cba project main work-

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CHAPTER ONE

INTRODUCTION

1.1 Background Study

The Ghana Revenue Authority is the agency responsible for overall oversight of all the taxation

agencies in Ghana. The Authority was established in 2009 as a result of the merger of the

Internal Revenue Service, Customs, Excise and Preventive Service (CEPS), Value Added Tax

Service (VATS) and the Revenue Agencies Governing Board (RAGB) Secretariat. This was in

accordance with the Ghana Revenue Act 2009, Act 791. The authority is headed by a

commissioner – general who oversees the commissioner of CEPS, Domestic Tax Revenue

Division (comprising IRS and VAT) and support unit (www.gra.gov.gh).The GRA was established

to carry out the following tasks:

Integrate the management of domestic tax and customs

Modernize domestic tax and customs operations through the review of

processes and procedures.

Integrate IRS and VATS into domestic tax operations on functional lines

The GRA’s goal as a revenue institution is to optimize revenue mobilization for national

development through the delivery of quality service to taxpayers and other stakeholders.

Revenue collection to a very large extent contributes immensely to the realization of the

institution’s mission as well as the growth and development of the country as a whole.

As part of their modernization function, the GRA in 2014 is implementing more modern and

innovative strategies to enhance revenue collection and thus the introduction of the GIS

system. According to the head of the planning unit at the Ghana Revenue Authority, the main

motive for the establishment of the GIS unit is to;

Cost-benefit Analysis of Establishing GIS Unit; A Case Study of Ghana Revenue Authority (GRA)

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Identify and capture all persons carrying out trade, business or vocation in the

Tax Office geographically demarcated area and create their location maps

covering the entire country;

Create database on all businesses in Ghana for analysis and enhanced revenue

mobilization; and

Create effective monitoring system for increased revenue generation by way of

data integration in the GRA.

A geographic information system (GIS) is a system designed to capture, store, manipulate,

analyzed, manage and present all types of geographic data. A GIS can be thought of as a system

that provides spatial data entry, management and retrieval, analysis and visualization functions

(Wikipedia, 2009). The implementation of GIS is often driven by jurisdictional (such as city)

purpose or application requirements. Generally, a GIS implementation may be custom-designed

for an organization. GIS software tends to be linked with other technologies and software, such

as GPS, wireless mobile devices, RFID, statistical and modeling software. GIS data consists of

both attributes data and spatial data, and they are collected differently and must be linked

together. Understanding and estimating the costs and benefits of a GIS is an important part of

the strategic planning and decision making process. The GPS data captured by GIS system are

used to;

Create maps of office coverage areas

Dividing STOs and MTOs into manageable blocks to ensure effective data

capturing

The data collected is downloaded onto a software for GIS database development. Data

captured from the field are then processed and superimposed on the respective office maps.

Field staff collect data on business locations, taxpayer information and registration status and

tax category of businesses. Location coordinates of businesses are stored in GPS receivers and

administration of questionnaires. Data is collected on taxpayer information, registration status


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and tax category of business etc. If a business is not registered, owner is issued with invitation

letter to go to the nearest tax office to be registered for TIN and Taxes collected.

Studies show that the data/ boundary file collection and management cost for GIS may be 65 to

80 percent of total system development costs. Determining the economics of GIS project is

difficult. Cost evaluation issues focus on fair determination of staff (training), equipment

(hardware and software), and other costs (services, data), particularly when comparing

alternative implementation scenarios. Benefits evaluation incorporates a clear division of

direct, indirect and external benefits.

Fig 1.1


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(Wiley, 2008)

1.2 Problem statement

A number of problems have been identified with revenue collection in Ghana. The principal

duty of the government is the role it has to play to bring development to its people. In the

quest to achieve this, many government face challenges; one of which is the challenge of

revenue generation. In developing countries like Ghana, there are many challenges facing the

tax payer as there are equal challenges facing the tax collector. The tax system of Ghana is


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plagued with challenges such as loss of revenue through corruption and financial malfeasance,

an extremely small tax base due to high poverty levels and limited government administrative

capacity among others. There is the problem of taxing the informal sector. The informal sector

has been estimated to constitute about 30% to 60% of the total economy in most developing

countries. The key issue is how to tax businesses that operate after close of work, that is, after

5pm or on weekends when official have closed. There is also the lack of a system to track

people who evade taxes, including professionals such as Lawyers and Footballers. The next

issue is the tax base which is very small in the case of Ghana. A tax base can be described as the

sum of taxable activities, collective value of real estate and assets subject to tax within the

community. Most of the traders are into businesses which are not taxable or exempted from

paying taxes e.g. agricultural products and food stuff. Others engage in small scale businesses

that cannot be taxed because the earnings that accrue from such businesses are negligible.

1.3 Objectives

The objective of this project is to conduct a cost-benefit analysis of establishing a GIS unit at the

domestic division of the Ghana Revenue Authority (GRA). We intend to estimate the costs and

the associated benefits involved in establishing a GIS unit at the GRA and see whether it will be

beneficial in enhancing revenue collection and if so be recommended to be translated

nationwide. The question to ask is, is it cost effective for the GRA (Domestic Division) to

implement this system? 2. Will it save time in revenue collection in revenue collection using GIS

application compared to traditional work procedure (i.e. not using GIS)? We intend to answer

these questions by making up the balance sheet for GIS and its alternative. We belief it will

result in enhancement in revenue mobilization and convenience to the citizens of Ghana.

