By Alex Bossman Baafi

Taxation is the means by which government finances her expenditure by imposing charges on citizens and corporate entities. The tax structure of the country is therefore determined by the government. The policy dictates where the tax burden must fall or how the tax policy implementation will affect individuals and businesses in the country.

Taxes are governed by principles. Principles of taxation serve as guidelines for policy makers to achieve their objectives when followed religiously. Let us consider some of the principles here.

Adequacy Principle requires the government to impose taxes just enough to generate revenue required for provision of essential public services. Such tax policy must be broad-based. That is over and as wide as possible to cover sections of population or sectors of the economy in order to minimize the individual tax burden. What is disturbing is that, according to report attributed to the tax expert, Dr. Edward Larbi Siaw; the government of our country collects taxes from only two out of six million eligible taxpayers. Dealing with a population of twenty-five million and only two million are paying taxes to support the economy is unimaginable. What the government is doing is simply continue to increase tax rates for those in this tax net leaving out many others to go scot free. The government virtually misses the tax revenue targets every year for not broadening the tax net for that matter.

The Earmarking Principle of taxation for example ensures that tax revenues from a specific source should be dedicated to a specific purpose. Examples of these include the NHIS Levy, Road Tolls; GET Fund and Communication tax otherwise known as ‘Talk Tax’. NHIS Levy was earmarked for the National Health Insurance Service which is at the brinks of collapse because of misappropriation of the revenue by the government. Such abuses serve as disincentive to tax payers. No government of our country had been able to render meaningful account of revenues accruing to the Road Fund in this country since its inception. Virtually all roads around the country are in very deplorable state for lack of maintenance yet citizens continue to pay tolls unabated day-in and out. What happens to the revenue remains a mystery. Talk Tax was specifically to fund the National Youth Employment Programme (NYEP), now defunct GYEEDA which has collapsed because of corruption. In the case of GET Fund, most of our education infrastructures are in shambles with still sizeable number of our children studying under trees. This is also due to the misappropriation of revenues into the GET Fund by the government. Government tax policy must be simple among others to ensure that tax assessment and determination shall be easy to understand by the average tax payer. This is not the case with utility tariffs that are adjusted every quarter through the Automatic Adjusted Formula (AAF) in addition to the prices of petroleum products which are also reviewed fortnightly. There is the need to educate the public thoroughly on how the AAF works for most people to appreciate what goes into increases in these tariffs. In the case of petroleum prices the timing of the review does not make economic sense because the time period is too short that it makes long-term business and investments planning decisions very difficult because of uncertainties.

In the midst of these non-adherent to tax principles is the government’s indirect tax policy. The levy by the state on consumption expenditure, not on income or property which includes custom levies on imports, excise taxes on production, sales taxes known as Value Added Tax (VAT) have been overstretched. In my opinion, there is excessive tax burden on the tax payers of our country. In addition to the utilities and petroleum prices hikes, the government also increased VAT from 15% to 17.5% this year. Since indirect taxes are less obvious than income taxes, the government is tempted to increase them to generate more money to the state. However, the government should appreciate the fact that consumption taxes are regressive measure since they are not based on the Ability to Pay Principle. It therefore makes excessive use of them counter-productive. It goes a long way to reduce the purchasing power of the poor masses in society leading to a reduction in aggregate demand, low Gross Domestic Product, low consumer confidence and low employment. This is particularly so when tax revenues are more likely to line the pockets of most public officials which is the order of the day with our governments.

The introduction of VAT on banking services without clarifying which services at the bank should attract VAT again put the head of the ordinary tax payer on the chopping board. VAT on banking services is a measure that will lead to shifting and incidence of taxation. For sure, because this huge VAT will affect the incomes of the banks negatively, it will force them to transfer the tax burden on customers. It beats my imagination how a poor civil servant whose meager salary is paid through bank account will have suffer, on top of income tax, 17.5% VAT again at the bank as a result of withdrawing the salary. This is clearly an abuse of taxation policy, an injustice that will continue to widen the gap between the rich and the poor in our society.

We have low incomes, low savings, low capital formation, low investments and hence low employment as a result of poverty. We are poor because of poverty and therefore to lift many from the poverty trap, government must skew the tax policy towards equity. Since consumers are deemed to be rationale, higher taxes will not necessarily translate into more revenues.

Available evidence show that most of our important national goals that call for taxation are not achieved as compared to other part of the world by governments because of abuse of power, greed, misappropriation, mismanagement of tax revenues as well as graft, rot and widespread corruption. Our situation is christened “Robbing Peter to pay Paul” where the ordinary citizens are milked to the last atom of their strengths to support the ostentatious lifestyles of the political class in our society.

The high utility tariffs, high taxes, high cost of credit, high cost of raw material, high cost doing business, high cost of living and the declining fortunes of the of our national currency, the Cedi, have made the economic hardships for the masses unbearable. It is about time government reviewed our tax policy by also harnessing the use of tax incentives which includes deductions, exclusions or exemptions of individuals, businesses and corporate entities from tax liabilities as enticement to stimulate economic growth through investments and hence job creation.

Taxation is a double-edged policy tool. Government should avoid excessive concentration on its revenue generation edge to the detriment of the people by harnessing its economic growth arm to generate more wealth for the benefit of the masses. IT could be used to redistribute income in favour of the poor by promoting public safety, employment, welfare programmes and provision of public transportation infrastructure. Excessive taxation on the other discourages businesses, increase government controls and penalizing work which eventually lead to joblessness and hopelessness in the country.