Feature Article of Tuesday, 30 July 2013
Columnist: Baidoo, Philip Kobina
Fix the leakage, and stop the tax hike.
A couple of days ago I was cleaning my inbox when I accidentally came across an email that a friend sent me slightly over a month ago regarding a piece at the Ghanaian Chronicle website. I hesitantly clicked on the link. After reading it I queried whether there was any legitimacy to that incredible grandstanding. It was about a news conference organised by Centre for Freedom and Accuracy on tax evasion at the Tema port. It was presented as if they have just deciphered a 2,000 year old secret. I decided to abandon it as there was nothing to write home about. It was the usual feeling of a sense of déjà vu. If I could draw your mind back in time; at the dawn of the Mills’ administration the Ghanaian undercover ace investigator, Anas Amereyaw Anas, conducted an in-depth investigative journalism on this very malignancy. Though, people were caught on camera with their hands right in the jar nothing happened, and Tema port is still being screwed with its pants on. So I just shrugged it off.
However, it dawned on me that the email was an inadvertent request for my opinion. Obviously, as the piece did not initiate a chain reaction in my thoughts, because of its blandness I decided to look around for comments from the general public to stimulate it, and my first port of call was ghanaweb. As usual, it didn’t fail my surprise test. The bedlam of ignorance and the usual vulgarity filled the comment pages. Nonetheless, what really infuriated me as I was browsing was the proposed tax hike by the government to make up for the short fall in revenue. A proposal which the TUC, a body that is not noted for its sound economic argument picked fatal flaws in the government bid to squeeze water out of stones. Of course, it got me thinking seriously on the subject, and I opted to put a few thoughts together to refute some of the misconceptions and perhaps expose the amateurism and the malevolence of our leaders.
Taxation is a very hot topic, perhaps dicey. All sorts of hypocrisy and pontificating abound; it’s only a few who can talk about it with clean hands. People don’t like paying taxes; it is a global issue that is steeped in corruption. Here in the U.K., where I live, multinational corporations employ the services of smart accountants to find loop holes in the tax code to reduce their tax burden. Billionaires keep their liquid assets in tax haven to dodge the tax man. For example, the British F1 driver, Lewis Hamilton, moved his residence to Switzerland just to avoid high taxes. The payment of taxes has led to the toppling of governments. The most famous one is the arms revolt that led to the American war of independence. One of the most powerful post Second World War U.K. government led by Margaret Thatcher ‘The Iron Lady’ unravelled with her introduction of the poll tax in Britain.
The payment of taxes can be likened to plucking hair out of your nostrils. It is extremely painful experience. But the point is we don’t deliberately do that, do we? The most reasonable comparison is child birth in the sense that when you see the end product the indescribable experience becomes worthwhile. To think about the fact that some pay their fair share while others scheme to evade it makes it even more stressful. Moreover, the fact that our politicians help themselves first with whatever comes into the pot and squander the rest on shoddy projects as bribes to the electorates sends the mind into a torturing chamber. Nobody should get me wrong I am all for the payment of taxes. It is Oliver Wendell Holmes who said ‘taxes are the price we pay for a civilised society.’
To reiterate, the rape of Tema port did not start yesterday as the report seems to suggest. If my memory will serve me right living in Tema long before I came to England it has always been the norm. At the height of the Rawlings purge in the 80s there used to be a clearing company in Tema that was in the thick of a well organised fraud at the port. They were making so much money that even a common office errand boy was driving a posh ‘home’ second hand car. As it always happens when people do not really work hard to make their living they became arrogant and sloppy in the way they spent their ill gotten wealth. At a local bar they used to wash their hands with beer. They got busted in the end, which will be comforting to read, but countless number of companies and individuals stepped in their shoes to continue the wanton rape. This is almost a thirty year old problem and I believe it goes further back in time.
Having said that, it is very important to note, not too long ago, Anas gave us a pristine window into what goes on at our premier revenue collection centre. It will be a sacrilege for our leaders to say that they are not aware of the decay. I will be generous to give them the benefit of the doubt prior to Anas opening his infamous can of worms. However, post Anas investigation any such claim is laughable and ludicrous. They are in the know of what goes on at the port, but it serves their interest. How would you conclude if an extraordinary intelligence on the constant activities of armed robbers in a particular locality has been established, and the police commander within that jurisdiction does not take any action? Anything to the contrary means they are basically sleeping at the wheels while their unscrupulous cronies loot the nation. And I must add that no known empirical formula can measure their ignorance and incompetence if they insist on their innocence.
