Revenue Mobilisation Measures in the 2015 Budget Statement
Emphasis The 2015 Budget Statement places emphasis on the following in its quest to increase revenue to the government: Improving efficiency and ensuring cost effectiveness in the tax administration.
OVERVIEW OF RESOURCE MOBILISATION MEASURES
Special attention to be given to the extractive (mining, oil and gas) and informal sectors to increase revenue collection.
The following are the measures the government is seeking to implement to achieve its revenue mobilisation efforts:
Deployment of a customs valuation system.
2. Excise Duty on Tobacco
1. Sliding scale Excise Duty
Enforcing the tax laws in a transparent way by treating taxpayers in a fair and consistent manner, as well as increasing the quality of service to encourage tax compliance.
3. Tax Identification Number (TIN)
The Ghana Revenue Authority to monitor sector-wise tax compliance behaviours to enable the requisite measures to be undertaken.
6. Review of Exemptions
Implementation of risk management practices to enable resources to be realigned to high priority enforcement work with the highest compliance risk. The Ghana Revenue Authority to put in place strategies to implement the statutory obligations as well as enhancing trade facilitation and preventive services to reduce clearance time at the ports and protect society.
4. Amendment of National Health Insurance (NHIS) Act 5. Support to Local Industries 7. Compliance 8. Review of Tax Laws 9. Imposition of Special Petroleum Tax of 17.5 percent. 10. Extension of the National Fiscal Stabilisation Levy of 5 percent and special import levy of 1 – 2 percent to 2017. 11. VAT on Fee-based financial services. 12. A 5 percent flat VAT rate on real estates. 13. Increase in withholding tax on Director’s remuneration from 10 percent to 20 percent.
The details of the measures, followed by our comments (in italics and bold) on the measures are as follows:
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Sliding Scale Excise Duty
Tax Identification Number (TIN)
(Paragraph 843 of Budget Statement)
(Paragraph 845 of Budget Statement)
The sliding scale Excise Duty was introduced in 2012 on beer and malt to provide incentive for the use of local raw materials as substitutes for imported raw materials.
The requirement of the TIN is to be extended to other sectors to facilitate the identification of eligible taxpayers.
This is to be reviewed in 2015 to ensure greater efficiency and compliance. The Ghana Revenue Authority is to introduce appropriate guidelines on this measure. There is the need to speed it up if the full benefits of increased employment opportunities, reduction in import bill, acquisition of new technology, as well as increased capital investment are to be realised.
Excise Duty on Tobacco (Paragraph 844 of Budget Statement) Excise duty rate on tobacco to be increased from 150 percent to 175 percent.
This is a non-distortionary tax which has a dual benefit. The first benefit is that of raising revenue since the demand for tobacco is inelastic, hence the anticipated reduction in demand owing to the tax increase will likely be minimal and the anticipated revenue will still accrue. The second benefit would be the anticipated reduction in health hazards should this tax increase deter some category of users to reduce if not stop their consumption of tobacco.
This is to be undertaken in conjunction with the National Identification Authority (NIA). The date is to be validated every two years to ensure accuracy of the Taxpayer Register. This is a welcome initiative as it has been the requirement for transacting business at the various ports. It should be extended to all dealings – purchases, award of contracts, payments from the Controller & Accountant General’s Department, etc. It ensures that all those who are required to pay tax do indeed pay because it leads to all taxpayers being captured on the Ghana Revenue Authority Database which will improve revenue mobilisation.
Amendment to National Health Insurance (NHIS) Act (Paragraph 846 of Budget Statement) This amendment is necessary owing to the new VAT Act, 2013 (Act 870) as new taxable activities such as fee-based financial services and real estate have emerged. This needs to be acted upon early otherwise the year runs out without any revenue being collected as was the case with the main VAT Act, 2013 (Act 870). Although the new taxable activities were expected to raise revenue 3
the modalities of implementation faced challenges which we believe have now been resolved to occasion this proposed amendment. We need to be mindful of the policy mix and/or disconnect.
Moreover imposition of import duty on smartphones is non-distortionary as those who patronise them have the ability to pay the taxes, without passing it on.