1.3.1 Justification

We envisage that, at the end of the implementation of the project the following will be

achieved;

Reduce administrative and tax compliance cost and provide better service to

taxpayers


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Promote efficient collection of revenue and the equitable distribution of tax

burden and ensure greater transparency and integrity

Improve information linkage and sharing of information among the divisions of

the authority

Provide a one – stop service for taxpayers for the submission of returns and

payment of taxes

Provide for other matters related to the improvement of revenue administration

Enhance revenue mobilization

Widen the tax base

1.4 Methodology

1.4.1 Sources of data

The study relied on both primary and secondary. This data was obtained from public

institutions such as the Ghana Revenue Authority (GRA), Centre for Remote Sensing and

Geographic Information System, Sambus Ghana Ltd. as well as the internet, books, newspapers,

journals and other related articles.

1.4.2 Investment criteria

To examine a project that involves costs and benefits, there are various investment criteria that

can be used. These include the Net Present value (NPV), Internal Rate of Return (IRR),

Discounted Payback Period (DPP) and Domestic Resource Cost method (DRC). These criteria

help to evaluate the viability of the project.

This study used the Net Present Value to analyze data. NPV is defined as the sum of all

discounted Cost-Benefit Analysis of the ongoing establishment of the GIS unit at Ghana

Revenue Authority. Cash inflows less all cash outflows associated with an investment decision.

The discount rate was based on the current monetary policy rate of the Bank of Ghana. The

choice of NPV as an investment criterion is due to the fact that, it considers the time value of


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money as a result of using the inflation rate which keeps the value of money stable over a

period of time. It also considers the cash flow stream over the whole life span of the project.

Moreover, it makes the investors aware of the risks involved in investing in the project through

the cost of capital invested into the project by the help of the discount rate. Finally, the choice

of NPV makes it simple and is easily understood by managers in their investment decisions. The

formula for the NPV is given as follows:

NPV=∑t=0

n (Bt−Ct)(1+r)t

Where, Bt is benefit over time, C t is cost over time, (Bt−Ct) is the net benefit of the project in

year t and (1+𝑟) is the discounting factor. However, the future values of all costs and benefits of

the project will be adjusted to the end of year average inflation rate. The formula to be used is

given as: Future Value= Present Value *(1+π )t.

Where π is the inflation rate and t is the year.

1.4.3 Justification of the NPV and discount rate

The net present value approach was used because it is technically proven to be superior since it

considers the time value of money and shows the relative risks associated with the project. The

NPV criterion takes into account the time value of money due to the following reasons:

Inflation reduces the purchasing power of the cedi. Therefore the uncertainty

surrounding the receipt of the cedi increases as the date of the receipt recedes into the

future.

The notion of opportunity cost implies the return on the forgone investment that the

projects could yield hence making use of the interest rate. The NPV criterion therefore

incorporates any variation in the discount rate over the span of the project.


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In relation to this study, the Bank of Ghana monetary policy rate (18.00 % as at May 2014), was

used. This is because:

It reflects societal preferences of the value of money since the central bank takes into

account social factors in determining that rate.

It forms the basis upon which commercial banks and other financial institutions fix

their base rate which in turn determines the market interest rate.

The monetary policy rate plays an important role in determining all other rates

including the interest rate, hence the money supply.

1.4.4 Decision rule

If the Net Present Value is greater than zero (i.e. NPV>0), then the project is desirable because

the benefits exceed the costs. However, if the Net Present Value is less than zero (i.e. NPV<0),

then the project is not worth undertaking and should not be implemented. If the Net Present

Value is zero (i.e. NPV=0), the decision to accept or reject depend on social factors.

1.5 Organization of the study

This study was organized into five (5) chapters. Chapter one was primarily concentrated on the

introduction of the study, background information, and problem statement, objectives of the

study, methodology and finally the organization of the study. The second chapter covered the

project appraisal. For the purpose of this project, the appraisals used included the technical,

financial, institutional, social and economic appraisals. Chapter three consisted all the benefits

and costs involved in undertaking the project. That is all the direct tangible benefits, direct

tangible costs, direct intangible benefits, direct intangible costs, indirect tangible benefits,

indirect tangible costs, indirect intangible benefits, and indirect intangible costs. Chapter four

analyzed all the estimations and values assigned to the costs and benefits. To determine

whether the project was viable, the Net Present Value Criteria was used. The final chapter

comprised the summary, recommendations and conclusions based on the sequential and

coherent manner of work done.


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CHAPTER TWO

PROJECT APPRAISAL

2.1 Introduction

As stated earlier, this chapter focuses on the project appraisal. It seeks to comprehensively

appraise the viability of the project. In the words of John Filicetti (2007), “project appraisal is a

generic term that refers to the process of assessing, in a structured way, the case for proceeding

with a project or proposal. In short, project appraisal is the effort of calculating a project's

viability”.

Project appraisal is the “Systematic and comprehensive review of the economic, environmental,

financial, social, and technical and other such aspects of a project to determine if it will meet its

objectives. Once this phase is complete, the final consent on the project flow, details and budget

are confirmed and the project is ready to take off”. Project appraisal can also be said to be a

technique applied by welfare economists to evaluate the efficiency of alternative projects or

more widely the efficiency of alternative policies.

If a project is well formulated and thoroughly appraised, a good follow-through on the

subsequent stages of the project cycle will see to its goals being achieved. Appraisal involves a

careful checking of the basic data, assumptions and methodology used in project preparation,

an in-depth review of the work plan, cost estimates and proposed financing, an assessment of

the project's organizational and management aspects and finally the validity of the financial,

economic and social benefits expected from the project. On the basis of such an assessment, a

judgment is reached as to whether the project is technically sound, financially justified and

viable from the viewpoint of the economy as a whole. Upon its completion, the final approval

on the project flow, budget and any other details are established then the project can take off.

