The tax system in Ghana has undergone a major transformation during the past eight years than any other period in our socio-political history.

The NDC administration has over the past eight years of governance undertaken various tax reforms with the aim of improving tax revenue. Through the enactment of various tax laws, streamlining of the revenue administration process and introduction of some new taxes, the government was able to increase the tax revenues year on year.

Generally, the total tax revenue of the government will invariably depend upon the size of the tax base, the levels of tax rates adopted within the tax system, administrative efficiency, and the compliance rate.

The Tax Laws Project

The Ghana Revenue Authority, as part of its strategic plan began what it termed as the “Tax Laws Project” in 2010. The aim of this initiative was to reorganise the various tax laws in the country for efficient revenue mobilization and better tax administration. In 2009, the enactment of the Ghana Revenue Authority Act (Act 791) merged the erstwhile separate revenue institutions – Internal Revenue Service, Customs Service and Value Added Tax Service into one revenue authority.

The GRA has through the Tax Laws Project initiative, worked closely with government and Parliament to pass new tax laws and repeal the old ones with focus on improving tax revenues. The major tax laws enacted are as follows;

1. Value Added Tax Act 2013 (Act 870) as amended
2. Value Added Tax Regulations 2016 (L.I 2243)
3. Income Tax Act 2015 (Act 896) as amended
4. Income Tax Regulations 2016 (L.I 2244)
5. Customs Act 2015 (Act 891) as amended
6. Revenue Administration Act 2016 (Act 915)

The aim of these new tax enactments was to simplify the provisions of the tax laws, make them more user- friendly, enhance efficiency and facilitate compliance, broadening the tax base, remove the narrow and distorted tax base, rationalize, streamline and restrict tax concessions, tackle erosion of the tax base and align domestic tax rules with current international tax rules. 

Tax Revenue (2009 – 2012)

In analysing the effectiveness of the various tax reforms, we look at how tax revenues had performed over the eight year period of the NDC administration.  In the First Term of the NDC administration, tax revenue increased consistently as depicted in the table below.

	2008 (Base Year)	2009	2010	2011	2012
Direct Taxes	1,253,208,500	1,716,906,199	2,453,953,100	4,036,566,261	5,536,213,944
Indirect Taxes	1,851,191,387	1,859,493,972	2,308,171,509	3,588,989,412	4,083,661,563
International trade taxes	719,370,245	762,667,688	1,146,148,621	1,515,962,212	1,990,079,982
Import Exemptions	475,681,675	318,459,605	386,424,204	634,572,369	778,921,746
TOTAL TAX REVENUE	4,299,451,807	4,657,527,464	6,294,697,434	9,776,090,253	12,388,877,236
% Increase		8.33%	35.15%	55.31	26.73%

Source: Ministry of Finance (All figures are in Ghana Cedis)

Total tax revenue in 2009 was GH¢ 4,657,527,464 representing a mere 8.33% increase from the 2008 tax revenue of GH¢ 4,299,451,807. However, in 2010, tax revenue grew by 35.15% to   GH¢ 6,294,697,434 and further increased by 55.31% in 2011 to GH¢ 9,776,090,253 before growing marginally by 26.73% to GH¢ 12,388,877,236 in 2012. The aggregate growth in tax revenue over the four year period of the President J.E.A Mills government was 188% from 2009 to 2012.

Within this period, the only significant tax legislation enacted was the National Fiscal Stabilisation Act, 2009 (Act 785) which imposed 5% tax on the profit before tax of some selected industries.  The Act was however repealed in 2011 following the stability of the economy. Also, there was an increase in the Capital Gains tax from 5% to 15% in 2010 and “ring fencing” of mining operations in 2012.

Tax Revenue (2013-2016)

Tax revenue under the second term of the NDC government from 2013-2016 improved significantly under the backbone of the introduction of new tax legislations, increase in some existing tax rates, and a feeble attempts to broaden the tax base.

	2012 (Base Year)	2013	2014	2015	2016 (Revised Budget)
Direct Taxes	5,536,213,944	6,301,734,257	8,486,571,523	8,706,504,262	11,358,930,103
Indirect Taxes	4,083,661,563	4,832,951,823	6,434,283,961	9,926,832,338	12,116,542,790
International trade taxes	1,990,079,982	2,330,964,341	3,091,223,539	3,448,930,198	5,653,571,176
Import Exemptions	778,921,746	842,000,745	1,217,682,286	2,058,650,020
TOTAL TAX REVENUE	12,388,877,236	14,307,651,166	19,229,761,309	24,140,916,818	29,129,044,069
% Increase		15.49%	34.40%	25.54%	20.66%

Source: Ministry of Finance (All figures are in Ghana Cedis)

 

Tax revenue increased from GH¢ 12,388,877,236 in 2012 to GH¢ 14,307,651,166 representing 15.49% increase in 2013. Tax revenues increased by 34.4% in 2014 to GH¢ 19,229,761,309 and increased by 25.54% in 2015 to GH¢ 24,140,916,818 before ending the period with an increase of 20.66% to GH¢ 29,129,044,069 using the revised budgets estimates in 2016.

 

It could be seen that although tax revenues have been increasing, the growth has been declining since from 34.4% in 2014 to 25.54% in 2015 and 20.66% in 2016.

 

The NDC government during the second term imposed various taxes to narrow the fiscal deficit. All the new tax laws under the “Tax Laws Project” were introduced during this period. Some of the new taxes imposed during this period are as follows;

 

1. Increase in VAT rate from 12.5% to 15% in 2014
2. Imposition of 5% VAT/NHIL on Real Estates in 2014
3. Imposition of17.5% VAT/NHIL on pharmaceuticals other than retail in 2014
4. Abolishing of 3% VAT Flat rate scheme in 2015
5. Imposition of 17.5% VAT/NHIL on Financial Services in 2015
6. Imposition of 17.5% VAT/NHIL on auctioneers and promoters of public entertainment in 2014
7. Imposition of 17.5% VAT/NHIL on the business of a gymnasium and spa in 2014
8. Imposition of 15% capital gains tax on petroleum operations in 2013
9. Reintroduction of 5% National Fiscal Stabilisation Levy in 2013
10. Imposition of Special Import Levy of 1%-2% on CIF value of some exempt items from 2013 (outboard motors, fishing nets, agricultural machinery, dairy milking products, energy saving bulbs, book binding machines, cutlasses and some farming inputs).
11. Corporate tax of 25% on private educational institutions in 2013
12. Corporate tax of 1% on companies enjoying temporary tax concessions from 2015
13. Capital Gains of companies taxed at 25% instead of 15% from 2015

Tax revenue increased by an aggregates of 577.5% during the eight year period from        GH¢ 4,299,451,807 in 2008 to an estimated revenue of GH¢ 29,129,044,069 in 2016. Although tax revenues increased consistently during the eight years of the NDC regime, the growth rate has been declining from 2014.

The growth in tax revenue has been driven by imposition of new taxes and increase in tax rates and not as a result of broadening of the tax nets. This has increased the tax burden of many businesses and individuals who are already in the tax net. This has led to increased cost of operations and low liquidity thereby eroding the capital base of many businesses.