Due to the 2008 world economic crisis, investors are looking for new destinations to place their investments. This made Africa very attractive. Huge investment opportunities exist within the continent, and critical areas to place FDI – and Ghana is no exception – are power, infrastructure and agri business, topics that will be discussed during the Global African Investment Summit. Could you highlight this African momentum, and where these inflows should be located in Ghana?
In Ghana, especially in the last decade, the private sector has been leading the growth process, and the modernization of the economy. We have generally referred to the private sector as the engine of growth for the economy. When we look outside Ghana, we are talking about FDI. Economic policies are being designed to attract as much FDI as we can, to make Ghana an attractive destination for investors. With private capital mobilized from outside, the growth and development of Ghana will be huge. We need to catch up, and that means foreign capital being attracted to the country.
The attraction of FDI involves creating the economic environment that will attract investors; infrastructure has to be built in such a way that operators in the private sector will find it convenient and cost effective to operate here. In the area of tax, we have to structure our taxes so that foreign investors are attracted to us more than other parts of the world. Therefore, we need a tax system that is friendly to investors in general. A minimum tax burden and administration of taxes in the most transparent way, to make them predictable, is the best way.
Ghana was experiencing a great moment in its development but now there are signs that this is slowing down. There was a National Economic Forum held in May to address this. His Excellency the president said the economy needs to diversify and value needs to be added. What are your thoughts and how do you think value addition and diversification should be encouraged?
The National Economic Forum was a good step to be taken. First of all, to ensure that as a nation we have consensus on the way forward for the economy. In a democratic system, you need to carry your people along with you, in the policies that you pursue. However good a policy may be, if there is no buy-in from the citizenry, then there will be resistance. The National Economic Forum achieved the building of consensus on policies that together, as a country, we will pursue with full support from the vast majority of the country.
Out of the Forum, a number of areas were pointed out. Key areas that the government must focus on, in order to advance development and growth more rapidly. These included areas of infrastructure, which came up, areas of having to promote integrity, so that there will be certainty on the part of investors to be able to predict the costs of doing business in Ghana; creation of a conducive environment which would ease the restrictions, if any, for private activity, and create an apt environment for it to flourish. An important area is man power: building a pool of skills, so investors would be able to have the right kind of skills and capacity for industry, the service sector, and so on. All these are areas we looked at. We also mentioned the tax ratio. It should be supportive for investment.
The Forum was good. It redefined the focus for us as a country, and drew attention to the main issues we all agreed upon.
Ghana is now a lower-middle-income country in the near future. Inclusion in the financial system is important. Adult population inclusion is not that high; and another issue is to educate the population about tax duties. Three weeks ago, you had a tax location seminar. How are stakeholders working towards this financial inclusion and the sensitization of people about tax duties?
Like the development process itself, it becomes more rapid when you have a buy-in from the population. That argument is stronger when it comes to payment of taxes. Only when people and business communities are brought in and educated about what tax laws are, and how they should comply, can we have voluntary compliance with tax laws. Voluntary compliance with tax laws is not only cheaper for tax administration, but also more productive. When people don’t know what they are required to do, it is not fair to apply sanctions to them.
Tax education is a key part of our policy as a revenue authority. We are also making the taxpayer the focus of our attention, so that he will be sensitized to know what to comply with, and what privileges and rights he has. It is only when they know all these things that they will be encouraged to comply.
The bulk of tax revenue comes from voluntary contributors. The few that are resistant to tax paying, some may be deliberate, but a number of them are because they don’t know what to do.
President Mahama has stated in the media that health facilities, schools, roads, and other infrastructural developments needed in the country cannot be achieved without tax collection. How are you ensuring that tax collection is benefiting equally the entire population through concentrated funds?
Our mandate is to ensure efficient and effective mobilization of revenue. It goes to the concentrated funds, to other departments of government to do the planning to spend it in the most effective way that will make an impact on the population. In designing our tax policies and procedures by which we mobilize revenue, we ensure that tax payers are not duly inconvenienced, and also ensures that the tax structure itself promotes business. Tax mobilization and revenue mobilization do not hinder growth and business, but rather promote development of the economy. That is the principle we try to establish and operate on: efficiency, and transparency in the administration.