The appraisal procedure for this project would be analyzed under five main headings:


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Economic appraisal

Social appraisal

Financial appraisal

Technical appraisal

Institutional appraisal

2.2 Economic Appraisal

Looking at the project from the view point of the economy as a whole, economic appraisal is

how the status quo of the economy will be affected directly or indirectly as a result of the

implementation of the project. From the point of view of the economy as whole, the execution

of this project will go a long way to ensure minimal revenue lost since the project is aimed at

broadening the tax base and ensuring revenue adequacy and hence ensure economic

efficiency. This revenues accrued will add to the fiscal resources of government and help its

development expenditure which is very much needed to propel the country and help it achieve

its developmental goals. Direct employment can also be enumerated as a benefit since about

56 part-time workers are hired in the process of data collection from prospective taxpayers.

Also a successful implementation of the GIS system may attract other organizations and

international institutions to enquire into it to help improve their revenue collection which may

be at the benefit to the country as whole. This latter envisaged benefit was seen after the

successful implementation of the National Health Insurance Scheme which was implemented in

2003.

2.3 Social Appraisal

Social appraisal is an extension of economic analysis of projects. The main thrusts of social

analysis are equitable distribution of income, attainment of full employment, self-reliance,

improved regional balance, national integration and so on. Social appraisal seeks to determine


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whether or not cultural activities conflict with any aspect of the project implementation;

whether the objectives of the project are in line with government programs or agenda.

A successful implementation of this system will help improve the fiscal stance and will enable

the government to improve upon the infrastructure of our societies and for that matter

promote general development of our dear nation. Moreover, employment is created as people

(both part-time and full-time workers) are employed to go to the field to collect data of

prospective taxpayers. The creation of employment will improve the standard of living of those

employed and also help minimize certain social vices that arise from unemployment. In the

process of data collection, prospective tax payers are educated on need of this new GIS system

and for that matter the need for them to pay their taxes as required. Therefore it enlightens the

citizenry of their civic responsibility. Notwithstanding these benefits to our society there are

certain envisaged setbacks that arises in our communities that cannot be ignored. It include the

confrontation some field workers have with some taxpayers in the process of data collection.

2.4 Financial Appraisal

Financial appraisal relates to the financing of the project through the projection of the projects

cost, projects operating cost, balance sheet, income statement, sources and uses or

applications of funds statement, cash flow statement, profit and loss account. The cost in

financing this project which includes software, hardware and data cost is solely funded by the

Ghana Revenue Authority (GRA) with no funding from any other organization. Therefore it can

be said that there is a secured funding of the project and is expected that the implementation

will be smooth. The projected cost for the implementation of the GIS system is estimated to be

GH¢1.3469592million. As part of the financial appraisal, the operations and maintenance of the

software as well as the cost recovery of the project will be considered.


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2.5 Technical Appraisal

This stage is one of the most important stages of every project which is mainly concerned with

the issue of appropriate technology. The analysis is meant to identify and examine alternative

ways of carrying out the project in terms of choice of scale, timing, technology, location and

organization. An alternative way of carrying out this project is to go by the manual and

traditional way of revenue collection. Thus the status quo which has being proved to be widely

not helping as it does not ensure a wider tax base compared to the use of a GIS technology. The

data collected for use of this GIS system can also be used to demarcate offices and also

determine the number of officers that should be working in the various STOs, MTOs, and LTOs.

This system is initially been piloted at the headquarters of the Ghana Revenue Authority and it

is aimed to be translated nationwide after assessing its viability. The process of data collection

and establishment of the GIS system will last for 3.5years.

GRA is one of the first and new institutions to be implementing a GIS to aid improve in its Tax

collection and also to widen its tax net. So in evaluating technical feasibility, part of the

evaluation relates to the use by the end user and to the amount of training and technical

support necessary to use the application. And so, there is the need to consider how complex it

will be to use the program.

It has been demonstrated through various projects that significant reductions in training

requirements and learning curves can be achieved by customizing software for specific job

functions and through effective user interfaces. The various training organized in course of

establishing the GIS by the GRA included;

GIS Software Applications

Data Processing and Validation

GIS Data Attribution and Database Development.

GPS training for Field Staff

GIS Training of Office Staff


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Technical feasibility is further complicated by the likelihood that GIS technology will be acquired

over long periods of time. Acquiring technology over a period of time involves both benefits

and risks. By purchasing only what is required for each application, the organization can benefit

from the rapid advances in information technology. The risk is therefore, not being able to

properly or readily combine the technology. The risk can be managed by defining a technology

strategy and architecture, by adhering to as many industry standards as practical, and by closely

monitoring technological trends.

2.6 Institutional Appraisal

The institutional environment within which the project will have to operate was examined .This

covers the organization, management, staffing policies and procedures. In carrying out the

implementation of this new system which is aim at restoring institutional memory that has

been lost due to the integration of the former IRS, VAT and Custom division into the new GRA

both full-time and part-time staffs will be hired in working at the planning unit which is

responsible for the implementation of this new system and also going to the field to collect

data of prospective tax payers. There are twelve full-time workers at the planning units who are

fully employed and paid by the Ghana Revenue Authority. The part-time workers are 56 who

are responsible for data collection.


