IMANI Center for Policy and Education (IMANI Africa) expends so much energy in quality research and evidence-based advocacy. Over the past years, we have teamed up with partners – both national and international to conduct research with regard to private sector activities. As part of our activities, we undertook varied research works that sought to catalogue the challenges confronting Ghana’s business environment, particularly in the areas of paying taxes and starting a business. Our decision to focus on the two aforementioned areas were as a result of:
1. In the 2015 Doing Business Report, Ghana ranked 97 in the World for its ease of Starting a Business, whereas, in the 2016 report its ranking had fallen to 102.
2. According to the 2016 Doing Business Report which captured data from the period 2014-2015, Ghanaian businesses make 33 different tax payments a year, spend 224 hours a year filing, preparing and paying taxes amounting to 32.70% of profits.
In various reports and private letters to the powers that be, particularly the Registrar General Department (RGD), we highlighted areas of concerns in terms of starting a business and paying taxes in Ghana and how they can be addressed. We consider it important and indeed urgent for government to pay attention to critical policy reforms in the business climate in Ghana, as the country is losing its competitiveness, relative to the rest of the world. Disappointedly, we were met with bureaucratic inertia unmatched in our experience with other public institutions. We are therefore writing to the Government to consider the following reforms to improve the ecosystems of starting a business and paying taxes in Ghana.
1. Starting a business
A. The Challenge
Registering a business is the fundamental first step for any businessman interested in doing business in Ghana. A significant component of Ghana’s economy runs in the informal sector. However, this crucial group often avoid official registration procedures for a myriad of reasons, although time factor, cost, strain and bureaucracy are the usual suspects. We estimate that if 30% of the estimated 80% of businesses operating in the informal get formalized, the tax base would have doubled in terms of revenue generation. Interviews with local informal business owners revealed that “complexity” is the most prominent disincentive in the business registration process. Government continues to loose big chunk of revenue owing to a growing informal economy.
B. The way forward
First and foremost, we believe that we need to address the issues of the effectiveness of the current online platforms. Although the Registrar General’s Department (RGD) does have a website as well as an Online Service Platform, through our recent investigations, we have found that the website and Online Service Platform provide limited e-registration services. We recommend the Design and implementation of an online single window system with functionality for online application for business registration, payments of required fees, tracking of application status, approvals and issuance of the certificate(s). We recommend that for security reasons and purposes of Identity verification, certificates be delivered offline.
Secondly, our research has identified a miscommunication of information between the public and the government agencies, notably RGD, about the available online services and the most effectual way to use them. This situation could be rectified with the introduction of a Standard Operating Procedures Manual and a Public Education Toolkit.
Thirdly, we recommend that the government establish mini-registration offices at vantage locations: Local Assemblies and Districts offices. We believe such as a system will aid the registration of businesses at the local levels.
And lastly, we recommend the enactment of a legislation (e.g. Right to Services Act) to mandate time-bound delivery of public services to Industries/ Businesses with punitive measures applicable to public officials who fail to comply with defined timelines.
2. Paying Taxes
A. The Challenge
In 2016, Government announced that it expects higher revenue inflows based on the consolidation of revenue collection efforts, introduction of new taxes and increment in the rates of existing ones. The 2016 Budget and Economic Policy statement and the new Income Tax Law (Act 896) 2015 substantiate government stands. In the 2016 Budget and Economic Policy statement, government introduced a number of tax policies in view of addressing issues regarding tax exemptions, tax evasion and low compliance and revenue maximization. The introduction of new taxes as contained in the new Income Tax Law (Act 896) 2015 was met with mixed feelings by businesses as they claimed they are already burdened with a number of taxes. They described the timing of the new taxes as unfavorable as they were already operating in a hostile business environment. Government thirst for taxes has never been palpable. At a function jointly organized by the Graphic Business and Stanbic Bank on 31st May, 2016, Finance Minister, Hon. Seth Terkper was reported to have said that Ghana was considering taxing allowances. Government, however, dismissed such reports that it has intentions of taxing allowances and Pensions.
B. The way forward
Latest data released by Ikern and Associates in collaboration with the Private Enterprise Federation (PEF) revealed that under the new tax regime, companies that fail to pay taxes on due dates are subject to a penalty payment of 125 percent of the statutory rate (policy rate), compounded monthly, and applicable on the amount outstanding at the start of the period. The punitive measures in the new tax law are likely to collapse businesses. This system renders the private sector uncompetitive to potential investors. We recommend the introduction of a technology-empowered tax administration system that facilitates the electronic filing of tax returns. By implementing an e-filing system, the procedures and time required to file tax returns will be reduced, thus encourage businesses to file their taxes on time.
Businesses we have spoken to in our research indicated that apart from the high cost of credit and electricity, the multiplicity of taxes is one major threat to their sustainability. We recommend that Government adopts a pro-informal sector policy to mobilize direct taxes in order to ease the burden on the contracted formal sector.
We hope these recommendations will go a long way to revamp Ghana’s ruining noncompetitive business environment.
As a policy think tank, we are, as always ready to avail ourselves to policymakers for any advice.
IMANI Africa’s Isidore Kpotufe and Keshia Osei-Kufour contributed to this letter.