Tax and Revenue Generation in Ghana

1. It has often been said that taxation is an economic tool, to what extent if any, is this assertion valid in Ghana?
2. Discuss the relative importance of the main sources of revenue to the government of Ghana.
Answer to question 1
Definition
The system of compulsory contributions levied by a government or other qualified body on people, corporations and property in order to fund public expenditures in Ghana is known as taxation. It is an imposition financial charge or other levy upon a taxpayer by a state or other the functional equivalent of the state. It is levied by a government on a product, income, or activity or any compulsory levy from individuals, households and firms to central or local government in Ghana.
Introduction
In Ghana today, the government have an enormous task to raise revenue to enable it administration to perform certain vital functions that the private sector cannot and must not perform such as national defense, security and the maintenance of peace. The surest way by which governments can effectively raise the revenue required for these important purposes is through the imposition of taxes. Even though there are other sources of revenue open to governments, including the use of non-tax revenue, loans and grants, taxation has been found to be the most reliable, dependable and sustainable in achieving economic independence and development in Ghana. Following this assertion, it can be said that while in the short-run, governments can borrow, print money or sell assets, in the long-run there has to be a properly run tax system to raise sufficient revenues to meet ever- increasing government expenditure.
Taxation was first introduced in Ghana in the then Gold Coast on 1st November 1943 (income tax ordinance No. 27 of 1943) by the British Colonial Government. This ordinance was amended several times (1952, 1961, 1963, 1965, 1975, 2000). The introduction of the Internal Revenue Act 2000 (Act 592) finally repealed the SMC 5 Decree on first January 2001. The characteristic feature of Act 592 is that it contains other taxes that were not included in the previous SMCD 5. This is because these taxes are not taxes on income. The taxes concerned are Capital gains tax and Gift tax.
According to the laws of Ghana, no taxation shall be imposed through any other means other by or under authority of an act of parliament. The authority of an act of parliament is constitutional provision. Also only by or under an Act of Parliament can power or authority be granted to any person to waive or vary any taxes imposed by any act of parliament to prior approval of parliament by resolution of at least 2/3 resolution parliament may exempt the exercise of any power from the requirement of prior parliamentary approval for waiver or exemption of tax.
Notwithstanding, taxes in Ghana is mobilised and managed by the Ghana Revenue Authority with its subsidiary institutions like internal revenue service, Customs Exercise and Preventive Service.
Forms of taxes in Ghana
In Ghana tax as an economic tool can either be direct or indirect.
Direct tax
A direct tax is an economic tool which is demanded from the very persons who, it is intended or desired to pay it. It is a tax, such as income tax, which is levied on the income or profits of the person who pays it, rather than on goods or services. A Direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the person to whom it is imposed. It cannot be shifted by the taxpayer to someone else. In Ghana there are different forms of direct tax and some are;

i. Income tax: they are charges levied on both earned income that is wages, salaries, commission and unearned income, that is, dividend, interest and rents. It is designed to distribute wealth more evenly in a population, and to serve as an automatic fiscal stabilizer to cushion the effects of economic cycles.

ii. Corporate tax: it is a levy placed on the profit of a firm, with different rates used for different levels of profit. They are taxes against earned by businesses during a given taxable period; they are generally applied to companies operating earnings. Base on the profit generated by a corporation it pays it tax.

iii. Property tax: it is a levy issued by the government on a person with a property like a house.
According to the Minister of Finance and Economic Planning, Seth Tekper the net direct taxes was to GHS 4,470 million in 2012.

INDIRECT
In Ghana, indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another. It is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). An indirect tax is one that can be shifted by the taxpayer to someone else. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products and in Ghana, just as in most other developing countries, indirect taxes contribute the bulk of tax revenue . Here are some of the indirect taxes in Ghana;
i. Value Added Tax(VAT): is a tax on consumers spending. It is collected by VAT registered traders on their supply of goods and services effected within the country. It collected in stages by enterprises and which is ultimately charged in full to the final purchaser.

ii. Sales Tax: it is imposed by the government at the point of sale on retail goods abd services, that is, a tax that is added to the price of goods and services.

iii. Excise Duty: it is a type of tax charged on goods and services produced within the country.

iv. Customs Duty: is a tax levied on imports.
In Ghana tax contribution is over 80% of total government annual revenue, only an average of 25% of this come from direct taxes. Over seventy (70%) per cent of annual tax revenue is obtained from indirect tax.
In conclusion, the history of taxation through the colonial times to the modern day has proved that taxation is an economic tool in Ghana. This is because individuals and corporate organisations are subjected to it.

Answer to question 2
Government revenue is revenue received by a government. It is an important tool of the fiscal policy of the government and is the opposite factor of government spending. Revenues earned by the government are received from sources such as taxes levied on the incomes and wealth accumulation of individuals and corporations and on the goods and services produced, exported and imported from the country, non-taxable sources such as government-owned corporations incomes, central bank revenue and capital receipts in the form of external loans and debts from international financial institutions.
The main governmental revenues sources are as follows;
Tax revenue:
It’s the income that is gained by governments through taxation or refers to compulsory transfers to the central government for public purposes and certain compulsory transfers such as fines, and penalties. Here is some of the importance of tax revenue to the government;
i. It helps cover the cost of general administration, defence and social services provided by the state. ii. It helps check the consumption of commodities regarded as harmful, at least if consumed to excess. It is for this reason spirits and to some extent tobacco is heavily taxed. iii. It helps to redistribute labour. One aim of the reduction in corporate tax in recent time is to encourage labour to move from employments providing services to manufacturing industries. iv. Helps to reduce inequalities of income. That is individuals who get high incomes pay more tax and others who receive lesser income pays lesser income, that is, it serve as bridge to the gap between the rich and the poor.
Non-tax revenues:
These are government revenues not generated from taxes. Examples include aids, grants, loans and revenues from state owned enterprises. Some importance of non-tax revenue is as follows;
i. It aids the government to get revenue to projects it cannot funds. For instance the government of Ghana had grant from the millennium challenge account for the construction of the N1 road in Accra, this the government by itself could not have funded. ii. It also sustains and cushions the government financial status so that it can meet its obligations. The government so much responsibilities but through the loans, borrowings and grant it get monies to support it responsibilities. iii. Government through grants and loans open new job avenues for the unemployed. For instance the national youth employment programs are funded through loans from the international agencies.

Capital receipt: A capital receipt is a receipt which is derived from sale or purchase of capital assets like plant and machinery, furniture, investment, long term which shall not be occurring all the time. They are the funds received into the businesses that are not part of the operating activities of the establishment. Capital receipts primarily include external assistance, market loans, small savings, principal investment in bonds, and Government provident funds. Some of the importance of capital receipt is:
i. It helps government to control the flow of money in the economy through sale on share and bond. This is done by the government through the central bank. ii. It also helps the government to sell state asset which is not yielding profits to private individuals and then the revenue generated from the sale in is reinvested into profit yielding venture which will yield revenue to the government. Example is the sale of the Ghana Telecom.
In conclusion, even though there are more than enough sources of government revenue, taxation, non - tax revenues and capital receipts are the main sources of revenues to the government and their importance.

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