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CHAPTER THREE

IDENTIFICATION OF COSTS AND BENEFITS

3.0 Introduction

It is imperative for one to consider in Cost-Benefit Analysis, all costs and benefits emanating

from a project. An objective assessment of the costs and benefits of any project is essential for

the efficient allocation of resources. In general, the overall improvement in societal welfare is

the aim of projects in societies, hence the need to identify the elements of benefits and costs.

This chapter therefore attempts to identify and estimate all possible costs and benefits

associated with the ongoing establishment of Geographic Information System (GIS) unit at the

Ghana Revenue Authority (GRA) to widen the tax base and improve upon revenue mobilization.

With the numerous costs and benefits associated with this new system, the study will be

concerned with those enumerated below.

3.1 BENEFITS

Benefits refer to all possible advantages or pros that result from the execution of a project or

policy. They reflect improvements in the interest and well-being of members of the society.

There are numerous benefits associated with the establishment of a GIS unit at the Ghana

Revenue Authority (GRA). They include direct tangible benefits, direct intangible benefits,

indirect tangible benefits, and indirect intangible benefits.


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3.1.1 Direct Tangible Benefits

They attempt to measure fund inflows which are closely related to the setting up of the project

and its implementation. They reflect direct improvement in revenue mobilization and increases

in the country’s welfare as a result of the project implementation. These benefits are said to be

tangible because they can be determined under the market system, that is, they can be valued

at a given market price. The real direct tangible benefits that will arise from the establishment

of the unit are as follows:

3.1.1.1 Wider Tax Base

Basically, the establishment of the GIS unit by the Ghana Revenue Authority is aimed at

widening the tax base. A wider tax base will help to ensure an Improvement in the tax revenue

generated. Taking a sample of six tax payer areas that has been currently mapped it has been

seen there has been an average of 122.76% increase in the tax net. The number of taxpayers

mapped and businesses in some parts of Accra who were previously not captured in the tax net

and invited by the Authority to submit themselves to taxation are summarized in the table

below;

Table 3.1 Size of the tax base in some selected areas

Locations Taxpayers Mapped Businesses Invited(Businesses

which were not previously on

the tax net)

Kaneshi 14720 4274

Osu 5536 3917

Tema 14119 7065

Makola 7800 4138

Agblogloshi 4514 1917

Madina 12000 7500


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Source; GIS Unit of GRA

Table 3.2 Increase in the tax net

Location Taxpayers

mapped

Previous tax

base

Businesses

Invited

% Increase in the tax

base

Kaneshi 14,720 10,446 4,274 40.92

Osu 5,536 1,619 3,917 241.94

Tema 14,119 7,054 7,065 100.16

Makola 7800 3,662 4,138 113.00

Agblogloshi 4514 2597 1917 74.02

Madina 12000 4500 7500 166.67

Average=122.76

Source; Author’s Own Compilation

Table 3.4 Number of Taxpayer Offices across Ghana

Classification Number of Offices


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LTO 1

MTO 15

STO 53

Source; GIS unit of GRA

3.1.1.2 Increased revenue generation

The introduction of the new Geographic information system (GIS) by the GRA generally will lead

to the improvement in tax revenue and therefore ensure revenue adequacy. This therefore will

enhance the fiscal stance of the country and provide the necessary revenue needed to finance

the provision of infrastructures, payment of workers salary and generally improve upon the

government’s spending and ensuring the overall development of the nation. Comparing the size

of the tax base mapped by the GIS system to the initial tax base there has been an immense

improvement which can be seen with the number of businesses invited in some selected small

taxpayer offices in Accra as presented in the table above. In all about 28811 businesses were

not previously captured as taxpayers. This therefore will translate in a higher revenue

generated. The projection of the additional tax revenue expected to be generated as a result of

the implementation of the GIS system is shown below;


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Table 3.5 Total Government Tax Revenue – 2013

Description 2013

Budget

Estimate

(Million

GH¢)

Target for

Jan - Sept

2013

(Million

GH¢)

Provisional

Outturn for

Jan-Sept

2013

(Million GH

¢)

Percent

Deviation

Projected

Outturn

for 2013

(Million

GH¢)

Percentage

Change

over

Budget

Estimate

Total Tax

Revenue

excluding

exemptions

16,019.7 11,367.9 9,438.1 -17.0 14,281.1 -10.9

Total Tax

Revenue

including

exemptions

17,090.8 12,122.3 10,005.0 -17.5 15,129.6 -11.5

Taxes on

Income and

Property

7,825.0 5,538.7 4,473.3 -19.2 6,833.6 -12.7

Personal 3,140.1 2,245.6 1,863.3 -17.0 2,697.5 -14.1


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Income Tax

Company

Taxes

3,540.5 2,429.1 1,913.4 -21.2 3,044.2 -14.0

Taxes on

Domestic

Goods and

Services

5,576.2 4,002.5 3,403.4 -15.0 4,990.8 -10.5

Source; Ministry of Finance

Total revenue generated annually by the GRA previously (excluding exemptions) without the

GIS = GHC 14,281.1million

The increase in the tax net as a result of the GIS system=122.76%

Therefore the expected revenue to be generated annually (with the GIS system) =GHC

31,812.58million

Hence the additional expected increase in tax revenue as a result of the use of the GIS system

=GHC 31,812.58million – GHC 14,281.1million = GHC 17,531.48million

3.1.2 Indirect Tangible Benefits

These are gains that accrue to the project which are not directly/closely related to the objective

of the project but can be quantified in monetary terms and also reflect indirect increases in

societal welfare. These indirect benefits are tangible because they can be valued at given

market prices. Those related to the study are as follows:

3.1.2.1 Cost reductions & Cost avoidances


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The system is generally to locate taxpayers. With the successful implementation of the system,

there will be a reduction in cost which will take the form of decrease in operating costs that

may be incurred as with this new GIS system tax officers/collectors may know beforehand the

various clients they will be visiting. Therefore the reduction in operating cost such as fuel cost

and others. There will also be staff time saving in mobilizing revenue with this system. This new

GIS system will ensure increased efficiency and ensure fast performance of revenue collectors.

