Dr. Ali Nakyea Abdallah provides insights into the proposed tax measures in the 2023 Budget Statement

One of Ghana’s foremost Tax Experts, Dr Ali Nakyea Abdallah, provides insights into the proposed tax measures contained in the 2023 Budget Statement presented by the Finance minister of the Republic of Ghana in the budget statement to parliament on 24/11/2023.

Below is the list of tax measures in the fiscal policy for 2023 and my brother Ali’s comments and alternatives. I have also added a few of my comments also in red.

1. Introduction of withholding taxes on winnings from betting
   • Dr. Nakyea: A good revenue mobilisation measure. Requires monitoring to ensure compliance.

2. Reintroduction of road tolls.
   • Dr. Nakyea: 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%)
   • Dr. Nakyea: 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%, totalling 6% and adding this to the current VAT rate of 12.5% to get a 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.
   • Dr. Nakyea: 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%.
   • Dr. Nakyea:  This should have been maintained at an initial rate of 25% with adjustments to the income bands to mitigate the impact on 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 businesses and be self-employed. There is a policy disconnect here.

7. Introduction of withholding tax on gains from the realization of assets and liabilities.
   • Dr. Nakyea: A laudable measure but requires monitoring to ensure compliance. Again, capital gains need to be decoupled from income tax as was the case under the Internal Revenue Act, 2000 (Act 592), and the same should be done for gifts.
8. The optional 15% rate for individuals for gains on realization is to be reviewed( increasing the rate)
   • Dr. Nakyea: 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. The 1% concessional rate for entities enjoying tax holidays has been increased to 5%
   • Dr. Nakyea: 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 a minimum chargeable income system for entities with concessional rates.
   • Dr. Nakyea: 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).
    • Dr. Nakyea: Any unification should settle on 5 years for all sectors. In the worst-case scenario, an average of 4 years can be taken.

11. Deductibility of foreign exchange losses to be restricted to actual losses.
    • Dr. Nakyea: 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)
    • Dr. Nakyea 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.
    • Dr. Nakyea: Same analysis as in 12 above, a very necessary sin tax. Monitoring and compliance are required.

14. Introduction of taxation on liquids which were not taxed.
    • Dr. Nakyea: 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.
    • Dr. Nakyea: Same response as in 12, 13 and 14 above on sin taxes.

16. Full abolishment of the benchmark discount policy at the port.
    • Dr. Nakyea This is 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 the self-clearing system at port( this will help track individuals who do not pay taxes since Tax Clearance Certificates will be needed before clearing)
    • Dr. Nakyea: Another policy which is long overdue so better late than never. A welcome Policy. Monitoring for compliance is 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)
    • Dr. Nakyea: 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
    • Dr. Nakyea: 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.
    • It is critical that we should also introduce a cap on the tax if we want high-value transactions to be done with mobile money. There are several proposals on this and we hope that we would engage and discuss this.

20. Exchange losses on Capital Assets are to be capitalized and not deductible.
    • Dr. Nakyea: This is why it is so surprising it is being set out as a policy.

21. Review of the exemption regime of the free zone entities.
    • Dr. Nakyea 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 the deduction.
    • Dr. Nakyea: This is the same as point 11 above, hence the same response is applicable here.

23. Tax waivers are on hold
    • Dr. Nakyea: 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.
    • Dr. Nakyea Another long overdue measure, although introduced during Covid-19, 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.

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