An international tax expert, Mrs. Susan Himes wants Ghana to take a critical look at her corporate tax policy, with particular reference to tax incentives.

According to her, majority of econometric studies (application and interpretation of economic issues in mathematical terms) show that the cost of tax incentives in the form of lost revenue exceeds the benefits of increased investment.

This can be assigned a number of reasons including redundancy. In this case, the studies showed that investment would have occurred anyway without incentives, particularly in sectors with fixed resources.

The tax expert cited the mining sector as one area where Ghana could gain most if incentives were minimal. She explained that mineral resource is an example of immovable resource, thus inducement must not be a prerequisite for attracting investment into such a sector.

Instead, broadening the tax base through increasing the amount of income that is taxable and the number of taxpayers - tax those evading or avoiding tax - can be a more effective means of taxing corporate bodies.

Mrs. Himes said this in Accra on Thursday when she presented a paper on "Successful Corporate Tax Policies - Lessons Learned from Eastern European and other countries" at a business roundtable organized by the Association of Ghana Industries (AGI). The event was part of the association's advocacy for tax reforms. It was titled "Reforming Ghana's Taxation Laws and Administration for Sustained and Broad Economic Growth."

Though the tax expert largely based her arguments on best practice examples from Eastern European countries, she noted that the examples could serve as a model for Ghana. The countries studied were Austria, Estonia, Latvia, Lithuania, Czech Republic, Denmark, Slovakia, Slovenia, New Zealand and Egypt.

The Eastern European bloc are considered leaders in Corporate Tax Reforms, especially because their reforms have led to lower rates/broader tax bases and innovative tax administration which have in turn contributed to high growth rates, lower unemployment and larger share of Foreign Direct Investment (FDI). In view of this, Western European nations are now adopting many of the reforms.

Their successes, however, have not come by chance. These nations became poor and desperate after gaining freedom and sovereignty from the Soviet Union, leading to many mistakes, particularly in fiscal policy. They granted many generous and ill-conceived tax incentives, particularly long-term tax holidays to foreigners but these tax incentives failed to meet expectations.

Currently, average corporate tax rate in Eastern Europe is below 20 percent arising from reforms that have taken place within the last decade. Among others they rejected tax incentives in favor of low rate/broad base systems, something that is being replicated in most European Union (EU) countries.

Conversely, Ghana has over the last few years lowered corporate tax rate from levels above 32.5% to around 25%. Taxes constitute 20-24% of national revenue. It is estimated that 3% of tax revenue comes from excise.

Despite the reduction in tax rates, industry has been pushing for more tax reforms that would see rates further lowered and better tax administration measures adopted to sustain and broaden economic growth.

But Mrs. Himes cautions that from lessons learned in Eastern Europe, lower rates alone are likely to lead to revenue loss, but this can be compensated by "increases in other taxes, less spending on education, infrastructure and training, more borrowing and budget deficits."

Over there, countries preferred to fund tax rate cuts with base broadening measures, which the expert described as the best tax incentive.

She said to maintain revenue yield, promote equity and efficiency, and simplify the tax system, most Eastern European countries eliminated or phased out tax incentives. For example, Lithuania financed its reduction in rates from 25% to 15% by eliminating tax holidays for foreigners while Slovakia eliminated tax exemptions for newly established firms and reduced rates for certain sectors in exchange for 19% rate applied to companies and individuals.

While she does not expect Ghana to completely phase out tax incentives because they exist everywhere including the United States, she agreed that "It would be great and Ghana will be the first country to do so."

She recommends that automatic expiration dates for incentives be included in tax laws and investment agreements. In that case, companies cannot enjoy tax incentives after a certain period of time.

Mrs. Himes also prescribed the inclusion of the informal sector (including self-employed), small and medium enterprises, tax planners (individuals or organisations that engage in tax planning to minimise or avoid paying taxes), and hard-to-tax sectors (mining, gas, construction, etc.) in the tax net.

Concurring, Mr. Tony Oteng-Gyasi, President of AGI said "Those (businesses) being taxed shouldn't be taxed more."

Justifying his stance, he said "There are people doing better businesses than registered companies. Yet, they are in the informal sector. Those are the people we need to be looking at."

Mr. Kwame Pianim, a management and investment consultant who chaired the discussions said "I think we should forget about the informal sector."

He argued, "The function of development is that the informal sector dies," and cited the US as an example of countries where economic development coupled with industrialization has led to the collapse of the informal sector.

Mr. Pianim's point however falls flat in the face of research which has shown that given the current pace at which Africa, including Ghana is industrializing, it will take about two centuries for the continent's informal sector to die. In Ghana's own case, the informal sector is estimated to constitute over 70% of the economy.