Ghana loses $1.2bn to tax incentives

Ghana loses about $1.2 billion annually as a result of tax incentives, which are offered to major foreign companies operating in the country.

According to a new report published by ActionAid Ghana (AAG) in Accra, the amount was equivalent to about twice government’s entire health budget for 2013 and about half the entire education budget.

The report said analysis of the percentage component of total revenues offered as incentives in different categories showed that in 2012, 41 percent of trade tax revenue was lost through tax exemptions compared to 28 percent of direct tax and VAT revenues.

The report, dubbed: “Investment Incentive in Ghana: The Cost To Socio-Economic Development,” was conducted by the Integrated Social Development Centre (ISODEC) on behalf of AAG.

While the report recognizes the importance of tax incentives, it stressed the need to measure how much is given as tax incentives against the expected benefits.

The report further said Ghana’s trade policy and development agenda had over the years been dictated by the desire to attract Foreign Direct Investment (FDI) and to increase export earnings.

“Tax incentives have, therefore, been a major strategic tool to achieve these goals. The result is that trade taxes have declined and currently Ghana has one of the overall lowest tax rates in the West Africa sub-region.

“While this may have boosted Ghana’s competitiveness it has tended to at the same time, undermine the harmonization of trade and investment regimes across the sub-region through initiatives such as the ECOWAS Common External Tariffs,” the report said.

Adwoa Kwateng-Kluvitse, outgoing Country Director, AAG, who was speaking at a media sensitization workshop on Tax Justice/Tax incentives in Ghana, expressed worry about the huge amount lost by the country as a result of tax evasion.

She called on the media to take the fight against tax evasion very seriously to help curb the menace.

Emmanuel Budu-Addo, Head of Finance, ActionAid-Ghana, in a presentation, urged the media and civil society organizations to develop effective strategies to promote tax justice.

Mr Budu-Addo emphasized the need for governments in developing countries to fund services from tax revenues rather than rely on foreign development assistance.