How To improve The Tax system In Ghana

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A respected friend on a discussion forum (name omitted) sent a private mail to inquire about how the tax system in Ghana could be improved. Below was my answer.

First, in order to be able to properly collect taxes from the citizens and residents of Ghana, the government must educate the masses about the need for the taxes. The average person must be made to understand that the government cannot develop the country and undertake all the projects the citizens demand without money. For example, Ghanaians complain that the roads are bad, the schools, hospitals, and market places are in dilapidated condition, not enough teachers, etc. These services and infrastructure improvements, etc could not be undertaken without money in the form of taxes from the people. We cannot expect only the civil servants and a few others in the country to pay taxes. Many self employed people in Ghana pay little or no taxes. Yet, they all demand services, one way or the other from the government. The way to make every self employed person pay taxes is to issue tax identification numbers to each entity and ensure that their businesses, small or large, are registered with the IRS. Better still, the tax ID could also be issued when the business is registered. Those whose businesses are not registered should be charged with non compliance and hauled to court. The laws on the books must be vigorously enforced.

Second, the government must build a data base to collect information on who is a Ghanaian or resident of Ghana, where, he/she lives, what job the person does, how much (estimate) the person makes in a year, etc. The present system of using post office box numbers to deliver letters especially to individuals is totally unacceptable and must be changed. You can't send the internal revenue service agents to a post office box( p.o.box number) to collect taxes or discuss tax matters or arrest people for non payment of taxes. The way taxes are collected in Ghana is archaic and primitive. If someone sells for example at Makola market, issuing the person a ticket in the form of a fee to enter the market to sell goods and services everyday allows the individual to evade taxes. For example, the person can decide to sell from home at anytime without coming to the market or can sell from the road side. The seller can even enter the market when the revenue agents are not at the gate. The point I want to make is this: People should be taxed based on their total income and not only on their activities which the authorities presently know about. Ghana should adopt a broader definition of income. For example, the IRS in America defines income in the American tax code as "from whatever source earned". This simply means that the government has the right to tax a person or an entity on any income which it knows about as well as other income it does not know about. Specifically, this means that if a person is a clerk and also works as a prostitute, the person must declare his/her total income as earnings from working as a clerk and earning from working as a prostitute. This is how the US government has been able to prosecute and jail gangsters and members of the mafia and organized crime for tax evasion. Al Capone, the mafia kingpin was nailed and sent to prison at Alcatraz for tax evasion in the 1930's.

Third, the present system in Ghana whereby revenue agents walk around to collect taxes in cash is a sure way for agents to cheat the system and steal from the peolpe by issuing false tax receipts. It is not a good system of internal controls for record keeping and accountability purposes. The government must open revenue offices throughout the country or set up relations with local banks to make it easier for people to pay their assessed taxes. I was shocked when I visited Ghana recently to find a revenue agent for the water and sewarage corporation coming to the place where I stayed to collect the water bill. It should be made clear to all Ghanaians that it is their responsibility to go to the tax office to pay their taxes and that the government would use whatever powers it has within the law to collect all delinquent taxes including prosecution and jail time for tax evasion.

We are joking and playing around in Ghana when it comes to economic development. Ghanaians expect manna from the government but don't want to pay for it. No country on this earth ever developed without an adequate tax base to fund programs. The govenment should work closely with the opposition parties in formulating a progressive tax policy so that the question of taxation does not become a political issue. Civil society, churches, business associations including the chamber of commerce, etc,etc, must all be informed about the need to educate their members on the importance of paying their personal and corporate taxes. Without adequate tax payments from the people and residents of Ghana, not enough revenue could be generated for development to promote and maintain sustainable economic growth in the long run.

I can't say anymore. Of course, there is more to formulating and implementing a sound tax system than I have provided. This is the beginning and we can build on it.