Government tinkers with tax cuts

The Economic Management Team of government is pondering which taxes to abolish and the ones to increase, as it looks to take the shackles off the private sector.

Senior Minister, Yaw Osafo-Marfo, who is also a member of the Economic Management Team of the Akufo-Addo-led administration, speaking at a forum in Accra said: “A number of taxes will be reviewed and we are doing this bearing in mind that we are creating the necessary environment for productivity to go up and for employment to be generated. We should never use tax as a punitive measure.

The state needs the revenue and every country runs on taxes and so we will continue to tax. Others will go up, others will come down, others will be eliminated. So we are going to put all of these in the pot and think through them. At the end of it all, we want Ghana to be the winner when we are applying these taxes.”

The Finance Ministry estimate that out of a population of about 28 million, just about two (2) million people pay direct tax in the country.

The majority of the country’s estimated 2 5million population is in the informal sector, where people hardly pay any tax on their incomes. The government has over the years had to offset this with transaction-based taxes like the value added tax.

Professor of Finance and Dean of the University of Ghana Business School (UGBS), Professor Joshua Yindenaba Abor, believes that the existing approach constrains perceived “big businesses”.

“If the current tax administration is targetting only the large corporates, then there is going to a problem soon; it may affect the ability of those larger businesses to plough back their profits because a lot of their gains will be going into taxes,” he said.

Prof. Abor believes that “once we are able to plug loopholes in the tax system, and we are also prudent with our spending, we can preserve more for social and economic investments. I think we have huge potential to increase our tax revenue, but the biggest problem has to do with the limited coverage and system leakages.”

The Senior Minister noted that government will adopt innovative ways of generating more revenue from the informal sector. “We are going to lay out details of government initiatives to maximise revenue. Revenue mobilisation is a budget problem, and the budget will come out with details of ensuring that revenue is maximised and protected. I can assure you that there are quite a lot coming out.

So yes, we are going to go out to cancel some taxes, but we will make sure that we even bring in more than we are foregoing.”

The NPP government secured the mandate of people on the back of promises to review what it termed “nuisance taxes,” to “recover the momentum of the economy.”

Some of the tax reforms it promised include: reducing the corporate tax rate from 25 percent to 20 percent, removing import duties on raw materials and machinery for production within the context of the ECOWAS Common External Tariff (CET) Protocol, and abolishing the Special Import Levy.

Others include abolishing the 17.5 percent VAT on domestic airline tickets, reducing VAT for micro and small enterprises from the current 17.5 percent to the 3 percent flat rate, and introducing tax credits and other incentives for businesses that hire young graduates from tertiary institutions; and reviewing withholding taxes imposed on various sectors, including the mining sector.