This therefore will lead to the avoidances of certain costs such as cost of employing additional

tax officers to help in the process of revenue collection and hence reduce the efficiency loss

ratio of revenue of tax revenue collection in the by the Ghana Revenue Authority(GRA).

Further, the system can lead to the laying off of some workers to save some operational cost

though may be detrimental to certain sectors of the economy as it will lead to increased

unemployment.

Total fuel used previously by tax officers to mobilize revenue=5litres per day

Per-unit of cost fuel=GHC16.67

Cost of fuel used per day=GHC83.33

Cost of previously per annum GHC83.33*30*12=GHC 29,998.8

Total fuel that will be used to mobilize revenue after the implementation of the GIS

system=3litres

Projected Fuel cost per annum after the implementation=GHC50*30*12=GHC 18,000

Amount to be saved of fuel after the implementation of the system per annum= GHC 29,998.8-

GHC 18,000=GHC 11,998.8

3. 1.2.2 Creation of employment


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The implementation of the GIS system will provide employment to hundreds of people. These

includes about 56 temporal staffs that will be employed in addition to the twelve permanent

ones to help in the process of data collection and field work. The total salary to be paid to these

workers is expected to be GHC 1.2348million for the first three and half years where the

process of data collection is expected to be complete.

3.1.3 Real Direct Intangible Benefits

These refer to those benefits of the project which are closely related to the

implementation of the project but cannot be quantified in monetary terms by the

existing market system. They improve revenue mobilization and increase the country’s

welfare, albeit cannot be valued. With respect to this study, these benefits include the

following;

3.1.3.1 Improved decision making

There will be improved decision making with this new system as to the decision of demarcating

the various tax offices of the Ghana Revenue Authority, determining the number of officers to

work in the various offices across the country. The data collected for use by this GIS system can

also be used by other units such as the I.T department (using the accessible income) to expand

the tax base (i.e. Update the system; remove businesses that no longer exist and add new

businesses.)


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3.1.3.2 Staff time savings

Moreover, the introduction of this system will go a long way to reduce the amount of time taken

by the GRA officers who go out to collect revenue as the locations of the business will be known

beforehand as the system is meant to locate taxpayers. They therefore can use the rest of the

hours on other productive activities that will be beneficial to the agency. Emergency vehicles

reduce average arrival time by using GIS- supplied information on road conditions.

3.1.4 Real Indirect Intangible Benefits

These are gains that accrue to a project which are not closely related to the setting up and

implementation of the project, and cannot be quantified in monetary terms. They constitute

indirect increment in societal welfare but cannot be measured in monetary terms.

3.1.4.1 Effectiveness of managers and executives

The data collected for use by the GIS system is also meant to set targets for offices and officers,

for planning, analysis and for monitoring. Therefore it will be effective for managers and

executives who are in the helm of affairs of the Ghana Revenue Authority to effectively monitor

the activities of the various STOs, MTOs and LTOs.

3.1.4.2 Environmental scanning

The establishment of the GIS unit provides the need to collect data of prospective taxpayers.

With a successful data collection process, it will enable the GRA notice its strength and

weakness in terms of where it will be able to mobilize enough revenue as the data will provide


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information concerning the geographic distribution of businesses across the country. This will

also help to maximize its strength by further improvement in its existing plans, policies and

resources and in setting targets for the various taxpayer offices across the nation. Further, a

proper data collection process and environmental assessment will help to make optimum

utilization of scare human and capital resources. This will help the GRA to reduce wastage and

make optimum use of available resources. Moreover it will enable the GRA to make a long term

plan and projections.

3.1.4.3 Better public image

This new system will promote the public image of the Ghana Revenue Authority as it the first

institution to champion the course of introducing this new innovative system into the country.

The introduction of this system which is first of kind in Ghana is expected to attract other

ministries, agencies and departments such as the local government and rural development, the

national fire service and the Ghana police service to enquire into how the system works and if

possible adopt it. In fact, according to the head of the GIS unit of the GRA, Mrs. Irene Jemima

Aboagye Mensah this benefit is been reaped as of the time they started with the

implementation of the system.

3.1.4.4 Decreasing uncertainty

A successful implementation of this new GIS system will go a long way to reduce the

uncertainty that comes about in the course of revenue collection. Specifically, the

inconveniences which tax collectors faces when they go out to mobilize tax revenue such as the

problem of rightly estimating the gallons of fuel that will be needed for the trip and also the

problem of setting wrong target as to the exact time tax collectors needs to go out for the

mobilization in order to meet a good number of tax payers.


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Table 3.6 Summary of all benefits

Type of Benefit Subtotal (GHC million)

Real Direct Tangible:

Increased revenue generation 17,531.48

Real Indirect tangible:

Creation of employment

Cost reductions

1.2348

0.0119988

Total(per annum) 17,532.75


3.2 COSTS

Costs talk about all possible disadvantages that are incurred from the start-up stage to the

implementation of the project. There are several costs associated with the establishment of the

GIS system under study. These can be classified into direct tangible cost, direct intangible cost,

indirect tangible cost and indirect intangible cost.

