Gov’t introduces new tax measures to raise revenue

Ken Ofori-Atta
  • Gov’t to tax luxury vehicles (3.0 litre-plus engines)
  • Leverage bauxite to raise US$2bn from Sinohydro for Infrastructure
  • GH₵10,000 income earners to pay personal income tax of 35%
  • GETFUND’s 2.5% component of current 17.5 percent VAT converted into a levy
  • NHIL’s 2.5% component of current 17.5 percent VAT converted into a levy
  • Outsourcing of gov’t payroll management

Finance Minister Ken Ofori-Atta has announced new tax measures in the 2018 mid-year budget aimed at raising more revenue to meet set targets in the 2018 budget and enable government to execute its social intervention programmes.

Individual earnings of GH₵10,000 and above will attract up to 35 percent income, as well as the imposition of luxury vehicle tax on vehicles with a capacity of 3.0 litres and above, Ken Ofori-Atta told Parliament.

Other tax measures include conversion of National Health Insurance Value Added Tax rate of 2.5 percent to a straight levy, and the conversion of GETFUND Value Added Tax rate of 2.5 percent also into a straight levy.

For a government badly in need of additional revenue after abolishing various ‘nuisance taxes’ in 2017 that cost it over a billion cedis in revenue – ostensibly to stimulate production and grow the private sector – additional taxes were largely expected, but the shape and form were only revealed in Mr. Ofori-Atta’s presentation.

According to Mr. Ofori-Atta, the fiscal performance for January to May 2018 showed that both revenue and expenditures were below their respective targets; but the shortfall in revenues (GH₵1.43billion) was much greater than the shortfall in expenditures (GH₵797million), which led to a fiscal deficit of 2.6 percent of GDP compared to a target of 2.4 percent.

“To ensure that achievement of the 2018 fiscal objectives and target are not derailed, this mid-year review affords us an opportunity to propose sustainable revenue and expenditure measures for the consideration and approval of this august House. These measures mainly include new tax measures which are estimated to yield GH₵1.345billion, strengthening of tax compliance, and expenditure adjustments,” he said.

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Leveraging bauxite to secure US$2bn projects from Sinohydro

Government, according to Mr. Ofori-Atta, is to leverage the country’s bauxite deposits in a barter arrangement that will see Sinohydro Group Limited of China provide US$2billion of infrastructure including roads, bridges, interchanges, hospitals, housing, and rural electrification in exchange for Ghana’s refined bauxite.

“Mr. Speaker, Ghana faces a major infrastructure deficit in areas such as roads, water, bridges, electricity, hospitals and sanitation – estimated to be in the region of at least US$30billion, mainly due to the inadequacy of financial resources to undertake the requisite investment.

“Sinohydro will not add to the debt stock and will involve a moratorium period of three (3) years to give Ghana time to establish an aluminium refinery. After the moratorium period, Ghana will fulfil its part of the barter agreement over another 12-year period,” Mr. Ofori-Atta said.

In the 2018 budget, a sum of GH¢13.8million was allocated to support development of the bauxite industry.

Work has also begun on the review and digitisation of available data to facilitate the Geological Resource and Reserve Assessment of the Nyinahin bauxite deposits.

Outsourcing of Payroll

As a way to ensure an efficient payroll management system that guarantees cost-reduction, quicker payroll processing, data and cost validation, accountability, payment validation and improve overall efficiency, government is currently evaluating options to outsource payroll processing for its employees, Mr. Ofori-Atta told Parliament.

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IMF programme

Furthermore, he also announced that the country will end its partnership with the International Monetary Fund (IMF) by the close of this year.

The Executive Board of the International Monetary Fund (IMF) in April 2015 approved a three-year arrangement under the Extended Credit Facility (ECF) for Ghana in an amount equivalent to SDR 664.20 million (180 percent of quota or about US$918million) in support of the authorities’ medium-term economic reform programme.

Free SHS and other social programmes

On the financing of government programmes such as the Free Senior High School programme, One District One Factory, among others, Mr.Ofori-Atta indicated that the ministry is putting together a medium-term revenue policy that will outline revenue reforms targetted at ensuring there is adequate revenue to fund government programmes.

“The policy is expected to inform revenue measures for the 2019 Budget and beyond. Subsequent to the policy will be development of a medium-term revenue strategy to act as a vehicle for implementation of the policy.

“The proposed measures will feed seamlessly into the policy and strategy.”

Regressive taxes

A Minority member of the Finance Committee, Isaac Adongo, described government’s new tax measures as “regressive” – saying they will rather burden Ghanaians the more.

He also criticised government’s decision to shortchange the citizenry: “Why deceive the people of Ghana and pretend that you are trying to improve funding for NHIS and GETFUND when technically what you are doing is increasing the appetite for centralised funding. You can’t convert a transit tax into a final tax. They are disingenuous, shameless and regressive”.

Debate on the 2018 mid-year budget is expected to commence next Monday (23rd July, 2018) by both Members of Parliament, before it is eventually adopted.

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