Support to Local Industries
Review of Exemptions
(Paragraphs 847 to 849 of Budget Statement)
(Paragraphs 850 to 854 of Budget Statement)
Removal of VAT on selected pharmaceuticals and some raw materials used in the production of these pharmaceuticals to ensure low cost of production as well as making them affordable to Ghanaians.
Review of Free Zones Act to place greater emphasis on manufacturing and value addition as well as increase corporate tax rate from 8 percent to 15 percent after ten years tax holiday period.
Removal of import duty on inputs for the production of machetes and also the production of exercise books and textbooks.
This is a good proposal to give effect and meaning to sunset clauses. It will ensure that companies that apply to be free zones companies indeed add value to Ghana’s export earnings as well as create jobs and enhance technology transfer. It is important to continue with monitoring the activities of free zones enterprises to prevent abuse.
It is good riddance that the above proposals are being made but there is the need for close monitoring to prevent abuse. The monitoring will entail a close watch on the prices of such pharmaceutical products since the intention of the support is to make the products affordable, and same for machetes and books. Removal of import duties on smartphones to enhance smartphone penetration.
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If it is about the expected increase in revenue from communication service tax, VAT and corporate taxes, then it is as well the import duty on all mobile handsets are removed as that enhances more penetration, hence more of the revenue from these taxes. The re-imposition of import duty on mobile handsets has not yielded any significant revenues to warrant its continued imposition.
VAT Relief Purchase Order (VRPO) to be abolished in 2015 and replaced with an enhanced tax refund system. VAT Refund Account is to be replaced with a General Refund Account with enhanced inflows of 5 percent of GRA collection, which will be audited annually and any balance at the close of the year transferred into the Consolidated Fund. A very good initiative since a viable, effective and efficient tax refund system gives confidence and assurance to taxpayers, leading to enhanced tax compliance. There is the need to check on the constitutional provisions as regards the creation of the refunds account, since total collections are to be paid into the
consolidated fund. If it needs a constitutional amendment, then this has to be expedited so as not to delay the laudable idea behind this proposal. Currently there are significant amounts owed mining companies, for example, which is impacting on their cash flows. Any new system of refund should not be cumbersome and fraught with bureaucracies otherwise it will defeat the very purpose of easing the cash flow problems of taxpayers who hitherto were on the VRPO scheme. Reduction in the use of special permits, reduction in the scope of exemptions in loan agreements and the need to align terms of draft agreements to the application of tax treaties, where necessary. This proposal is worthy of consideration as it reduces revenue leakages by way of payments of interest on such loan agreements which impacts significantly on corporate profits, hence tax revenue. The reduction in the use of special permits and the aligning of draft agreements to tax treaties will curb significantly any abuse.
Compliance (Paragraphs 855 to 857 of Budget Statement) Making permanent the use of data from the Ghana Customs Management System (GCMS) to ascertain taxpayers’ compliance levels, as well as extending this tool to GIFMIS data covering payments to government’s suppliers. This is linked to the use of TIN. This should indeed be made permanent as enhancing tax compliance is a continuous activity of the Ghana Revenue Authority to ensure increased domestic revenue mobilisation. This tool will surely reduce, if not eliminate tax evasion. The use of TIN in all transactions and payments should be mandatory in conducting business or making payments in Ghana.
Review of Tax Laws (Paragraphs 858 and 859 of Budget Statement)
Replacing upfront exemptions with Tax Credit system, to be applied against future tax revenue.
Continuation in the review of tax laws.
This assures Government of revenue upfront, since it is a timing difference. Government gets the revenue upfront and offsets this against any future tax liabilities of the exempted entity. The Ghana Revenue Authority will thus not have any issues with the Tax Credit being applied since the Authority would have been credited with the tax payment upfront in its collection.
This is a necessary activity to ensure that all conflicts in the various tax laws are resolved and procedures and processes streamlined to assure taxpayers of certainty and predictability to enable them undertake their business activities and tax decisions in an efficient manner. This will then lead to more earnings hence increased tax revenue due the State. With certainty in tax laws, investors and taxpayers do not require stability clauses in their agreements.
