms.


Balancing Direct and Indirect taxes in Ghana

It is now time for Ghana to have a right balance between Direct and Indirect tax. The current tax structure is such that a larger portion of our tax revenue comes from indirect taxes, suggesting that, the poor and ordinary people are getting taxed the more relative to high net worth citizens due to the regressive nature of indirect taxes. In 2019, Direct Tax to indirect tax ratio was 42% to 58% and in 2018, it was 37% to 63%, which means we rely heavily on indirect taxes. It is because the informal sector does not pay much in the form of income taxes.

The Chartered Institute of Taxation Ghana will on Thursday 2nd September 2021 bring together over 200 tax experts, lawyers, and accountants to deliberate on tax policies dealing with widening the tax net in the informal sector.

With revenues slumping and COVID-related expenditures rising, experts have called on the government to widen the tax net and much attention has been on the informal sector as the sector where most operators escape income taxes. This has led to the government adopting tax policies in the form of indirect tax where people are unable to evade the taxes. But when it comes to income tax, though the informal sector forms a greater portion of Ghana’s GDP, the contribution to tax revenue is insignificant. Ghana’s tax- to- GDP ratio of 13% in 2019 remains far below the government’s target of 20% by 2023. Significant attention has been to expand the tax net to close the deficit gab currently being experienced in Ghana.



Tax expert Francis Timore Boi is of the view that, the informal sector presents potential benefits in tax revenue due to its size and contribution to GDP, but tax policies over the years have neglected this area and instead focused on indirect taxes. A recent study by the World Bank (November 2020) indicated that potential tax revenues from sole proprietors who usually operate in the informal sector could amount to 12.6 percent of GDP.


Timore Francis believes the seminar presents a good opportunity for experts to take stock of the existing tax system and to draw attention to new thinking about how to strengthen informal sector taxation in Ghana.


Other experts are of the view that, the continues reliance on indirect taxation affects the poor very hard because indirect taxes such as VAT, CST, NHIL/GETFUND Levies and Covid Levies are regressive in nature. However, the government is unable to collect enough Direct taxes, hence the only way to bridge the deficit gab is to adopt indirect tax policies.


The program which will be held virtual is under theme : TAXING THE INFORMAL SECTOR AND IMPLEMENTATION OF THE MODIFIED TAXATION SYSTEM TO BOOST DOMESTIC RESOURCE MOBILIZATION

Over the years, successive governments have introduced several strategies in an attempt to tax the informal sector and to broaden the tax base, but these have failed to bring in the required revenue. About 86% of Ghana’s workforce is in the informal sector, but currently, the informal sector contributes less than 5% of the total tax revenue and because the informal sector does not get taxed properly, the overall tax burden is very unevenly distributed across the economy.


Some experts are of the view that, Parliament has shown comparatively little interest due to the potentially high political cost.


Whiles others blame the GRA for not doing enough to tax the informal sector, some GRA officers also believes there are major operational difficulties especially the lack of bookkeeping and a large number of unregistered businesses.


Operators in the formal sector continue to call on government to ensure fairness in the tax system because businesses will prefer a proper balance in the tax burden among sectors of the economy.


Artisans, food vendors and self-employed can escape direct taxes easily whiles employees cannot escape taxes on their income. These inequities under the current tax system are unfair to those in the formal sector. For those in the formal sector, Taxing the informal sector may also be essential to sustain tax morale and tax compliance among larger firms.


Balancing Direct and Indirect taxes in Ghana

Tax Experts Francis Timore said it is now time for Ghana to have a right balance between Direct and Indirect tax. The current tax structure is such that a larger portion of our tax revenue comes from indirect taxes, suggesting that, the poor and ordinary people are getting taxed the more relative to high net worth citizens due to the regressive nature of indirect taxes. In 2019, Direct Tax to indirect tax ratio was 42% to 58% and in 2018, it was 37% to 63%, which means we rely heavily on indirect taxes. It is because the informal sector does not pay much in the form of income taxes.


Tax expert Dr Ali Nakyea on this basis has called for a second look at the straight VAT levies because they negatively affect businesses because it cannot be recovered as part of input tax hence businesses pass this on to consumer. He thinks the government has to ensure the right balance of revenue inflows with the cost of living.


Dr. Bawumia Proposes Modified Taxation Regime for Informal Sector


The Vice President Dr. Bawumia has called on the GRA to design and implement a tax system called the Modified taxation to deal with the informal sector. Dr. Bawumia made this call on Wednesday 25th August at the lunch of Revenue Assurance and Compliance Enforcement (RACE) Initiative, designed to increase domestic revenue mobilization in order to address the economic challenges arising from the Covid 19 pandemic and make Ghana more fiscally independent.


“For medium-sized enterprises there could be the option to submit to conventional tax assessment at the corporate tax rate or opt for a flat tax based on turnover under a modified taxation system. For the micro and small enterprises, we must leverage on technology to simplify the collection and payment of the 3 percent flat tax. We believe that a simplified flat tax will allow more people at the retail level to better assess their tax obligations and make payments without too much human interface and a rigorous auditing system,” Dr Bawumia indicated.


Taxing the informal sector and modified taxation will be the focus of the seminar. The Governments policy in the formalisation of informal sector is highly commendable and may accelerate growth in taxing the informal sector.


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