In December 2009, three revenue agencies merged into the Ghana Revenue Authority. Only three months later, you were named the first ever Commissioner General. What have been the milestones that Ghana Revenue Authority has achieved in these 5 years of history?
I want to point out that, normally, when the tax system has a lot of loopholes for evasion and so on, it acts as disincentive to those tax payers who want to comply. First of all, to make the tax system fair and efficient, so that investors would see the incentives to comply, we apply the tax in a fair manner, and we also encourage transparency. Then, we ensure that there isn’t too much scope for discretion in the administration of tax. Exceptions are kept at a minimum.
It is only when you apply taxes on a level playing field, and then use the revenue for infrastructural development, to create skills and manpower required by investors, that you will develop rapidly.
The shift from the previous paradigm, where you gave exemptions to attract investors, gave way to a fair and transparent collection of taxes, and using resources to develop the economic, business, and infrastructural environment to attract investors. We are no longer focused on using exemptions as bait for investors, but the creation of a conducive environment. That point, I believe, must also be understood.
The Ghana Revenue Authority was established by law in 2009. It took effect in 2010, and a Commissioner General was appointed in 2010. The reform involves bringing together or integrating four previously autonomous revenue agencies. They were managed by the RAGBS, but each of them operated under their own laws, and was self-accountant. The essence of the reform was to bring them together as one legal entity, administered as one revenue authority. That needed the establishment of one head of this structure, the Ghana Revenue Authority. That head of structure was created when the Commissioner General was appointed, so it became his mandate to set up the new structure, which would then bring together and administer as one entity.
The new structure involves each of the agencies, removing support service units from each of the entities, and putting all of them together as one support services division. Operational wings of each organization were put together as one to form the DTRD, to administer all domestic taxes: income tax, rent tax, VAT, all have to be put together under one division. Then, international taxes also were put together to be administered by one division. Now, we ended up with three divisions: Domestic Tax Revenue Division, Customs Division, and Support Services Division.
Two operational divisions focus on revenue collection, one domestically, and the other one internationally. Both are backed by the support services division. That is the three division formation in the Ghana Revenue Authority, headed by the Commissioner General, and three Commissionaires, each heading the three divisions. This structure had to be created, and people appointed. The first achievement is that this was done. We have set up the three divisions, and they are functioning well. It was a huge challenge.
All offices throughout the country had to be reorganized, so the taxpayer wouldn’t have to go to many offices, but only one. Now, taxpayers have a one-stop shop. They go to one office and pay income tax, VAT, and all taxes in one office. That meant merging all offices at the domestic level: VAT, and income tax. Doing that, we are integrating them into one office, and slicing them into sediments, with large, middle, and small tax payers separate. While we are integrating, we are also sedimenting. For each of these, we have only one office catering for all domestic taxes. That is also necessary because the skills you require to administer a taxpayer which has a computerized accounting system and is sophisticated at record keeping are different than the ones you need to administer a small taxpayer. We need to create special offices to cater for specific needs of taxpayers. That we have done throughout the country. This is another change we have carried out.
We are at the end of the process of creating one electronic platform for administrating all domestic taxes. That means the taxpayer now has a simpler task of complying with tax in only one office, and all the taxes in one office. This makes complying cheaper than under the old laws. Auditors now come as one team. The focus of the reform is taxpayer convenience. We make sure the taxpayer finds it convenient to comply with tax laws, and also that this is less costly.
On our part, we have more efficient utilization of personnel. Instead of having a team moving with a vehicle to one payer and soon after another vehicle to the same taxpayer, now only one team goes. That is more efficient use of resources for the Ghana Revenue Authority. These are the reforms we have carried out from 2010 to date. It is still ongoing. We are still modernizing the system.
