In the ongoing debate about higher taxation, one sentiment echoes louder than others – the widespread resistance against increased taxes. As a change management expert I find it imperative to delve into this issue and shed light on why, despite popular opinion, increased taxes may not always translate into societal progress.
One of the most compelling arguments against higher taxes is the impact they have on economic behavior. According to the Tax Foundation, a more progressive tax system can distort economic choices and reduce total real incomes. This means that higher taxes can inadvertently lead to reduced productivity and investment, thereby hampering economic growth.
Furthermore, higher taxes, particularly corporate taxes, can adversely affect competitiveness. An article in The Hill opines that a tax increase would cause companies to face a higher cost of investing. This could potentially deter foreign investments, a key driver of economic growth and job creation.
Moreover, an increase in taxes reduces disposable personal income, leading to a decrease in consumption. This can result in a shift in aggregate demand, negatively affecting the economy’s overall health.
However, proponents of increased taxes argue that the revenue generated can fund important public services such as education, healthcare, and social welfare programs. While this is undoubtedly true, it is equally important to consider how efficiently these funds are utilized. Without proper oversight and fiscal prudence, increased tax revenue could lead to inflated public expenditure and wastage of resources.
Additionally, the benefits of public services funded by taxes must be weighed against the potential economic costs. For instance, while increased taxes might improve public healthcare, the consequent reduction in disposable income could impact individuals’ ability to afford other necessities.
The recent tax increases in Ghana have stirred a wave of debate and criticism. Enacted by Ghana’s Parliament on April 3, 2023, these new laws have had profound effects on individuals and businesses alike. However, the economic impact of these tax hikes has not been as positive as anticipated. Despite an increase in the tax-to-GDP ratio from 13.2% in 2019 to 13.4% in 20203, the Ghanaian economy is grappling with the consequences of these measures.
Businesses, especially small and medium-sized enterprises, are bearing the brunt of the increased corporate taxes. Introducing a 35% tax on chargeable income exceeding GH¢600,000 per annum has been particularly burdensome. Additionally, the concessional tax rate has surged from 1% to 5%, further straining businesses.
On the social front, the tax increases have sparked discontent among citizens. The passage of three new taxes was met with strong opposition, but a slim majority nevertheless passed them. The public has voiced concerns about the potential for increased costs of goods and services, and a higher cost of living.
In conclusion, while taxes are a crucial source of revenue for governments, it is essential to strike a balance. Rather than viewing increased taxes as a panacea for societal issues, we must consider the broader economic implications. Let’s advocate for a comprehensive approach that includes efficient tax administration, prudent fiscal management, and economic policies encouraging growth. Because, at the end of the day, it is not about how much revenue we generate, but how wisely we use it.
Benjamin | Speaker | Consultant | Author and Founder of Nimdier, a Change Management Company | Ex-Global Board Member, ACMP
Email: [email protected]
Website: nimdier.com
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