Overgenerous tax holidays could be counter-productive

Government is pushing for the passage of a law to facilitate birth of a Ghana Automotive Industry and provide legal backing for the incentives which car manufacturers will enjoy. The law is an amendment to the Customs Act, 2015 (Act 891).

A report by the Joint Committee on Finance and Trade, Industry and Tourism on the Customs (Amendment) bill, 2020, in Parliament reveals government is expected to give tax exemptions of more than GH¢800million within 3 years to automobile giants which will be setting up vehicle assembly plants in the country.

Automotive giants such as Volkswagen, Toyota, Suzuki, Nissan Motors, Sinotruk, including a few others, have all expressed interest and plans to set up assembling plants in Ghana. On paper, having assembly plants in the country comes with a lot of excitement because jobs will be created for Ghanaians to be employed.

Additionally, the prospect of technology transfer also offers a glimmer of hope. However, the move will result in an over-GH¢800million loss to the economy for the next three years in the form of tax exemptions.

Juxtaposing the professed benefits against the revenue loss to the state is something we should all interrogate dispassionately. Governments of developing countries commonly adopt tax holidays to encourage investment.

Broadly, tax incentives serve a useful social purpose if the social benefits they generate exceed the associated social costs. Investment tax incentives ultimately aim at contributing to a country’s development and improved living conditions for its citizens.

In developing countries, the race to the bottom has been largely characterised by the granting of tax incentives to secure Foreign Direct Investment (FDI) – resulting in lower effective tax rates for MNCs.

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The widespread use of tax incentives granted under special regimes has brought the MNCs’ effective tax rates close to zero in many sub-Saharan African countries. Overgenerous or poorly-designed incentives can result in foregoing revenue without generating commensurate value in the form of returns.

Ghana’s improving macroeconomic indices make it an attractive destination for foreign capital to migrate here, and this is evident by the number of world-renowned car manufacturers that are vying to set up plants here.

This opportunity should make it possible for authorities to sieve through and select the most promising in terms of material benefits the state will derive from these multinational entities. Lest we forget, there is a new scramble for Africa based on its resources as well as cheap labour costs; and we should be asking what benefits will accrue to the nation when these entities operate from our soil.

At the end of the day, most of these vehicles will be exported for profit and, besides, how many Ghanaians will be able to afford such vehicles when they come off the assembly line? We believe we are in a stronger position to demand commensurate benefits for the state.

In fact, given the number of foreign companies vying for business-space in Africa, we should not be giving any exemptions but rather asking what they will be giving us to make us allow them access to our jurisdiction instead of other interested parties. It seems we are not aware of owning the vehicle, let alone that we are firmly in the driving seat at this time.

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TUC believes economic gains should reflect in pockets

The Trades Union Congress (TUC) has given its impressions on the recent State of the Nation Address delivered by President Akufo-Addo to Parliament last month. While commending government for stabilising the macroeconomy, the TUC acknowledges the President concession when he said, in spite of the positive outlook, Ghana is not there yet.

The TUC emphasises that gains made in the country’s macroeconomic management and the economy’s positive outlook must reflect in the lives of each and every Ghanaian.

“The gains must reflect in Ghana’s Human Development Index (HDI). We have a long way to go, because there are over 10 million Ghanaians who are currently eking out a living from precarious economic activities in Ghana’s extra-large informal economy.”

Creating decent employment for the millions who are suffering from poverty, deprivation and destitution is the surest way to make them feel the progress Ghana is making, the TUC states. Indeed, government has to be commended for restoring macroeconomic stability, a basis for the future growth of the economy – but it has to consolidate those gains so that the average Ghanaian on the street can feel positive impacts from the gains being touted.

While we believe government is working assiduously to achieve this objective since they came to power with the aim of improving the lot of Ghanaians, we also believe far more needs to be done in addressing the massive corruption and thefts which are demoralising Ghanaians and causing them to be highly sceptical of official announcements that they are better off.

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