3.2.1 Real Direct Tangible Cost

This type attempts to measure or value fund outflows which are directly related to the

setting up of the project and its implementation. They constitute a direct reduction in

societal welfare. These costs are tangible because they can be valued at given market

prices. With this GIS project, the direct tangible cost involves both start-up cost

incurred with the initial establishment of the system and recurring cost. Both costs are

enumerated below;


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3.2.1.1 Start-up cost

Start-up cost evaluation of a GIS system entails the following;

Hardware, software, data and facility Cost

In establishing the unit, as part of the start-up cost both hardware and software cost was

incurred. An amount of GHC 2,085 was incurred in purchasing the GIS software which included

cost of licensing, programming, communications interfaces and network. The hardware cost

that was incurred included cost of purchasing computers, photocopier machine and Geographic

Position system (GPS). In all 6 computers, 26 sets of GPS, a unit of photocopy machine were

bought. The total cost of the 6 computers amounted to GHC 4,200. Considering the 26 sets of

the GPS, the first 15 sets which were without cameras each was bought at GHC500. The second

10 sets of GPS each was bought at a cost of GHC700. The third set which was with a camera was

also purchased GHC1400. Therefore the total cost of the 26 sets of GPS that were bought

amounted to GHC 15,900. Also a cost was incurred in collecting data of prospective taxpayers.

This include fuel cost, cost of hiring field workers and drivers lunch allowance. The total cost of

data collection amounted to GHC 1,283,710.

Training present staff

Moreover, various forms of training were organized by the CERGIS which included; GPS Training

for Field Staff and GIS Software Application. With the GPS training for field workers (GIS

Software application), it was organized for only a day. The per-head cost of this training for the

56 field staff was GHC120. Considering the GIS Training of Office workers, the per head cost of

training the 12 office staffs was also GHC120. This all came as a cost to the GRA. The total cost

training workers therefore was GHC 28,320

Consulting

In establishing the GIS unit, the GRA did it in consultation with the Centre for Remote Sensing &

Geographic Information System (CERGIS) which is considered as a training institution at the

University of Ghana. Though some forms of consultation have taken place, a formal contract is


P a g e | 27

yet to be signed between the two organizations. This therefore will add to the start cost of the

project.

3.2.1.2Recurring cost

Recurring cost evaluation entails the following;

Staffing: salary + overheads such as utilities, and supplies

Transformation of manual maps and data into digital format

The startup cost and recurring cost incurred with the establishment of the GIS unit at the Ghana

Revenue Authority are summarized in the table below;

Table 3.7 Startup & recurring cost

Item Number/quantity Per-Unit

Cost(GHC)

Amount(GHC) Amount(US$)

Software &

Hardware Cost

Cost of GIS

software

1 2,085 2,085 695.00

GPS Device

Without Camera

First Set

15 500 7,500 2,525.25


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GPS Device

Without Camera

Second Set

10 700 7000 2,356.90

GPS Device With

Camera

1 1400 1,400 471.38

Computers 6 700 4,200 1,414.14

Photocopier

Machine

1 1,600 1,600 538.72

Sub total 23,785 7,718.86

Data Cost

Permanent Staffs 12 1200monthly 604,800 for

3.5years

203,636.36

for 3.5years

Temporal

Workers

56

Type 1 6 500monthly 126,000 for

3.5years

42,424.24 for

3.5years


3.5years

113,131.31

for 3.5years


3.5years

56,565.66 for

3.5years

Fuel &

transportation

cost

3litres per day 50per day 36,500 for

3.5years

12,289.56 for

3.5years

Drivers’ Lunch 1 per day 17per day 12,410 for 4,178.45 for


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Allowance 3.5years 3.5years

Sub total 1,283,710 432,225.59

Training Cost

GPS Training for

Field Staff/GIS

Software

Application

1 day 120 per

head(56)

6,720 2262.62

GIS Training for

Office Staff

15days 120 per

head(12)

21,600 7,272.73

Sub total 28,320 9,535.35

Total 1,335,815 449479.80

Source; GIS unit of GRA

However, at a GIS workshop organized in the United Kingdom, it was shown that the price

trend of hardware relative to software and services involved in GIS establishment from 1980 to

1997 decreases with time as initially beginning the 1980’s, the cost of hardware was expensive

which reduces as time progresses. This is graphically illustrated with the diagram shown below.

Fig. 1.2 Price Trends in Hardware, Software & Services


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Source: GIS workshop, UK.

3.2.2 Real Indirect Tangible Cost

Real indirect tangible costs are losses that accrue to the project but are not directly related to

the objectives of the project. They reflect indirect reductions in societal welfare as a result of

the project’s implementation. These indirect costs are tangible because they can be valued at

given market prices.


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3.2.2.1 Cost of maintenance

This has to do with the amount of funds set aside as a result of wear and tear of

machines and equipment. Some of the possibly maintenance cost that is likely to be

incurred as a results of the implementation of the GIS system by the Ghana Revenue

Authority includes database update and service update.

