Proposed Tax Measures from the 2023 Budget Statement and responses from Dr. Ali-Nakyea
The
finance minister of the Republic of Ghana presented the budget statement to
parliament on the 24/11/2023.
Below is
the list of tax measures in the fiscal policy for 2023.
1. Introduction
of withholding taxes on winnings from betting
Response:
A good revenue mobilisation measure. Requires monitoring to ensure compliance.
2. Reintroduction
of road tolls.
Response:
Good, as the tolls should not have been abolished in the first instance.
Automation will help in boosting revenue mobilization.
3. 2.5
% increase in VAT to 15% (with the decoupled system in place, the effective
rate will be 21.9%)
Response:
This is not a good policy as it will lead to increased costs and ultimately
increasing inflation as prices of goods and services may be adjusted accordingly
by taxpayers.
The
best way would have been to remove the straight levies - GETFund of 2.5%, NHIL
of 2.5% and Covid-19 Health Recovery Levy of 1%, totaling 6% and adding this to
the current VAT rate of 12.5% to get total VAT of 18.5%.
This
will still constitute an increase in VAT, however since the input VAT will be
deductible, all things being equal, this increase will not have a significant
effect on price increases, if any.
4. Vehicle
Income Tax and Income Tax Stamp to be reviewed and increased.
Response:
Sure, there is the need for an increase as the current rates have been eroded
by the rate of inflation and the depreciation of the Cedi.
5. Upper
limit of the graduated rate for personal income tax has been increased to 35%.
Response:
This should have been maintained at initial rate of 25% with adjustments to the
income bands to mitigate the impact on the low-income earners.
At 35%
it means individual income earners including employees at the tax bracket will
be paying taxes at the rate for petroleum and mining companies when all other
sectors pay a maximum of 25%. Sectors
like hotel and hospitality pay at 22%, companies listed on the stock exchange
20%, etc. so why tax individual income earners and employees so high? Remember
at the same time we are looking at promoting entrepreneurs to set up business
and be self employed. There is a policy disconnect here.
6. Introduction
of withholding tax on gains from realization of assets and liabilities.
Response:
A laudable measure but requires monitoring to ensure compliance. Again, capital
gains needs to be decoupled from income tax as was the case under the Internal
Revenue Act, 2000 (Act 592), and same should be done for gifts.
7. The
optional 15% rate for individuals for gains on realization to be reviewed (increasing
the rate)
Response:
Unless the decoupling is done as explained in 6 above, the increase in the rate
will not raise the needed revenue as monitoring for compliance will be
difficult as it is self-assessment based.
8. 1%
concessional rate for entities enjoying tax holidays has been increased to 5%
Response:
These sectors lost their tax exemption status in 2015 when the concessional
rate of 1%. Since the 5% is still applicable during their initial relevant
period, it is on the high side as it will impact government flagship Programmes
such as planting for food and jobs, planting for export and 1D1F (those engaged
in Agro processing). We could have started with 3%.
9. Implementation
of minimum chargeable income system for entities with concessional rate.
Response:
This should rather be applicable to all entities. The details should include
the requisite caveats that the minimum chargeable income rule shall apply to
entities after their first 3 years of operation. So that after the first 3
years, businesses reporting losses will be assessed to tax based on say 2.5% of
their turnover as their chargeable income. This is of course after an
examination of their financial statements and tax returns as to whether the
losses being reported are correct.
10.
Loss carried forward provisions are to be unified (used to be 5 years for
entities in priority sectors and 3 years for other entities).
Response:
Any unification should settle on 5 years for all sectors. Worst case scenario,
the average of 4 years can be taken.
11.
Deductibility of foreign exchange losses to be restricted to actual losses.
Response:
Surely that is what it is, since in taxation provisions are not allowed but
actuals.
12. Revision
of excise tax on cigarettes and tobacco products to reflect ECOWAS protocols (the
ECOWAS protocol requires $0.02 dollars per cigarette or not less than 50% ad
valorem rate)
Response:
This is okay since we need to adhere to ECOWAS protocols and in any case, it is
a “sin tax” worth imposing.
13. Introduction
of taxation on electronic smoking devices.
Response:
Same analysis as in 12 above, a very necessary sin tax. Monitoring and
compliance required.
14. Introduction
of taxation on liquids which were not taxed.
Response:
The details are necessary for further discussions but surely if they were to be
taxed and are not being taxed then it is in the right direction to tax them.
15. Increase
in excise tax on spirits above that of beers.
Response:
Same response as in 12, 13 and 14 above on sin taxes.
16. Full
abolishment of the benchmark discount policy at the port.
Response:
Long overdue as this policy should not have been implemented in the first
instance. It flies against all customs policies, rules and regulations.
Restoration of transactions value and related valuation methods in the Customs
Act is most welcome.
17. Introduction
of self-clearing system at port (this will help track individuals who do not
pay taxes since Tax Clearance Certificates will be needed before clearing)
Response:
Another policy which is long overdue so better late than never. A welcome
Policy. Monitoring for compliance still required.
18. National
Fiscal Stabilization Levy will be converted to Growth and Sustainability Levy
to cover all entities. Category A entities are to pay 5% on their profit before
tax (Category A entities are those already paying the national stabilization
levy and six new sectors to be included)
Category
B entities are to pay 2.5% on their profit before tax (Category B entities are
all other entities)
Category
C entities are to pay 1% of their total production (Category C entities are
those in the extractive sector: they still fall in Category A)
Response:
This is an unwelcome policy which should be jettisoned. It has been a great
cost to doing business all these years it has been in existence and instead of
being abolished, it is rather being extended to cover more entities. This is a
levy that was introduced as a temporary measure for 2 years and it would be
scrapped but has now been in operation for over 10 years. This should be
scrapped to reduce the cost of doing business and also considering the increase
in VAT and introduction of minimum chargeable income rule else businesses will
suffocate.
19. E-levy
rate has been reduced to 1% with the removal of the daily GHS 100 threshold
Response:
The rate should be reduced further to 0.5% and the threshold restored and
increased to GHS200 if we wish to see enhanced revenue mobilisation from this
tax handle.
20. Exchange
losses on Capital Assets are to be capitalized and not deductible.
Response:
This is what it is so surprised it is being set out as a policy.
21.
Review of the exemption regime of the free zone entities.
Response:
Long overdue because the exemption regime requires monitoring for compliance
and where the expected gains are not being realized then a review is necessary.
22. Exclude
unrealized exchange losses from deduction.
Response:
This is the same as point 11 above, hence the same response is applicable here.
23. Tax
wavers are on hold
Response:
Very necessary step. We need to sustain this to shore up domestic revenues as
tax waivers amount to giving away our tax revenues, especially when the quid
pro quo is not adhered to.
24.
Waiver of tax on withdrawals from tier 3 pension contribution for individuals
who lose their job permanently within the 10 years window.
Response:
Another long overdue measure, although introduced during Covid-19, it should
not relate to only where a person has lost his/her job permanently but rather
in these times of hardship, it should be possible for people to access a given
percentage, for example 30%, of their Tier 3 to sustain themselves.
Dr.
Abdallah Ali-Nakyea, holds PHD in tax Policy. He is a Charted Accountant and a Chartered
Tax Consultant.
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