Prof. Quartey bemoans excessive tax system
The Director of the Institute of Statistical, Social and Economic Research (ISSER), Prof. Peter Quartey, has said that the country’s excessively high tax system, as compared to regional competitors, encourages tax evasion.
He said the disparity undermined the country's competitiveness and revenue generation efforts and, therefore, stressed the need for the government to develop comprehensive strategies to capture revenue from the informal sector, which remained largely untapped despite its significant contribution to the economy.
Prof. Quartey was speaking at the maiden edition of the Daily Graphic-Ecobank Ghana Economic Forum in Accra yesterday on the theme: “A broad review of the economy of Ghana: Then, now, and the way forward.”
It brought together industry experts, policymakers and academia who discussed and analysed effective controls to promote sustainable economic growth, innovative strategies to ensure sustainable fiscal management, and examined ways to broaden the tax base and also identify innovative revenue mobilisation methods to boost economic growth.
Competitiveness
Highlighting the country’s uncompetitive tax rates compared to its regional peers, Prof. Quartey said Ghana’s Value Added Tax (VAT) stood at 21 per cent, while its competitors charged between 15-18 per cent on average.
“What we are doing is encouraging people to evade. When your tax is too high, it calls for tax evasion. We keep enriching officials and businessmen while government is struggling for money,” he said.
Prof. Quartey, however, commended the government for scrapping some taxes, particularly the Electronic Transfer Levy (E-Levy), which he described as a “nuisance tax” that was negatively affecting the country’s transition to a cashless economy.
“The rates were punitive, so I support that decision very much. If we want to be cashless or move towards a cashless economy, I don’t think we should be taxing such payments,” he added.
Prof. Quartey was, however, of the opinion that the betting tax should have remained to correct behaviours by channelling them into productive sectors.
“You use tax to correct behaviour, raise revenue and enhance people’s livelihood. If we were to channel this money into sports development or training for young people to be gainfully employed, I think it will serve our purpose better than scrapping it completely,” he said.
Informal sector
The director further said that the informal sector remained a major untapped revenue source.
He said the government was only focused much on the formal sector which represents only 20 per cent of the economy.
“About 80 per cent of our economy is informal. We have not devised a proper mechanism to tax the informal sector.
Why should we focus so much on the 20 per cent and over-tax them while leaving the 80 per cent?” the director quizzed.
This, he said, had contributed to the country’s persistent borrowing and inadequate revenue mobilisation, with the nation’s tax to Gross Domestic Product (GDP) ratio standing at 14 per cent, compared to the 18-23 per cent achieved by other African countries.
Structural reforms
In a speech read on his behalf, the First Deputy Governor of the Bank of Ghana, Dr Zakaria Mumuni, stressed the need to recognise macroeconomic stability as a necessary condition, but not sufficient to fully reset the Ghanaian economy.
To fully reset the country's economy, he said the growth model needed to be broadened beyond the extractive sector.
Dr Mumuni said in so doing, the country must leverage the African Continental Free Trade Area (AfCFTA) to position Ghana as a regional hub for agro-processing, light manufacturing, and logistics.
“These sectors have high employment elasticity and offer scalable export potential. But they need targeted policy support and infrastructure investment.
“Other sectors such as tourism, education and health must also be recognised for their economic potential, in terms of job creation, foreign exchange earnings and innovation,” he added.