Tax policies must consider business growth – Abena Osei-Asare

Tax revenue to GDP has been significantly low over the years for African countries as compared to advanced countries, resulting in lower revenue for development, Minister of State at the Ministry of Finance, Abena Osei-Asare has observed.

Speaking at the 12th Annual International Tax Conference organised by the Chartered Institute of Taxation Ghana (CITG), Mrs. Osei-Asare revealed that in the past developed economies raked in approximately 8% tax of total GDP, but over the years the figure has improved significantly to about 40%.

On the other hand, she stated that the tax-to-GDP ratio for African countries remains starkly lower, averaging 19%, citing an United Nations Economic Commission for Africa (UNECA) report.

She noted, however, that although taxation is the essential driver of economic development, there remains a challenge of finding the right balance of mobilising tax revenue while promoting private sector growth.

“The challenge we face is finding that sweet spot where our tax policies do not merely sustain government operations but also actively support and stimulate private sector growth.”

According to her, “this balance is crucial because a vibrant private sector drives economic progress, creates jobs, and ultimately improves the quality of life of all citizens.”

Mrs. Osei-Asare thus called for the creation of a tax environment that is fair, encourages entrepreneurship, and promotes growth while ensuring that the government has the needed resources to serve the people.

She bemoaned the lack of structure characterising the informal sector, which she argued affected the ability of policymakers to measure the impact of changes in the tax system on the economy.

“The informal structure of our economy presents difficulties in generating reliable statistics. This lack of data undermines the ability to robustly project and assess the potential impact of major changes.”

In addition, she urged the urgent fixing of inefficiencies in the tax system, including adjustments in the tax rate and broadening of the tax base to improve compliance, boost economic growth, and increase revenue.

Further, the Minister highlighted the linkage between taxes and foreign direct investments (FDI), adding that an increase in tax rate could more than potentially reduce FDIs.

She called for a tax regime that promotes FDIs but was quick to note that such decisions must be applied selectively and fairly, alluding to the repartriation of profits of some foreign companies and the uneven playing field with local companies.

Julie Essiam, Commissioner-General of the Ghana Revenue Authority, asserted that the Authority, like other revenue authorities in the world, faces the challenge of mobilising taxes from the digital economy.

“Ecommerce is here to stay, and its rise has indeed transformed the global business landscape; it has created new opportunities for growth and innovation. But it has presented significant challenges for tax authorities worldwide.”

“Our traditional tax systems were not designed to accommodate the complexities of digital transactions across borders,” she said.

She stated that as a response, the GRA has been working around strategies to bring the digital economy into the tax net in a manner that would not disrupt their operations.

“As we begin to roll out these digital initiatives, our goal is to create a tax environment that is fair, efficient, and conducive to business growth. There is a pressing need to develop products that capture revenue from the digital economy while supporting the growth of e-commerce businesses.”

President of the CITG, George Ohene Kwatia, underscored the need for a policy to get the informal sector to pay direct tax, such as corporate income tax, while supporting their growth.

He erased the misconception by some informal sector businesses that they only pay tax on the initial purchase of goods and services for resale.

Rather, the CITG president continued, the final burden of the initial tax payment by the informal sector for their goods and services is passed on to and borne by the final consumer with regards to the corresponding increases in the prices of those goods and services.