Taxes and job creation; killing two birds with one stone

By J.M. Eledi
job

Ghana over the years has established itself as a shining star on the African continent, and this is evident in the reverence accorded the country around the world, particularly for its democracy.

It has enjoyed relative stability for close to three decades, and this has laid a sound foundation for its development, economic growth and prosperity agenda. Over the years, several governments have assumed the reigns of government and instituted varied policies with the hope of moving the country from its current status as a third world, lower middle-income country to a leading player in world trade with a buoyant domestic economy.

These policies have over the years not achieved the desired results, though admittedly some gains have been made. Question is whether those gains are significant, and for a country that boasts of being the first in sub-Saharan Africa to gain independence, that is something to be proud of. The country’s economic policies aimed at alleviating the poverty of the people and improve living conditions of the citizenry has been riddled by so many instances of corruption, politicisation, mismanagement and incompetence.

Very often, governments have had to go cup in hand borrowing from the West or the East to fund these projects. This creates more problems for the country as it must generate more revenue to pay off the loans and at the same time finance its projects internally. This compromises the independence of the country, a situation some refer to as neo-colonisation. This brings to the fore the issue of ‘TAX’ - from where government generates revenue to fund its activities.

Nobody can downplay the relevance of taxes to the development of any country. No country has done without it, and no country in the current state of the world can do without it. The debate has gone on for long, for centuries now, among economists about the best tax methods. Whereas it is generally agreed taxation is necessary, what amount of it is enough and acceptable, and who gets to pay what are questions that have sharply divided economists, experts and/ or analysts.

Not just economist and finance players have been sharply divided, but governments and political ideologies. Whereas those on the left believe it in principle; tax the rich to cater for the poor, those on the right believe businesses should not be over saddled with taxes; allow them to thrive so they can provide for the poor through jobs and other interventions.

In Ghana, the issue of taxes is a political one that can make or unmake governments. The country requires development, yet it doesn’t have a well-established tax system that ensures that it generates revenue to address its development challenges. Less than 2% of taxable Ghanaians are within the tax net.

Meaning this two per cent or so people carry the burden of roads, water supply, security, decent housing etc we require. A chunk of Ghanaians are in the informal sector and fall outside the tax bracket - governments have over the years repeated the rhetoric of widening the tax bracket but are faced with a huge challenge of HOW?

Majority of Ghanaians outside the tax bracket is an indication of, among other things, the massive unemployment situation we have in the country. The country produces thousands of graduates yearly with only a handful gaining employment. This means the system would only capture the 'handful', and the thousands are left off the hook. Thankfully, there currently is a government that has pledged to support private enterprise and self-employment (granted this is so).

Irrespective of the economic situation of the person, irrespective of whether one is employed or not, we all demand an equal share of development, yet we all do not pay taxes (that can’t be blamed on us). It is for government to devise innovative ways of ending unemployment and at the same time widening the tax net.

A strategy that has eluded us is focusing on University graduates. I know I will be contested for suggesting this, but YES, the stone that can kill our goliaths of low TAX payment and massive UNEMPLOYMENT is the university graduate.

The Finance Minister during his presentation of the recent Midyear budget review proposed the government's strategy on revenue mobilisation was to enhance performance with the automation of systems, plugging of leakages, improving tax compliance and administration, review of taxes and change in culture. While the government goes after the big fishes, it is necessary to devise other strategies that will ‘catch us young so tax payment sticks with us forever.’

Mr Ofori-Atta also suggests the government was determined to widen the tax net and to make it fairer, simpler and convenient for citizens to meet the obligation of contributing towards national development.

Compulsory TIN for students

Government in 2018 instituted TIN as a necessity without which it would be impossible to process a passport at the passport office, register land documents at the Lands Commission, transact business with the Registrar General's Department, secure contracts from governments and secure payments from the Government agencies like the Controller and Accountant General Department, or own a drivers’ licence. This was aimed at widening the tax net, and compelling more people to register.

2017 data from the Institute of Statistics, Social and Economic Research (ISSER) of the University of Ghana, has revealed that only 10 per cent of graduates find jobs after their first year of completing school. The data also indicated that, it may take up to 10 years for many graduates to secure employment due to varied challenges that range from the lack of employable skills, unavailability of funding capital for entrepreneurship, poor attitudes of graduates towards job opportunities, as well as the low capacities of industry to absorb the huge numbers. The data also suggested that an average 60,000 people graduate from tertiary institutions.

This means that close to 54, 000 people do not get employed immediately after school. Some of these people venture into the informal sector and escape the tax net. Others go unemployed and become a burden unto the state.

