The Ghana Revenue Authority (GRA) barely managed to meet its revenue target for calendar year 2010, and is counting on the country’s new oil sector to improve its tax collection this year.

The Finance and Economic Planning Minister expects the GRA to raise at least GH¢7.5 billion in tax revenue for this year following last year’s performance of GH¢5.9 billion, which was 0.5% above the target.

“We expect to collect GH¢321.86 million in petroleum tax alone this year (4.3% of our total tax revenue). The management of GRA is also devising strategies to increase revenue mobilisation to meet this target,” said the Commissioner General of the GRA, George Blankson.

It is estimated that only 1.5 million people out of the estimated 10 million working population of Ghana are active tax-payers, and efforts to rope in more people have not yielded much results. As a result, Ghana’s tax authorities over the years have tended to focus more attention on companies and workers in the formal sector, as those operating in the informal sector, so far, have succeeded in continuing to operate on their blind side.

Since the presentation of the budget and economic policy for 2011 by the Minister of Finance and Economic Planning, Parliament has passed several tax laws all aimed at the formal sector. Notable among them is the 20% excise tax on plastic packaging materials including producers of bottled water who are mostly multinational companies such as Coca Cola and Voltic but excluding those producing sachet water, mostly indigenous small scale enterprises, whose operations are largely informal.

Additional laws have also been passed to adjust upward the Debt Recovery Levy on petroleum products including: premium, gas oil, marine gas oil, residual gas oil, residual fuel oil and liquefied petroleum gas. Airport taxes too have been raised for both domestic and international travels and the five-year tax exemption for real estate developers has been abolished. However, estate developers who are certified by the Ministry of Works and Housing as being engaged in the construction of low-cost affordable housing units will continue to enjoy the exemption.

The rate of Gift Tax has been raised from 10% to 15% while the threshold for withholding tax has been increased from 50 currency points (GH¢50) to 500 currency points (GH¢500) in an attempt to relieve businesses from the need to withhold taxes on low expenses.

The level of personal income tax reliefs has also been increased as follows:

Mr. George Blankson, Commissioner-General of the Ghana Revenue Authority

In spite of the GRA’s poor showing in mobilising tax revenue in the informal sector, the Authority continues to show determination to improve its performance. This year, businesses in the informal sector, whose location have been properly identified will see upward adjustment in the taxes they pay to government as the GRA is currently reviewing the Tax Stamp rates for traders, the level of Vehicle Income Tax (VIT) for commercial vehicle owners and the Bonded Warehousing facility. Also, the threshold for registration of VAT at the standard rate has been raised to GH¢‘90,000 and for businesses which fall below the new VAT threshold, a combined VAT and income tax assessment is being considered by GRA for implementation soon.

“This will ensure that no trader stays outside the VAT and income tax system,” explained Mr. Blankson. In spite of these public pronouncements by the GRA of its commitment to improve revenue collection, some analysts still accuse the country’s tax authority of only being interested in armchair tax collection when there seem to be more businesses outside the reach of the national tax net.

“I think they are just over-burdening people with taxes. Enough is not being done to spread the tax net,” said Franklin Cudjoe, the founding executive director of civil society organisation, IMANI Ghana.

The Commissioner in charge of the Domestic Tax Revenue division of the GRA, Major (Rtd) Daniel Ablorh-Quarcoo disagrees and thinks the Authority rather deserves commendation for initiating moves to get a lot more people to pay taxes to the state. According to him, one of the initiatives was to get more businesses to pay their taxes by getting legislation passed to remove some tax holidays which some companies hid behind to evade taxes.

“We recognise the need for incentives for business people to operate. But tax incentives are not the only incentives that engage the attention of business people. Tax incentives are currently the sixth of 10 priority things businesses consider,” he said. “So it is not as if we are trying to deny businesses tax incentives. What we are trying to guard against is the creation of a hole in the existing tax net. Gift tax is now 15% because Capital Gains tax has also been increased to 15%.

Normally the two go hand-in-hand to prevent abuse in the tax system in order to prevent businesses from classifying disposal of assets as a gift in order to avoid paying tax,” he explained. All the divisions under the GRA last year met their target except the Customs division, which has come under severe public criticisms following a recent airing on TV of the investigative work by a local journalist who caught some Custom officers in a secret video recording taking bribes and assisting importers to evade tax. The Commissioner in charge of Customs Division of the GRA, Major-General Carl Modey whilst accepting that irresponsible and bribe-taking customs officers in his Division need to be sanctioned, argues that the general business environment failed to meet their expectations, especially in some areas that they had targeted to collect more revenue.

He said: “The business atmosphere for last year, particularly in the petroleum sector, was down, which is not the fault of Customs. There are arrangements we have put in place for closer monitoring of all transactions and as I speak, our target for January (2011) has been exceeded.”

“There are very dedicated customs officers who are really working to bring in revenue,” he added. The GRA believes the structure of the economy also poses a challenge to their tax mobilisation efforts, which they must strive to overcome to widen the tax net.

“If you asked me for how long are we going to keep widening the tax net, I would say that for as long as there are people we are able to observe as operating businesses and earning incomes without paying taxes,” Major (Rtd) Ablorh-Quarcoo said.

“But you will observe that in Ghana, we operate mostly as a cash economy and people buy (goods) without taking receipts so it is therefore difficult to track because of the informal nature of our business environment. There will still be quite a bit of moonlighting going on but as far as we are concerned, we are working at it until whoever earns income on any transaction that is taxable is brought to the attention of the tax authority,” he said.

The integration of the three state revenue collection institutions - Internal Revenue Service, VAT Service, and Customs and Excise and Preventive Service into a single entity the Ghana Revenue Authority - is expected to help the tax authorities to harmonise their operations and to significantly reduce the number of tax evaders. But the reform in Ghana’s tax system has presented a myriad of puzzles for authorities.

“The task of pressing ahead with the reform while keeping up with revenue collection is like juggling two balls in the air. The slightest distraction could result in them being dropped,” said Mr. Blankson.

“The many training sessions and workshops (for officers of GRA) are necessary for the reform and yet they take personnel off revenue collection duties. Institutional loyalty to the erstwhile agencies expresses itself in various ways. We continue to have staff associations and labour unions that are largely based on the old agencies that present demands which do not give much cognisance to the reality of all of us belonging to one authority.”

“Thankfully the year 2010 saw us staying the course with our reforms and still meeting our revenue target,” he said.

As the GRA weaves around to get its officers to focus on achieving its set tax revenue targets, it is expected to keep a close eye on activities in Ghana’s new oil sector as it promises huge transactions that hold the potential of delivering easy revenues through taxes. But at the same time, the tax authority will have to find more innovative ways of bringing the numerous businesses in the informal sector, whose activities largely go untaxed, into the tax net in order to create a more sustainable way of expanding Ghana’s tax revenue pool.