Customs Bill, Income Tax and Revenue Administration Bills to be tabled soon.
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One such law which is long overdue is the Petroleum Income Tax Law, 1987 (PNDCL 188). This hopefully should be in the Income Tax Bill to be laid before the Parliament of Ghana.
Reversal of the excise tax on petroleum from ad valorem to specific
Moreover, the integration of the hitherto three revenue agencies (Internal Revenue Service, Value Added Tax Service and Customs, Excise & Preventive Service) into one Authority (Ghana Revenue Authority) makes this a must.
Specific excise tax usually generates more tax revenue than ad valorem, hence the reversal is welcome in increased revenue mobilization efforts.
Imposition of Special Petroleum Tax of 17.5 percent (Par. 57(i) of Budget Speech) A 17.5 percent Special Petroleum Tax is to be charged on the ex-depot price, by persons licensed to operate as oil marketing companies under the National Petroleum Authority Act, 2005 (Act 691), on each supply of the following petroleum products: 1. Petrol 2. Diesel 3. Liquefied petroleum gas 4. Natural petroleum gas 5. Kerosene In as much as this will generate revenue, its impact on business will equally be distortionary as it will lead to general price increases typically associated with indirect taxes. It will also lead to extra cost of doing business for taxpayers who are not in a business that allows them to pass on the costs, hence impacting on profits and corporate tax revenue to the State.
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(Paragraph 57 (ii) of Budget Statement)
Extension of the National Fiscal Stabilization Levy of 5 per cent and special import levy of 1 – 2 percent to 2017 (Paragraph 57 (iii) of Budget Statement) Inasmuch as the National Fiscal Stabilisation Levy generates revenue, its overreliance is affecting businesses. This is because it is on profit before tax and paid upfront in quarterly instalments on projected profit and not actual profit hence affecting cash flow of businesses. It has continuously been imposed intended for two years, yet always gets reviewed and extended at its expiry. A concerted effort thus needs to be made to ensure it does not get extended at its expiry so as to bring relief to businesses, enhance profits and thus lead to an increase in corporate tax revenue.
Increase in withholding tax on Directors’ remuneration from 10 percent to 20 percent (Paragraph 57 (iv) of Budget Statement) This is a good proposal that will return revenue. There is however the need for the Ghana Revenue Authority to monitor and ensure that all businesses and institutions provide and file the necessary returns on all payments to directors and the requisite taxes thereon. Tax audits should treat this area as a high risk area in their audits as the expected revenue is high and lack of monitoring will lead to significant revenue losses to the State.
in the deposit mobilisation efforts of financial institutions, hence a setback to efforts to make the economy a cashless one. This is because the service of the use of ATM cards and such related cashless products will be fee-based and thus subject to VAT.
CONCLUSION Ghana has very good tax laws as a country but the problem is enforcement, monitoring and evaluation. There is the need to empower the Ghana Revenue Authority with the needed logistics and resources; improve and enhance taxpayer education; promote tax compliance;
VAT on real estate at 5 percent (Paragraph 56 of Budget Statement) This proposal is in order as the sector operators will find it accommodating and thus compliance level is expected to be high and this will lead to the expected revenue inflows. There are, however, more players in the sector that operate in a kind of informal nature who have to be roped in – artisans, stone and sand contractors, etc.
VAT on Fee-based financial services (Paragraph 56 of Budget Speech) There is still the need to clarify what constitutes fee-based financial services and what is not. There is also the reality of the distortionary nature of this tax
respect taxpayers’ rights; ensure judicious use of tax revenue
and the Ghana Revenue Authority will be able to mobilize more than enough domestic revenue for the development of Ghana. Introduction of new taxes is thus not the way forward in domestic revenue mobilization since Ghana has enough taxes in place to secure the needed revenue inflows to the government. The 2015 Budget indeed contains some laudable measures for all the relevant institutions, as well as citizens to deliberate on to come out with workable options for implementation so as to harness the much needed revenue.
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For further information, please contact one of our tax consultants: Abdallah Ali-Nakyea
[email protected] Tel: +233 244 235144/+233 277 235144 Seth Awuttey
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