In April last year, I shared in an article my thoughts on the significance of integrating the GRA Taxpayer Identification Number (TIN) and Ghana Card Personal Identification Number (PIN). In there, I observed that by using the bio-data provided on the National Identification System, data analytics can be employed to automate some tax audits and point GRA officers toward risky or potential tax evaders.
This is because, according to government, about 1.5 million out of the 6 million eligible Ghanaian taxpayers paid tax in 2020. This made Ghana one of the lowest tax to Gross Domestic Product (GDP) ratios in Africa. Ghana’s tax revenue to GDP was 13 percent in 2020 and it is estimated to reach 20 percent in 2023.
But after successful integration of the Ghana Card and Taxpayer Identification Numbers (TIN), GRA announced in later July that it had identified over 14 million people who are qualified to pay tax. Out of this number, 6.6 million currently file their tax returns with recent data available to them. This remarkable success was based on government’s policy of using the Ghana card as a unique identifier for all transactions where the identification of an individual taxpayer can be captured in the GRA system.
And so, pursuant to Regulation 7 of the National Identification Register, 2012 (L.I. 2111), the Bank of Ghana in a recent statement has indicated that with effect from July 1, 2022, the Ghana Card shall be the only identification card used to undertake transactions at all Bank of Ghana-licensed and regulated financial institutions. To that effect, no other form of national identification will be allowed by Bank of Ghana-regulated financial agencies apart from the Ghana card. Using the Ghana card for all financial transactions will ensure efficient tax collection.
For example, in other jurisdictions like the United States of America where a similar system of tax administration is in place, whenever a person sells a house, car or does a major transaction or investment, their social security number is requested. So at the end of each year, the central bank will have the information about all transactions made by the person in addition to the income accrued – which will be forwarded to the Internal Revenue Service (IRS) for the person to be assessed for tax.
Here in Ghana, the Ghana Card is the tax identification number (TIN). Thus, GRA will use the Ghana card as our tax ID; and every time there is a transaction, GRA will know the details of that person and their transaction.
For instance, if at the end of each year GRA crosschecks their system and realises that GH¢10million went into your accounts while there is no record that you filed your tax returns, you will be asked to pay the appropriate tax and penalty.
This will also help to increase Ghana’s domestic revenue. Total revenue for 2022 is projected at GH¢100 billion compared to the GH¢70 billion of 2021. This means that GH¢30billion more is to be mobilised this year than last. This is achievable because as at the middle of last year government had already collected more than GH¢26billion with the Ghana card as tax ID and without the E-levy. Moreover, since government could not account for GH¢57billion tax collected last year, how is it going to account for the projected GH¢6billion from the E-levy?
In essence, what government needs to do is intensify the use of Ghana card tax ID with its ‘digitisation of the economy’ agenda. The goal of tax digitisation is to collect the maximum amount of revenue with minimum cost to the state. The transitioning from TIN to Ghana card will achieve this goal.
Relevance of the transition
Even though rolling out the Ghana card as a tax identification card expects some encumbrances, the idea is to address them appropriately to build up the significance of its implementation, which is:
Efficient revenue mobilisation
Implementation should mark the beginning of tax digitisation in Ghana. As a matter of fact, the most valuable asset in the modern world is not gold or oil but data. Many larger companies in the world are not manufacturers, wholesalers, retailers or landlords, but platform providers, data collectors and digital advertisers. As stated above, the goal of tax digitisation is to collect the maximum amount of revenue with minimum cost to the state. The transitioning from TIN to Ghana card would provide data statistics and information about the economy; for example, determining which assessable persons are and are not taxable.
On the other side of the efficacy equation, the transitioning could aid in reducing tax avoidance and evasion by providing unique identification of individual tax data. When combined with other mechanisms like withholding tax and withholding VAT in a proper way, it can loop-in the informal sector (the biggest evaders of tax in Ghana). It may not necessarily make people pay the right amount of tax, but it will increase the taxpayer base.
Fiscal Electronic Device (FED)
Let me add that another possible measure for government to maximise revenue generation is for it to implement the Taxation (Use of Fiscal Electronic Device) Act, 2018, after more than four years of it being passed. This Act provides for the use of approved Fiscal Electronic Devices by specified taxable persons at each point of sale.
The FED is a device that will work as a point-of-sale device. The Act requires all VAT-registered persons to issue fiscal receipts generated by the FED. But government may pass a Legislative Instrument to include other persons who do not charge VAT to use the FED in order to loop-in the larger informal economy.
That is, persons will be required to use an approved FED and also keep a back-up FED at their premises. The back-up will be activated and used when there is a problem with the primary device. The initial costs of obtaining and installing the device will not be incurred by the taxpayer. GRA, through licenced suppliers, will provide free FEDs up to a maximum of five FEDs to every taxpayer and also ensure it is installed. After this initial set-up, the taxable person will be required to purchase any additional FED for use.
Digitalisation of tax administration
The international tax rules are being reformed to cope with the increasing digitalisation of businesses. Thus, current international tax rules allow countries to tax profits of non-resident companies which are attributable to a permanent establishment in the country. Meanwhile, countries including the US, UK and other advanced countries have taken the unilateral action of taxing non-resident companies outside their countries – although work is ongoing to reach an international consensus.
For example, technology companies with digital platforms such as search engines and social media platforms can make substantial profits through the sale of advertising. Adverts may be targetted at users of the platform in a particular country, yet the technology company may have no substantial physical presence there – and it pays tax to its local revenue authority on the profits garnered outside the country.
In recent years considerable media attention has focused on the fact that US-owned technology companies such as Facebook, Instagram and Google have made large profits from interactions with individuals resident outside the country but have paid low levels of tax in those countries, or indeed anywhere. This issue is broader than just technology companies. Ideally, the international tax system needs to be radically reformed to deal with the increasing digitalisation of all types of business.
The insertion of digital tools into public administration and the informal sector may help expand the set of taxpayers, reduce costs and improve tax performance. Governments can better identify taxpayers by issuing Intrusion Detective System (IDS).
An IDS is a system that monitors network operating systems to detect suspicious activity and alerts when such activity is discovered or breached. Rather than relying on the manual anomaly of detecting and reporting tax evaders, an IDS in the network payment systems in the public – and especially the informal private sector – will monitor, detect and report infringements in the network payment system.
For example, government can alongside the Ghana Card establish an online platform for e-filing and e-payments of taxes and import duties which started effectively 1 July this year. Digital technologies help strengthen tax administration by lowering transaction costs and allowing innovation in tax policy. Digital tax administration can reduce tax evasion and fraud.
These advances will also help the financial inclusion and development agenda to reduce economic vulnerability and income inequality through the development of a broad financial inclusion policy, rather than impoverish people with the E-levy.
>>>the writer is a Tax Policy Analyst. He can be reached on [email protected]/0548455071