Ghana to establish new tax courts to improve collection
Ghana is in the process of establishing a specialist tax court as part of its strategy to meet an ambitious target of 23% of GDP tax revenue by 2028.
Significance – Changes borne of necessity
The need for increased domestic revenue collection is widely apparent. At end-2020, public debt in Ghana reached an estimated 76.1% of GDP, the fiscal deficit was 11.7% of GDP and tax revenues were equivalent to only 11.6% of GDP tax revenue[1] (among the lowest in the region). New measures are inevitable. Rates may be raised but there are other options.
Compliance in Ghana is weak. According to a World Bank study, actual receipts from corporate income tax, VAT and import taxes are only 14.4%, 60.7% and 67.5% potential respectively[2]. This is not necessarily due to evasion. A recently published Afrobarometer report shows 79% of people believe government has the relevant authority to collect taxes; 72% are willing to pay more tax towards development in the country but that 70% of people do not know what taxes they should be paying.
Currently, tax litigation is less frequent here than in other regional markets e.g., Kenya. Where it does occur, dispute resolution mechanisms are often used before a contentious judgement must be made. An example is the September 2017 case in which the Ghana Revenue Authority (GRA) was sued by Vodafone Ghana who disputed a USD36.7 million tax bill it had received. The matter was discontinued in March 2018 following an out of court settlement.
This may change. In addition to the new tax court, housed in the Criminal Division of the Court of Appeal and handling only fiscal matters, authorities intend to create a new Independent Tax Appeals Board (ITAB) will be established to hear disputes between the GRA and taxpayers by June. In 2019, Finance Minister Ken Ofori Atta highlighted the infractions that may be actively pursued by the courts:
“Deliberate undervaluation of import values, the ex-warehousing of imports from the bonded warehouses without prior payment of customs taxes, the suppression of sales, the non-issuance of VAT receipts for registered VAT businesses, the diversions of goods cleared as transit goods into the domestic market, and many other irregularities are all crimes. In 2019, we treat these offences for what they really are: crimes that must prosecuted. In respect of tax debt recovery, we have already prepared files to enable us to bring legal action against big tax defaulters. We will use various distress actions to retrieve tax liabilities from taxpayers who have a habit of defaulting on their tax obligations.”[3]
Outlook – Picking the low hanging fruit
Large taxpayers are a frequent focus of the revenue effort. However, tackling smaller scale evasion is a key part of the current strategy. It carries risk. Informality and small infractions are often carried out by micro-entities without adequate funds, information and practices. There appear to be low-hanging fruit that are more easily available to the GRA. For example, a re-evaluation and proper collection of property rates[4]. Also, a clampdown on tax exemptions that cost the country an estimated 3-5% of GDP annually is long overdue. The IMF has cited exemptions as the weakest link in efforts to improve tax collection. The results from the Afrobarometer report show that there is public willingness to pay taxes but that the public seem ill-informed about what needs to be paid and how. Sensitisation schemes may prove outsized benefits.
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[1] Source: Ministry of Finance, Bank of Ghana
[2] World Bank study published in November 2020 using 2014-16 data. Finds 85.6% tax gap for corporate income tax, 39.3% for VAT and 32.5% for import tax.
[3] 2019 budget statement
[4] We were made aware that properties in an upmarket Accra residential neighbourhood that regularly sell for over USD 1 million were paying property taxes of around USD240 annually.
*Photo credit: (c) Songhai Advisory
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