The government has introduced tax reforms to provide relief for pro-poor employment generation sectors to enable the country to share in the fortunes of certain sectors of the economy.
Foremost on the list of tax reforms that will impact a wide range of Ghanaians is the expansion of personal income tax bands.
The income tax band was last reviewed in 2006.
Under the new system, adjusted to accommodate inflation and compensate for the erosion of disposable incomes of people, the first GH¢1,440 annual earning will attract no tax; the next GH¢720 annual earning will attract five per cent income tax; the next annual earning of GH¢1,008 will attract 10 per cent tax, with the next annual earning of GH25,632 attracting 17.5 per cent.
Earnings exceeding GH¢28,800 annually will attract 25 per cent tax.
The Minister of Finance and Economic Planning, Dr Kwabena Duffuor, announced this in Accra Wednesday when he presented the 2012 Budget and Economic Policy of the government to Parliament.
It was on the theme: “Infrastructural Development for Accelerated Growth and Job Creation”.
According to the Finance Minister, the review in the income tax bands was “in line with the government’s social democratic principle of the equitable distribution of income and also for the protection of low-income earners”.
Dr Duffuor also announced a reduction in the corporate tax rate for hotels and the hospitality industry from 22 per cent to 20 per cent, a development which the government hoped would boost the hospitality industry which created jobs for both middle class and low
income earners across the country.
The minister also indicated that a number of incentives would be given to the hospitality industry and hotels in the country after a review of relevant incentives granted under L.I. 1817 of the Ghana Investment Promotion Centre (GIPC), but the reviews would be incorporated in the Internal Revenue Act 2000 (Act 592).
This means that such incentives for the hospitality industry will now be managed by the Ghana Revenue Authority (GRA) and not the GIPC, as had been the case.
In addition, the Finance Minister announced a further five-year tax holiday for companies that decided to list on the Ghana Stock Exchange (GSE), from the initial 20-year tax holiday they had enjoyed since 1992.
The move, according to Dr Duffuor, was to encourage more companies to list on the Ghanaian bourse to deepen capitalisation of the market, which was necessary to improve liquidity on the stock exchange.
“Madam Speaker, for the past 20 years, the GSE has enjoyed tax holidays, yet total capitalisation of the stock exchange has not met the industry’s expectation. To improve the capitalisation, the government is extending the stock exchange tax holiday for another five years,” he stated.
The minister announced the abolition of the National Fiscal Stabilisation Levy (NFSL), which had imposed additional contributions on mining firms, breweries and financial institutions since mid 2009, with a caveat that “all arrears due will be collected”.
On excise duties, Dr Duffuor said the change from specific to ad valorem duties on alcoholic and non-alcoholic beverages significantly improved revenue collection this year, in spite of a reduction in the rate by 2.5 per cent.
The breweries would enjoy further reduction in the excise duties, only this time it had been linked to how much local raw materials they utilised in their production process as substitutes to imported ones, he said.
“The government will consider a further reduction in the rate as the industry increases the use of local raw materials in production and further investment in capital, technology and employment of labour. As a matter of priority, the government will grant excise duty reduction on a sliding scale to companies using local raw materials as substitutes in the production of excisable goods,” he proposed.
The government was also seeking to mobilise more revenue, not only to offset the concessions it was making but also to match domestic revenue collection to the increased size of the economy after it attained a lower middle-income status earlier this year, he said.
Currently, revenue mobilised locally amounts to only 13.1 per cent of the total production of goods and services in the country, also known as the Gross Domestic Product (GDP), a reduction from the 22 per cent of GDP before the rebasing.
The average in sub-Saharan Africa is 15 per cent. The 16.5 per cent estimated tax revenue-GDP ratio outturn for 2011 is, therefore, a strong improvement in revenue mobilisation.
The government said it wanted to sustain revenue mobilisation efforts, in view of the huge funding requirements to close the country’s infrastructure gaps, estimated at $1.5 billion a year for the next 10 years.
“The focus, therefore, of revenue management in fiscal year 2012 is to expand the tax base and improve the efficiency of the tax administration,” he said, and announced that the Self-Employment Income Tax Revenue Enhancing Project had been set up to broaden the tax net through which the contribution of that segment to domestic tax revenue would improve from the current four per cent to a targeted level of eight per cent.
To rope in more companies to pay VAT, the threshold has been increased from an annual turnover of GH¢90,000 in 2011 to GH¢120,000 in 2012. This means that businesses with a turnover of less than GH¢120,000 over a 12-month period will pay a presumptive tax of six per cent of turnover.
The government also heeded the several calls from many quarters to tax mining companies more for their windfall from the rising prices of minerals on the international market, with the admission that “although mining is one of the leading sectors in the country, the economic and social benefits that the sector provides do not meet our expectations”.
Beginning next year, therefore, the corporate tax rate for mining companies would be increased from the current 25 per cent to 35 per cent; a windfall profit tax of 10 per cent would be collected from all mining companies, while a uniform regime for capital allowance of 20 per cent for five years for mining, as is the case in the oil and gas sector, would apply, the Finance Minister announced.
Other tax measures announced included the reduction in the rate of environmental tax on plastic packaging materials and products from 20 per cent to 15 per cent, with exemptions extended to the pharmaceutical and agricultural sectors; the application of capital gains tax to appreciations in the value of companies with changes in their ownership structure through takeovers and acquisitions.
Of interest to many companies was the announcement of improvement in the administration of the revenue refunds system under VAT and duty drawbacks which industry had for a long time been complaining about.
As part of the tax administration reforms, the GRA would adopt an accounting system to allow taxpayers to offset such refunds against other tax obligations, the minister announced.
In a quick response, the Manager of Tax Services at PwC, an audit firm, Mr Abeiku Gyan-Quansah, commended the government for some of the reforms, such as the expansion of the income tax bracket, which he said would improve the disposal incomes of individuals.
He said tax holidays for listed companies and capital gains tax on the stock exchange would increase activity on the Ghanaian bourse and increase liquidity, as it would make trading on the exchange a preferred option to trading shares over the counter (OTC).
Mr Gyan-Quansah was, however, sceptical about the modalities for implementing the natural resources tax on mining activities and wondered what the base would be for calculating the windfall tax of 10 per cent on mining companies.