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DR. ABDALLAH ALI-NAKYEA ON THE 2023 TAX MEASURES IN GHANA’S 2023 BUDGET STATEMENT.

 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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