The rate at which individuals and business entities pay their taxes reflects the capacities of a state and the health and vibrancy of an economy. The fairness and efficiency of a tax system can have significant impact on whether entrepreneurs (particularly smaller and micro-enterprises) and individual citizens choose to join the formal sector. If they believe that the tax system is fair and that the state will use their tax revenues wisely, they are more likely to participate.
A state with a larger tax base can typically pursue more growth-oriented priorities, including expenditures on public goods such as education, health, and infrastructure. Moreover, when more individuals and businesses participate in the tax system, the state can reduce the amount of the payments it seeks from each taxpayer. By contrast, if a country’s tax system is perceived as excessively burdensome or unfair, or if the citizenry perceives the state as being a poor steward of its revenues, informality may persist with fewer enterprises participating in tax system and fewer economic benefits will result.
It is widely agreed that agricultural taxes in Ghana are not prohibitive and most producers can readily minimize the taxes that they pay. Tax collection is weak, not just for agriculture but everywhere; there are too few Internal Revenue Service (IRS) tax centers in the country. Moreover, Ghana’s tax system is said to be subject to patronage so that certain interests are not touched by the tax system. IRS processes and documentation are seen to be cumbersome and slow, but ultimately functional.
The World Bank’s Doing Business report ranks Ghana relatively well in its Paying Taxes category (65th out of 181 countries surveyed) and it is the area in which Ghana improved the most in the Doing Business survey in 2008. The AgCLIR indicator scores, displayed in the graph on this page, indicate that significantly more could be done to serve the agricultural sector in this area. With the exception of legal framework, all facets of the AgCLIR review are scored in the “more negative than positive” zone.
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