3.2.1.2 Miscellaneous costs

They include the cost of purchasing office stationery for administrative purposes, cost

of electricity and other costs that may arise such as replacing electric bulbs, air

condition repairs, renovations and painting. This is shown in the table below:

Table 3.8 Showing Miscellaneous Cost

Item Amount (GHC)

Office stationery 644.20

Electricity 4,200

Other costs 4,550

Total 9,394.2

Source: University of Ghana Bookshop and others

Table 3.9 Summary of all indirect tangible costs

Item Amount(GHC)

Maintenance 1,750.00

Miscellaneous costs 9,394.20


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Total 11,144.20


3.2.3 Real Direct Intangible Cost

This type measures or values fund outflows which are directly related to the setting up

of the project and its implementation but cannot be valued at market prices. These

costs include

3.2.3.1 Cost of obtaining estimates from vendors

Some form of cost was incurred in the course of obtaining data from prospective tax

payers such as vendors. This cost took the form of compensation given to some of this

these vendors in order for them to release some sort of information about their

businesses. Such cost also be measured in terms of time wasted in trying to convince

some of the vendor to release information about their activities.

Table 3.10 Summary of all cost

Type of cost Subtotal (GHC million)

Direct tangible cost:

Software & Hardware Cost

Data Cost

0.023785

1.28371


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Training Cost 0.028320

Indirect tangible cost

Maintenance

Miscellaneous costs

0.001750

0.0093942

Total 1.3469592

Source: Author’s own compilation

CHAPTER FOUR


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ANALYSIS OF COSTS AND BENEFITS

It is important to compare the total anticipated costs with the total expected benefits in

determining whether or not this particular project is worthwhile for the Ghana Revenue

Authority to continue with the implementation of the system. If the results of this comparative

evaluation method suggest that the overall benefits associated with the system outweigh the

costs, then it will be recommended for the GRA to continue with the implementation of the

project. Generally, a cost-benefit analysis has three parts. First, all potential benefits obtained

and costs that will be incurred by implementing a proposed action must be identified. Second,

these benefits and costs must be quantified. And finally, all identified costs must be subtracted

from the expected benefits to determine whether the benefits outweigh the costs. This chapter

will focus on the last two points, that is all the benefits and costs will be quantified and a

comparison will be made in order to determine the project’s feasibility. To determine the

feasibility of the project, the NPV criteria will be used.

4.1 ANALYSIS OF COST

There are two types of costs expected to be incurred, those that will be incurred during the first

three and half years as the period of implementation start (i.e. The start-up cost) and those that

will be incurred during the estimated life span of the project( recurring cost). The table below

shows a summary of all costs incurred:

Table 4.1 summary of all cost

Type of cost Subtotal (GHC)

Startup Cost


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Cost of GIS software

GPS Device

Computers

Photocopier Machine

Permanent Staffs

Temporal Workers

Fuel & transportation cost

Drivers’ Lunch Allowance

GPS Training for Field Staff

GIS Training for Office Staff

2,085

15,900

4,200

1,600

604,800

630,000

36,500

12,410

6,720

21,600

Total 1,335,815

Operational Cost

Maintenance

Miscellaneous costs

1,750

9,394.20

Total 9,394.20

Source; Ghana Revenue Authority (GRA)

4.2 ANALYSIS OF BENEFITS

3.1.4.1 The benefits to be generated both during and after the establishment of the GIS unit

will mainly take the form widening the tax base and improving upon the revenue

that will be generated. Notwithstanding these, there are other intangible benefits

that the system will bring about which may include; improved decision making,

Effectiveness of managers and executives, Environmental scanning, Better public

image and decreasing uncertainty.

The table below shows all benefits


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Table 4.2 Showing all benefits

Type of Benefit Subtotal (GHC million)

Direct Tangible:

Increased revenue generation 17,531.48

Indirect tangible:

Creation of employment

Cost reductions

1.2348

0.0119988

Total (per annum) 17,532.75

Source: Authors’ own compilation

In computing the costs against the benefits, the following assumptions were made.

1. The process of data collection and establishment of the of the GIS system will last for

3.5years

2.Therefore the benefits in the first three and half years of operation of the GIS system were

taken as zero since the system will be operational and will be translated nationwide after data

collection is complete.

3. The discount rate used in calculating the NPV was the monetary policy rate (r). The Bank of

Ghana’s monetary policy rate as at May 30, 2014 was 18.00% (monetary policy rate -

www.bog.gov.gh)

4.The inflation rate (π) used in projecting the future values of costs and benefits for the lifespan

of the GIS system was the average end of year inflation rate from 2001 to 2013 which when

computed stood at 16.48%


http://www.bog.gov.gh/

P a g e | 37

5. The exchange rate used in the discounting the monetary value of items was the cedi-dollar

rate as of May 22, 2014 which stood at US$1 to GHC2.97

4.2.1 Justification for the NPV and the discount rate

The net present value approach was used because it is technically proven to be superior since it

considers the time value of money and shows the relative risks associated with the project. The

NPV criterion takes into account the time value of money due to the following reasons:

Inflation reduces the purchasing power of the cedi. Therefore the uncertainty

surrounding the receipt of the cedi increases as the date of the receipt recedes into the

future

The notion of opportunity cost implies the return on the forgone investment that the

projects could yield hence making use of the interest rate. The NPV criterion therefore

incorporates any variation in the discount rate over the span of the project

In relation to this study, the Bank of Ghana monetary policy rate (18.00% as at May 2014), was

used. This is because:

It reflects societal preferences of the value of money since the central bank takes into

account social factors in determining that rate.

It forms the basis upon which commercial banks and other financial institutions fix their

base rate which in turn determines the market interest rate.

The monetary policy rate plays an important role in determining all other rates

including the interest rate, hence the money supply.

