In the past few days, the issue of revenue mobilisation has dominated public discussions due to possible introduction of new taxes and increases in the rates of existing ones in the mid-year budget review. This is due to the poor domestic revenue performance.
For years, governments have failed to increase the tax net and have relied heavily on increasing tax rates to increase revenue. Less than 20% of eligible taxpayers in Ghana actually pay their taxes. While we are quick to blame the large number of people in the informal sector who do not pay taxes, there are certain tax types that can help increase the tax revenues significantly. For instance, property tax could increase tax revenues by GH¢4 billion annually if properly mobilised.
So far the tax administration system has failed to properly identify properties and their owners to collect the right taxes from them. GN Research is therefore proposing the use of Geographic Information System (GIS) and mapping tools like satellite photos from Google Earth to determine the footprint of buildings and valuation of individual properties. Also, as part of the process, all foreign missions should require property tax payment certificates or receipts before issuing travel visas.
The GIS is the best approach because it captures all data on a specific property, update facility relating to the property (like swimming pools) and provides means to map tax-paying properties with unique property identifiers. That is, the mapping system will support the Ghana Revenue Authority (GRA) to profile or evaluate all buildings and match them with the owners. This should make property tax collection easier due to the availability of updated land and building property records, new construction records and ownership record on a single platform.
Fiscal data from the ministry of finance shows that in 2017, government missed its domestic revenue target by GH¢1.63 billion and about 49% of this shortfall was from tax revenue. Also, from January to February this year, the domestic revenue target was missed by about GH¢607.5 million with tax revenue shortfall component of 59%. This puts huge limitations on government’s expenditure plans and hence the need to introduce new tax measures.
However, given the tax burden on the few Ghanaians who are paying the taxes, a more appropriate and fair approach should be to focus on those who are not performing their tax obligations. While it is eminent that government will introduce or increase taxes in the mid-year review, it should be a short-term measure. Also, the revenues from these taxes should earmark some critical expenditure items, such as the Free SHS, the NHIS and infrastructure to enhance accountability.
Finally, government as a matter of emergency should start work on a comprehensive tax reform for the 2019 budget with specific focus on property tax, gift tax, VAT, income tax and the tax base/net to improve revenue mobilisation for sustainable growth and development.
Story: GN Research