Paying taxes in Ghana and tax reforms
PwC in collaboration with The World Bank Group has been conducting a survey on the ease of doing business across the globe. The survey currently covers 190 countries and is one of the most extensive surveys on doing business across various jurisdictions.
This survey consists of indices covering a wide array of areas implicit in any business undertaking including starting a business, paying taxes, getting access to credit, dealing with construction permits, enforcing contracts, resolving insolvency, getting electricity, registering property, protecting minority investors and trading across borders.
The tax portion of this annual report further covers the ease of paying taxes by tracking and comparing across countries and regions of the world, significant indicators like time investment to fully comply with the tax law and how many types of taxes an ordinary business person has to deal with in the course of the year.
Paying taxes extends beyond tax rates. Knowing the tax rates which apply to an income or a transaction is not the end. The taxpayer needs to know the base on which to apply the rate to compute quantum of taxes and finally how and when to pay the taxes. If the tax law is complex, a tax consultant may be hired to compute taxes. Also logistical issues such as distance to the tax office, mode of making tax payment either through a bank or making an online payment all affect general tax compliance.
The survey uses a model of a small/medium enterprise manufacturing entity which operates under the normal tax regime. This means that all countries are compared without using any special tax regime, free zone or incentive.
The aim is not to lead countries competing on the basis of tax alone on a race down to the bottom and thereby harm governments. Rather this study has created the platform for discussions around tax policies and practices to make compliance for the tax payer as simple as possible for the ordinary taxpayer to understand. Among issues covered in the paying taxes section of the study are the different types of taxes applicable, how easy it is to pay taxes, prepare tax returns, the frequency of filing tax returns, and the resolution of tax disputes with the tax authority. The overall effect and aim for the survey is that the taxpayer should be able to focus on their core business, creating jobs and general value addition for their stakeholders including employees and government (rather than spend an inordinate amount of time complying with taxes).
The Paying Taxes survey also serves as a guide for policy makers and allows for an inter-country comparison. It is also to engender a productive discussion on taxes between administrators, tax consultants and taxpayers. The endpoint is that such discussions will lead to optimum tax administration.
The Paying Taxes report commenced in 2007 but with data available stretching from 2004. A review of the survey provides a cross-sectional tax history of Ghana from 2007 to date and the impact of various tax policies on ease of paying taxes and doing business in Ghana. It also gives the opportunity to compare Ghana to other jurisdictions as a favorable investment destination looking at tax factors as a basis.
Rank on Ease of Paying Taxes
As chart 1 below shows, Ghana had its highest rankings in 2012, although the trend has been downward since 2013.
Note that despite changes made in the tax laws in 2012/2013 and 2015 which affected Ghana’s rankings, other factors may account for Ghana’s position changing without any changes in the tax law. For example if other countries make significant amendments to their tax environment, Ghana’s position might change
without Ghana necessarily amending any tax laws.
The ranking on the ease of paying taxes is the simple average of the rankings on three plus one component
indicators: .i.e. number of annual tax payments, time to pay tax, total tax rate and a post filing index.
Frequency of filing and payment of taxes
This indicator takes into account the total number of taxes paid by a small-medium enterprise operating under the general tax laws in Ghana.
The types of taxes covered here are Value Added Tax of 17.5 per cent (on sales), corporate income tax of 25 per cent on profits and its quarterly payments self-assessments and the frequency of filing and payment of these taxes.
As chart 2 shows, the number of payments made has remained fairly constant at 32 to 33 payments per annum which includes 12 monthly VAT payments, 12 payments in respect of social security contributions, 4 quarterly payments and one final payment for corporate income tax, annual property tax paid with the local government, and a capital gains tax filing and payment in respect of sale of a chargeable asset by the small-medium sized entity. The report looks at taxes in terms of all statutory required payments to be made to government or quasi state agency.
Hence a legally required payment such as property rate or social security payment for which a taxpayer can be legally sanctioned for non-payment is included in this indicator.
With the change in the tax law from 2016, no separate capital gains tax returns need to be filed, hence all things being equal, there should be a drop in terms of total tax payments in the next publication.
Our subsequent article will highlight Ghana’s report on the ‘Total Tax Rate’ and ‘Technology and compliance’ indicators.