Tax evasion by professionals cause of poor domestic revenue

Data from the Ghana Revenue Authority (GRA) has shown that revenue generated from personal income tax has continuously seen a decline for the past five years – a situation that tax experts and authorities said can be partly blamed on the evasion of taxes by some professionals whose income are not captured in the tax books.

According to the GRA, between 2015 and 2020, the contribution of personal income tax fell from 2.1 percent to 1.22 percent – a situation that is affecting domestic revenue mobilization, as the country is among the continent’s economies with the poorest tax to GDP ratio.

Thus, tax expert and lecturer at the University of Ghana Law School, Dr. Abdallah Ali-Nakyea, has pointed a finger at his fellow professionals such as lawyers, accountants, architects, surveyors, among others – who though making a lot of income from their professions have those incomes captured under the informal economy due to the contractual nature of their work with clients.

“We the professionals pretend as if we are informal. We are not. In fact, I call us the formal-informal. My challenge is with professional bodies such as the Ghana Bar Association, the Institute of Chartered Accountants (CIT), the Chartered Institute of Taxation Ghana, and all the professional bodies whose members don’t pay taxes.

“I have always been fought by my own people. How many of us have produced a tax clearance certificate before renewing our licenses,” Dr. Ali-Nakyea said at a forum recently organised by the CIT.

He recommended that professional bodies must insist that tax clearance certificates are made a requirement before licenses are renewed for professionals, in order to discourage tax evasion.

“I will stress this: professionals are not informal workers, and if we refuse to pay taxes professional bodies should sack us.”

The country’s tax to GDP ratio is 13 percentage points lower than the average of 25 percent for middle-income countries – and far below the 20 percent minimum target for ECOWAS countries under the Eco currency system, to which Ghana is a signatory.

The ratio further compares unfavourably to peer countries such as South Africa and Kenya with 5-year tax-to-GDP ratio averages of 26 percent and 16 percent respectively, a situation that casts a grim outlook on efforts to recover from the pandemic’s devastation.

President worried

President Nana Addo Dankwa Akufo-Addo on Monday, September 13 warned professionals at the 2021 Bar Conference of the Ghana Bar Association that the GRA will soon crack the whip on professionals who evade taxes.

The president has expressed worry that legal professionals, who should know better, are the culprits in this situation.

Composition of personal income taxpayers

Even though the informal economy is said to constitute about 90 percent of the workforce in Ghana, according to the Ghana Statistical Service, professionals are said to control the highest value of income in that sector.

In 2020 Personal Income Tax amounted to GH¢413.5million, representing 1.22 percent of domestic revenue collection.

Commenting on the figure, Head of Audit-LTO at the GRA, Dr. Martin Yamborigya, said if the contribution had come strictly from informal workers such as traders and petty workers, the story would have been different.

“That is not the case. There are many professionals operating in this area we call the informal sector who are not contributing anything, and that is the biggest challenge,” he said.