4.2.2 Decision rule


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If the Net Present Value is greater than zero (i.e. NPV>0), then the project is desirable because

the benefits exceed the costs. However, if the Net Present Value is less than zero (i.e. NPV<0),

then the project is not worth undertaking and should not be implemented. If the Net Present

Value is zero (i.e. NPV=0), the decision to accept or reject depend on social factors. The table

below calculates the Net Present Value over the life span of the GIS system;

In calculating the future values for benefits, the formula used is Bt =B0(1+π )t , where, Bt

is the benefit in year t and B0 is the Benefit in year 0.

In calculating the future values for costs, the formula used is C t =C0(1+π )t, where C tthe

cost in year t and C0 is the cost in year 0.

1/ (1+π )t is the discounting factor for the NPV. NPV= ∑t=0

n (Bt−C t)(1+r )t

Table 4.3 Computation of the Net Present Value

Year NPV


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1(1+r )t

0 0 1.335815 -1.335815 1 -1

1 0 1.335815 -1.335815 0.8475 -1

2 0 1.335815 -1.335815 0.7182 -1

3 0 1.335815 -1.335815 0.6086 -1

4 17,532.75 0.0093942 17532.7406 0.8158 14,303

5 37,592.98 0.02014265 37592.9599 0.4371 16,432

6 43788.31 0.02346215 43788.2865 0.3704 16,219

7 51,004.62 0.02732872 51004.5927 0.3139 16,010

8 59,410.18 0.03183249 59410.1482 0.266 15,803

9 69,200.98 0.03707849 69200.9429 0.2255 15,605

10 80,605.31 0.04318902 80605.2668 0.1911 15,404

11 93,889.06 0.05030657 93889.0097 0.1619 15,201

12 109,361.98 0.0585971 109361.921 0.1372 15,004

13 127,384.84 0.0682539 127384.772 0.1163 14,815

14 148,377.86 0.07950214 148377.78 0.0985 14,615

15 172,830.53 0.0926041 172830.437 0.0835 14,431

16 201,313.01 0.10786525 201312.902 0.0708 14,253

17 234,489.38 0.12564145 234489.254 0.0599 14,046

18 273,133.23 0.14634716 273133.084 0.0508 13,875

19 318,145.59 0.17046517 318145.42 0.0431 13,712

20 370,575.99 0.19855784 370575.791 0.0365 13,526

Total (GHC million) 2,408,636.60 6.6338284

253,251

Source: Authors’ own compilation

Alternatively, by considering the benefit cost ratio;


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BCR=∑i=0

n

Bt

∑i=0

n

Ct

BCR=2,408,636.606.6338284 =363,083.95

4.3 Conclusion

The computation of the net present value (NPV) indicates a positive NPV of GHC 253,251. Thus,

the present value of benefits from the project far exceeds the present value of its costs. We

also used Benefit Cost Ratio which indicates a positive value of 363,083.95. This justifies that

the establishment of the GIS system by the Ghana Revenue Authority is worth undertaking and

should be continued.


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CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

The above analysis shows that the implementation of the new GIS system by the Ghana

Revenue Authority is a viable project and upon its implementation will be to benefit to the

nation of Ghana at large. This is because it will lead to improvement in tax revenue collection.

This will therefore enhance the fiscal stance of the Government and enable the government to

develop the nation very well. Moreover, it will also create employment for some graduates and

thus reduce the level of unemployment in the country. In all 56 temporal workers will be

employed together with 12 permanent staffs. Furthermore, there are several other benefits

both direct and indirect which will emanate from the GIS system. These include, reduction and

avoidance of certain cost involved in tax collection. In spite of these attractive benefits, there

are some costs associated with the implementation of the system. These costs can be grouped

into startup costs and recurring costs. The startup cost involves an initial capital outlay which is

approximately GHC 1,335,815.

Moreover, there are other costs which include miscellaneous cost and cost of maintenance and

which amount to a sum of GHC 9,394.20. The non-monetary cost is made up of Cost of

obtaining estimates from vendors etc. The overall benefit to be derived from the project per

annum summed up to GHC 17,532.75million.

5.2 Problems


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5.2.1 High Time and Travel Costs

There was a cost involved in printing and reprinting of the project work. Also travelling from

Legon to Accra central cost the group an average amount of GHC 25.00 per trip. In addition to

the travel cost, on the average five hours was spent going to the headquarters of GRA to solicit

for information for this project with loss of series of lecture hours as opportunity cost.

5.2.3 Limited Information for estimating Intangible Costs and Benefits

Certain intangible costs and benefits such as cost of obtaining estimates from vendors,

effectiveness of managers and executives, improved environmental scanning, better public

image, decreasing uncertainty etc. were not able to be estimated due to the limited

information received from the various sources and agencies.

5.2.1 Difficulty in Accessing Information

Getting information for the project was a very difficult task. Accessing satisfactory information

for the project work involved separate trips to the Ghana Revenue Authority, Center for

Remote Sensing and Geographic Information System (CERGIS), Madina Small Taxpayer office

and Legon Medium Taxpayer Office over a period of three months. Accessing information from

these places was difficult because some of the institution were reluctant to disclose pertinent

information concerning the project prior to its implementation. This is because the project is

still underway and the administrative bureaucracy in government institutions in Ghana. The

same difficulty also pertained to internet and the information from Ministry of finance.

5.3 Recommendations

After taking time to come out with this project, we recommend that;

A fund should be set up by the department to assist students with their project in order

for us to come out with a more reasonable and meaningful work.


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The duration of the project work should be extended to one academic year so that an

in-depth study can be made.

The right to Information Bill should be passed to facilitate quick access to information on

major projects of national interest.


cba project main work-

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