a)

The nature of Ghana’s Tax Structure with applicable examples.

Based on what amount the tax is levied The Ghana Revenue Authority (GRA) classifies taxes into three broad categories: taxes on income and profits (direct taxes); taxes on goods and services (indirect taxes); and taxes specifically on international trade (customs taxes)

Based on the method used for the calculation of the tax i) Proportional Tax. Here tax is levied at a fixed rate on the amount of income earned. A proportional tax is a tax whose burden is the same rate regardless of the income earned by the household. For example, under a proportional tax system, if the income tax rate is 10%, then a household who earns GH¢10,000 will pay 10% of their income in taxes, while a household who earns GH¢10 million will also pay 10% of their income as taxes. ii) Progressive Tax. Here the rate that is used to calculate the amount of tax is determined by the person’s total income. The bigger the person’s income the more tax he will pay. A progressive tax is a tax that takes a higher percentage of income from higher income households than from lower income households. The current income tax system in Ghana on PAYE is a progressive tax. For example, under a progressive tax system, a household that earns GH¢10,000 would pay a 5% income tax while a household that earns GH¢10 million would have to pay a 35% income tax. iii) Regressive Tax. This is where the tax rate reduces as the person’s total incomes gets bigger. This type of tax does not exist in most countries, but a typical excise tax is regressive.

Based on who has the responsibility to pay the tax i) Direct Tax. In this case the impact and incidence of tax falls on the same person. Direct taxes are taxes on income. A Direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons. The burden of direct tax is one that cannot be shifted by the taxpayer to someone else. Examples of Direct Taxes are personal income tax from labor, interest etc., Company tax, Property tax, Stamp duties, Rent tax. ii) Indirect Tax. Here the impact and incidence of the tax falls on different people. Indirect taxes are taxes on spending. It is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). An indirect tax is one that can be shifted by the taxpayer to someone else. This kind of tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples of Indirect Taxes are Export and import tax, Excise tax, Surcharges, Entertainment tax, Licenses, Value added tax, Petroleum tax.                                                                                                                                                                                                                                                                                                            bi)

Tax Reforms in Ghana i) Tax reform consists in changing the structure of one or more taxes or the tax system, to improve their functioning for achieving their objectives. Tax reforms focus on:

1. Taxes on income and property,
2. Taxes on domestic goods and services,
3. International trade taxes and
4. Value Added Tax (VAT).

   bii) Ghana’s tax administration has undergone several reforms, including improving tax compliance, increasing tax revenue, and broadening the tax base.

   Tax compliance

   • Voluntary Disclosure Procedures: (VDP) to waive penalties for taxpayers who voluntarily disclose information
   • Alternative Dispute Resolution: (ADR) mechanism to resolve disputes between taxpayers and the tax authority
   • Independent Tax Appeals Board: Established to review tax appeals

   Increasing tax revenue

   • Shifting from sales tax to VAT: A major tax reform that has increased the tax-to-GDP ratio
   • Increasing direct taxes: Increasing the proportion of direct taxes relative to indirect taxes

   Broadening the tax base

   • Broadening the tax net: Bringing more individuals and businesses into the formal tax net