Going forward I suggest government makes Tax Identification Number a necessity for all graduating students. TIN is mandatory and required by the laws of Ghana for every adult Ghanaian living everywhere to register. Taxpayer Identification Number (TIN) is a unique number generated by the Ghana Revenue Authority (GRA) for persons including corporate entities upon application.

What does this mean for us as a country? Ensuring almost 60, 000 people have Tax Identification Numbers means that the tax net is widened, and the government wouldn’t have to increase taxes to further burden the citizenry (already paying people). Doing this also means that more revenue for development. Additionally, doing this means the government will not have to spend more money on campaigns to get people to go register for tax payment simply because right from when people enter the job market or the ‘real world’ they are captured in the system (GRA actually spends a lot on tax compliance campaigns). This will go a long way to help all. Note that it is NOT the same as taxing students. It only ensures your data is captured into the system as a potential taxpayer whether or not you immediately acquire a job or not.

NSS must be restructured to support graduate entrepreneurs

Secondly, the government must and should provide the enabling platform and support for graduates to get employment. Over the years, the state has used the National Service Scheme not only to make students serve the state in a mandatory one-year programme but also as a conduit to prepare graduates for the job market. Though it’s a good idea, it is defeatist to the concept of entrepreneurship and for a government that touts its credentials as being private sector friendly; it is a slap on the face.

Ghana’s unemployment situation is a troubling one, and so the government’s quest of building a robust private sector and a Ghana Beyond Aid will be jeopardised if the Ghana that is being built beyond aid is hijacked by foreign businesses. The day they (foreign investments) decide to leave, we are in big trouble. The day a policy doesn’t suit them, they can twist the hand of government; and lastly, building a private sector or Ghana beyond aid with most companies being foreign investments mean the workforce will constantly be at risk of dancing to the tune of the foreigners.

The World Bank in a report dubbed “Landscape of Jobs in Ghana,” aimed at exploring the opportunities for youth inclusion in Ghana’s labour market revealed that about 48 per cent of the youth in the country who are between 15-24 years do not have jobs. Ghana’s unemployment rate stood at 11.9 per cent in 2015 according to the Ghana Labour Force Survey Report by the Ghana Statistical Service. This depicts a picture of the nature of our unemployment situation and how the youth more crucially need jobs.

A research work by Isaac Kofi Biney, PhD Lecturer, School of Continuing and Distance Education (SCDE), College of Education, University of Ghana, Legon on “Exploring Graduate Unemployment Problem In Ghana: Challenges And Strategies” concluded that ‘Lack of practical, technical and entrepreneurial skills, theories-based subject matter taught, high cost of credit or start-ups capital for businesses and lack of opportunities were some of the perceived challenges confronting today’s university graduates.”

Government, in an attempt to deal with the high level of unemployment in the country, instituted programmes including NaBCo, NEIP and also set up a Ministry for Business Development aside the already existing schemes that were in existence before that. All these have been done to encourage private sector development and entrepreneurship.

Policy Think Tank, IMANI’s assessment of the 2017 budget statement read to parliament noted that “to deal with the increasing graduate employment challenge, the government has allocated GHs 600 million to employ 100,000 graduates as part of the Nation Builders Corps programme (NabCorp). Successful recruits will be trained and engaged in various sectors of the economy, ranging from health, education, revenue mobilisation etc. This programme is a reflection of policy incoherence and a myopic approach to solving graduate unemployment challenge. A more prudent solution to graduate unemployment would be to invest the 600 million cedis allocated to the NABCO in providing financing through a seed fund to encourage more graduates into the value chain of agriculture.”

It continued, “What graduates in Ghana need are sustainable jobs created by a thriving private sector, entrepreneurial training and seed capital to start their own business.” This aspect is of interest to me the most. NABCO we are told was over-subscribed, sending a signal of desperation among graduates who are done with their NSS.

A more SUSTAINABLE and viable solution in my view and building on IMANI’s point of seed capital allocation is supporting graduates with entrepreneurial ideas to develop their businesses with the support of government through funding and mentorship. NSS per the constitution is a 2-year programme. As such, instead of pushing the over 60, 000 graduates into institutions where their services aren’t needed and spend government revenue paying them allowance monthly for little or no work done or places they are likely not to be employed after service, government should restructure the NSS to support and guide graduates with concepts that will be jointly evaluated to ensure its viability to establish themselves.

This will greatly reduce the unemployment situation, increase local private companies and allow government have a stake in the companies that will succeed, and reduce the burden on the government to provide employment for all 60, 000 graduates produced annually, thereby, easing the pressure on the growing wage bill.

The government could by this widen the tax net as all graduates operating businesses will already be captured in the tax net, and at the same time employment will be created.