The reason behind my certainty for their inaction is as a result of our cash strapped economy, which is now edging towards the precipice. And their solution currently is to kill the hen that lay the golden egg. The proposed tax hike is going to be the final straw; it is the death nail in the national economy. I keep asking myself the question what sort of economic theories and history do the people who handle our economy read. And I doubt if they read any. The fact that they are going to increase taxes does not necessarily mean they are going to realise their tax projection. As I have already stated above people don’t like paying taxes, and they will adjust accordingly. Firstly, productivity will take a hit, because a lot of people will ask themselves why should I work hard and pay all in taxes to the government. Secondly, those who don’t mind to work will scheme to avoid payment. In effect, through a government policy a section of the population will be criminalised. Thirdly, entrepreneurs will not risk taking expensive loans from banks only to pay all their effort in taxes to the government. At a stroke they will be increasing unemployment and its social effects.
This is what I think they should do if they have not thought about it. If they make their revenue projection from the Tema port to be ?-amount in a month and it falls short, which is what we know to be the case. There are two possible scenarios: either the volume and value of freight has reduced or there is a leakage of revenue somewhere. The volume can easily be checked by counting the number of containers that comes in. The value which is very difficult can be done randomly with the aid of statistical mean to arrive at a reasonable figure. If the figures stay the same it means there is tax evasion and in that sense a competent person who is beyond reproach should be paid handsomely to collect the revenue. The suggestion of more computers will not eliminate the cancer, because they are programmed by human beings and it can equally be compromised. If it is impossible to find the right person then we should look outside. If we can employ the services of a foreign coach to bring success to the national football team, then we can secure the services of foreign customs official. If that person is paid a yearly contract of $10 million to increase the national revenue by an additional billion dollars that person will be worth every cent. But it is not going to happen, because they will rather pay themselves and our ridiculously unproductive partisan parliamentarians obscene salaries, which is seriously depleting the national coffers.
Now, let me take off my gloves for a while and hypothetically assume the hands of our leaders are clean, and that they have tried everything. The only problem is just that Ghanaians are selfish, unpatriotic and perhaps smarter. On the other hand, have they thought about the fact that the taxes are too dear? Most tax experts argue that taxes should be fair and relatively affordable to pay – in other words not punitive. And the popular wisdom is such that when taxes are too high they become synonymous to security – it gives way to conspiracy.
Historically, political leaders who have been wise to reduce the tax burden of the population have been rewarded with huge increase in revenue. For example, the tax cut of JFK in the 60s and that of Reagan in the 80s. For this discourse, let’s ignore the historical precedence of JFK and Reagan tax cuts and analyse a practical model at home.
A friend of mine recently sent a car costing £800 and the cost of shipping reduced his accounts by £550. The duty on the car, which is well within the 10yr penalty, was £2,530. I am not here to discuss the economics and implications of the 10yr penalty, but it is insane to pile up such astronomical duty on one saloon car with a modest engine capacity. To start with, how much can he sell this car to make a reasonable profit on his investment? Let me get to the nitty-gritty. If the government should reduce the tax rate it will have tremendous impact on economic activities, which will also benefit it. Most of the cars plying our roads especially those in the rural areas are virtual death traps. It’s not that the owners prefer to keep their ramshackle on the roads. The reality is that the prices of used cars are way beyond the purse of our unfortunate compatriots who try to provide a valuable service in our society. Assume the duty on my example above is reduced to about a third. The result will be a classic demand and supply lesson in economics. The prices of used cars will tumble leading to a corresponding high demand. The demand will encourage more importation of cars, which will make up for the short fall in the reduction of duty. The brisk economic activities will improve the health of the national economy. Likewise, the road worthiness of our cars will improve reducing avoidable accidents. More cars mean more road tax revenue to the government, and insurance companies will not do badly at all.
Currently, the solution is not increasing the tax burden of the people, but rather the government cutting its coat accordingly. We don’t need 11 member Council of State. All the deputy ministerial secretaries are superfluous. Their job can be done by the permanent non partisan heads of the ministries. Some of the current ministers are just created positions to silence party ranks and should be decommissioned. If the government is struggling to fulfil its financial obligation as I anticipated just over a year ago with an article captioned ‘This Is The Mother Of All Stupidity’ it should revert back to its former staffing levels including the size of the legislature. The President should recognise now that the 45 new parliamentarians was a mistake. And even the 30 that was added by Kufuor was a travesty and an insult to all hardworking Ghanaians. If paying ordinary government workers is now a problem what then happens to the maintenance of our infrastructure and its expansion.
Mr President this is my unsolicited piece of advice, if you want to have any credibility to salvage your presidency without going down in history as the most useless Ghanaian leader ever, wield the axe like a crazed butcher and down size your government. Tax increment is not going to save you. It will bring more agitation. And if you don’t know the secret behind the chronic industrial unrest, which is very obvious to any mediocre investigative mind let me let you in on it. The unrest is fuelled by the eye watering salaries that your ministers and parliamentarians pay themselves, besides the preposterous perks.
Philip Kobina Baidoo Jnr.