In the area of tax laws, we have rewritten all of them. With the integration of all taxes under one authority, we had to rewrite tax laws to make them more taxpayer-friendly, easier to understand, and including the need to reformulate requirements. We made it simpler by removing all administrative provisions into one revenue tax law, the Revenue Administration Act. Then, the Charging Provisions. All those have also been provided. That is the reorganization and restructuring of tax laws. That is why a new VAT law had to be passed in December last year. Today, we are passing the new Customs Act, and also the Income Tax Act will be passed in due course. We have been rewriting laws, and passing them as new laws. Laws comply with WTO rules. That is also considered.
During our meetings with many top decision makers, it was explained us that the medium and long term of Ghana look good, but right now the short term is facing some difficulties. That is why some tough decisions have to be put in place like Foreign Operations, or new taxes. How are you ensuring that through these policies Ghana has a bright economic future?
As tax administrators, we administer tax policies that are passed into law. To ensure that the country obtains the maximum benefits from new laws, we apply the tax laws even handedly, leaving no room for discretion, and ensuring that all tax payers are treated on the same platform. We try, also, to educate tax payers; and make our procedures and processes known in advance, so that taxpayers are able to predict their liabilities. This brings transparency and predictability. Tax payers and investors are often not worried as much about the level of tax, as with the predictability of tax burdens, so they can do planning. Where you have discretion, they cannot do planning, and that hurts the investor even more than the level of tax itself. We try to ensure taxpayers that the tax system is transparent. Information is available, and when we administer taxes, we do so on a level playing field for all taxpayers. There is no room for uncertainty.
You explained us how you put the private sector at the centre of economic development, that you want to encourage investment, and that the implementation of a tax system brings legal security to any investor. Baring in mind that many readers of the Daily Telegraph are top decision makers and huge investors, why should Ghana be their chosen destination?
Ghana must be considered the favourite for FDI because we have a more transparent tax system, we also have a tax system which is fair and all tax payers or investors are treated equally. They are certain and they can predict the taxes they should pay ahead of time. We also approach the business of tax collection with seriousness and give services to taxpayers. They should be sure that even when they are operating in Ghana, or before they come, they can seek any tax information, and we are ready to make that available for them. Once they come in the system, we want to cooperate with them. We apply the carrot, not the stick. We reserve the stick only for extreme cases because if affects business. Our first preference is to apply carrots to attract more taxpayers. We harvest revenue, just like farmers. We cultivate investors. When businesses are growing, we take taxes from them.
Ghana is in the spotlight with President Mahama chairing the ECOWAS, and the Commissioner General of the Ghana Revenue Authority is the president of the Commonwealth Association of Tax Administrators, one of the most important bodies in the world with more than 49 country members. Do you envision Ghana’s tax system to be an example for all African countries in the near future?
Definitely. We are aiming to create a world class tax system and administration. We will be a model for other countries to learn from. In doing this, we also established our place in the international community of tax administrators. The fact that Ghana now holds the presidency is indicative of the esteem in which already the Ghana tax system is held in the Commonwealth, and other tax organizations like the ATAF. Our leadership role in the international committee of tax administrators should give an indication of where we are, and our commitment to pursue excellence in tax administration, to the level that other countries will see Ghana’s tax administration as world class.
The country is making history now. How would you like people in the future to read about the Ghana Revenue Authority helping the country to make a brilliant future?
The government of a country hinges very much on the government having adequate resources to create the right environment for the private sector, and also infrastructure. All these require resources and revenue. That revenue comes from the Ghana Revenue Authority. Therefore, it is only when we mobilize revenue efficiently, that the government’s objective of providing adequate infrastructure and creating the required environment for development, will be realized. In doing that work, we have encouraged our modernization.
All our changes are aimed at ensuring greater efficiency and effectiveness in mobilization of government revenue, so the government has the right amount of revenue to pursue its agenda. In general, our role is also significant in the oil sector. The benefit of oil comes to the country largely through taxes, and being vigilant to ensure that companies comply with tax laws, and also have less room for manipulation. If we take the oil platform, the Ghana Revenue Authority has a 24-hour presence on the platform, to know the quantity of oil that is produced. We are key in ensuring that Ghana obtains the maximum benefits from the petroleum industry. We also carry out audits. Ghana Revenue Authority is key in ensuring that the government and the people of Ghana benefit from the the upstream oil sector. We are playing that role with a lot of efficiency.
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