Tax Revenue Mobilization during 8 years of NDC Administration (Part 1)

Tax Revenue Mobilization during 8 years of NDC Administration (Part 1)

The tax system in Ghana has undergone a major transformation during the past eight years than any other period in our socio-political history.

The NDC administration has over the past eight years of governance undertaken various tax reforms with the aim of improving tax revenue. Through the enactment of various tax laws, streamlining of the revenue administration process and introduction of some new taxes, the government was able to increase the tax revenues year on year.

Generally, the total tax revenue of the government will invariably depend upon the size of the tax base, the levels of tax rates adopted within the tax system, administrative efficiency, and the compliance rate.

The Tax Laws Project

The Ghana Revenue Authority, as part of its strategic plan began what it termed as the “Tax Laws Project” in 2010. The aim of this initiative was to reorganise the various tax laws in the country for efficient revenue mobilization and better tax administration. In 2009, the enactment of the Ghana Revenue Authority Act (Act 791) merged the erstwhile separate revenue institutions – Internal Revenue Service, Customs Service and Value Added Tax Service into one revenue authority.

The GRA has through the Tax Laws Project initiative, worked closely with government and Parliament to pass new tax laws and repeal the old ones with focus on improving tax revenues. The major tax laws enacted are as follows;

1.      Value Added Tax Act 2013 (Act 870) as amended

2.      Value Added Tax Regulations 2016 (L.I 2243)

3.      Income Tax Act 2015 (Act 896) as amended

4.      Income Tax Regulations 2016 (L.I 2244)

5.      Customs Act 2015 (Act 891) as amended

6.      Revenue Administration Act 2016 (Act 915)

The aim of these new tax enactments was tosimplify the provisions of the tax laws, make them more user- friendly, enhance efficiency and facilitate compliance, broadening the tax base, remove the narrow and distorted tax base, rationalize, streamline and restrict tax concessions, tackle erosion of the tax base and align domestic tax rules with current international tax rules. 


Tax Revenue (2009 – 2012)

Inanalysingthe effectiveness of the various tax reforms, we look at how tax revenues had performed over the eight year period of the NDC administration.  In theFirst Termof the NDC administration, tax revenue increased consistently as depicted in the table below. 

 

2008 (Base Year)

2009

2010

2011

2012

Direct Taxes

1,253,208,500

1,716,906,199

2,453,953,100

4,036,566,261

5,536,213,944

Indirect Taxes

1,851,191,387

1,859,493,972

2,308,171,509

3,588,989,412

4,083,661,563

International trade taxes

719,370,245

762,667,688

1,146,148,621

1,515,962,212

1,990,079,982

Import Exemptions

475,681,675

318,459,605

386,424,204

634,572,369

778,921,746

TOTAL TAX REVENUE

4,299,451,807

4,657,527,464

6,294,697,434

9,776,090,253

12,388,877,236

% Increase

8.33%

35.15%

55.31

26.73%

Source: Ministry of Finance (All figures are in Ghana Cedis)

Total tax revenue in 2009 wasGH¢4,657,527,464 representing a mere 8.33% increase from the 2008 tax revenue ofGH¢4,299,451,807. However, in 2010, tax revenue grew by 35.15% to   GH¢6,294,697,434 and further increased by 55.31% in 2011 toGH¢9,776,090,253 before growing marginally by 26.73% toGH¢12,388,877,236 in 2012. The aggregate growth in tax revenue over the four year period of the President J.E.A Mills government was 188% from 2009 to 2012. 

Within this period, the only significant tax legislation enacted was the National Fiscal Stabilisation Act, 2009 (Act 785) which imposed 5% tax on the profit before tax of some selected industries.  The Act was however repealed in 2011 following the stability of the economy. Also, there was an increase in the Capital Gains tax from 5% to 15% in 2010 and “ring fencing” of mining operations in 2012.


Tax Revenue (2013-2016)

Tax revenue under the second term of the NDC government from 2013-2016 improved significantly under the backbone of the introduction of new tax legislations, increase in some existing tax rates, and a feeble attempts to broaden the tax base.

 

2012 (Base Year)

2013

2014

2015

2016 (Revised Budget)

Direct Taxes

5,536,213,944

6,301,734,257

8,486,571,523

8,706,504,262

11,358,930,103

Indirect Taxes

4,083,661,563

4,832,951,823

6,434,283,961

9,926,832,338

12,116,542,790

International trade taxes

1,990,079,982

2,330,964,341

3,091,223,539

3,448,930,198

5,653,571,176

Import Exemptions

778,921,746

842,000,745

1,217,682,286

2,058,650,020

 

TOTAL TAX REVENUE

12,388,877,236

14,307,651,166

19,229,761,309

24,140,916,818

29,129,044,069

% Increase

15.49%

34.40%

25.54%

20.66%

Source: Ministry of Finance (All figures are in Ghana Cedis)

Tax revenue increased fromGH¢12,388,877,236 in 2012 toGH¢14,307,651,166 representing 15.49% increase in 2013. Tax revenues increased by 34.4% in 2014 toGH¢19,229,761,309 and increased by 25.54% in 2015 toGH¢24,140,916,818 before ending the period with an increase of 20.66% toGH¢29,129,044,069 using the revised budgets estimates in 2016.

It could be seen that although tax revenues have been increasing, the growth has been declining since from 34.4% in 2014 to 25.54% in 2015 and 20.66% in 2016.

The NDC government during the second term imposed various taxes to narrow the fiscal deficit. All the new tax laws under the “Tax Laws Project” were introduced during this period. Some of the new taxes imposed during this period are as follows;

1.      Increase in VAT rate from 12.5% to 15% in 2014

2.      Imposition of 5% VAT/NHIL on Real Estates in 2014

3.      Imposition of17.5% VAT/NHIL on pharmaceuticals other than retail in 2014

4.      Abolishing of 3% VAT Flat rate scheme in 2015

5.      Imposition of 17.5% VAT/NHIL on Financial Services in 2015

6.      Imposition of 17.5% VAT/NHIL onauctioneers and promoters of public entertainment in 2014

7.      Imposition of 17.5% VAT/NHIL onthe business of a gymnasium and spa in 2014

8.      Imposition of 15% capital gains tax on petroleum operations in 2013

9.      Reintroduction of 5%National Fiscal Stabilisation Levy in 2013

10.  Imposition of Special Import Levy of 1%-2% on CIF value of some exempt items from 2013 (outboard motors, fishing nets, agricultural machinery, dairy milking products, energy saving bulbs, book binding machines, cutlasses and some farming inputs).

11.  Corporate tax of 25% on private educational institutions in 2013

12.  Corporate tax of 1% on companies enjoying temporary tax concessions from 2015

13.  Capital Gains of companies taxed at 25% instead of 15% from 2015

 

Conclusion

Tax revenue increased by an aggregates of 577.5% during the eight year period from        GH¢4,299,451,807 in 2008 to an estimated revenue ofGH¢29,129,044,069 in 2016. Although tax revenues increased consistently during the eight years of the NDC regime, the growth rate has been declining from 2014.

The growth in tax revenue has been driven by imposition of new taxes and increase in tax rates and not as a result of broadening of the tax nets. This has increased the tax burden of many businesses and individuals who are already in the tax net. This has led to increased cost of operations and low liquidity thereby eroding the capital base of many businesses.

 

 

ABOUT THE AUTHOR

Evans Crentsil-Taylor is a Chartered Accountant and a Member of the Chartered Institute of Taxation Ghana. Evans is the Founder of Tax Solutions Ghana.

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