Tax highlights of the mid-year Budget Statement of 2022- Way forward

The scheme reintroduced a sales tax feature that did not allow retailers to claim their input VAT as deductions.

As stated in Section 28 of The Public Financial Management Act, 2016 (Act 921), the Minister for Finance is enjoined to not later than the 31st of July of each financial year, prepare and submit to Parliament a mid-year fiscal policy review.

 The mid-year fiscal policy review shall include the following information:

(a) a brief overview of recent macroeconomic developments of Government;

(b) an update of macroeconomic forecasts undertaken by Government;

(c) an analysis of the total revenue, expenditure, and financing performance for a period up to the first six months of the financial year 2022.

(d) a presentation of a revised budget outlook for the unexpired term of the financial year, and the implication of the revised budget outlook for the Medium-Term Fiscal and Expenditure Framework if necessary; and

(e) where necessary, plans for submitting a proposed supplementary budget for approval by Parliament; and an overview of the implementation of the annual budget and of the budgets of covered entities.

 It’s in compliance of these statutory obligations that caused the Minister for Finance to present the mid-year budget review statement on the floor of Parliament on 25th July 2022.

As expected of me, this article is to breakdown the tax and revenue generation measures presented in the review by the minister, express my opinion on those measures and make suggestions or recommendation on the way forward.

  • Highlights of tax issues in the mid-year fiscal policy review

Below are highlights of tax issues in the 2022 mid-year fiscal policy review:

  1. Tax-exemption on capital gains on listed securities 

In Government’s efforts to deepen the capital market and to attract more investors onto the market, the exemption from tax granted on capital gains earned on listed securities on the Ghana Stock Exchange (GSE) shall be extended for additional five years. This extension is expected to encourage both local and foreign investors to actively participate in the market and make Ghana the preferred investor destination.

2. Implementation of the Unified Common Platform for property rate administration

Ghana Revenue Authority (GRA) and the Ministry of Local Government, Decentralisation and Rural Development (MLGDRD) are piloting the Unified Common Platform designed for efficient property rate administration, with full implementation expected in the last quarter of the year.

3. Reduction in the discount on the Benchmark Values of imports

The Benchmark Discount policy was revised, with the discount on general goods reduced from 50 percent to 30 percent, while that on vehicles was reduced from 30 percent to 10 percent. The revised policy commenced in March 2022 as opposed to the planned January date of implementation.

4. Implementation of Fees and Charges Amendment Bill

The Ministry of Finance also engaged the Finance Committee of Parliament on the MDA Fees and Charges Amendment Bill. The Bill went through all the necessary parliamentary processes and was passed on July 15, 2022.

Implementation will commence in the 3rd quarter of 2022 as opposed to the planned January date of implementation.

5. Tolling of the Tema motorway project to pay back the financing cost of the project

The Ministry of Roads and Highways (MoRH) Public-Private Partnership (PPP) programme for road infrastructure, the Design, Build, Finance, Operate, and Maintain (DBFOM) Accra – Tema Motorway and Extension PPP Project (27.7km) is at the procurement stage. Site works are expected to commence in September 2022. The completed road will be tolled to recover the whole life cost of the completed infrastructure, as well as pay lenders and provide a return for equity investors.

6.Extension of Penalty and Interest Waiver policy to December 2022

The extension of the Penalty and Interest Waiver policy to December 2022 to waive penalties and interest on taxes payable in 2020 year of assessment.

Extension of suspension of quarterly income tax and vehicle income tax for specified categories of vehicles and persons

The quarterly income tax instalment payments by individuals using the income tax stamp system and some categories of vehicles under the vehicle income tax sticker scheme has been extended till end of 2022 due to the current economic hardship.

a. Amendment of tax laws to tackle the booming digital economy (e.g., e-commerce, betting and gaming)

To tackle revenue leakages and raise additional revenue, the Government seeks to review various laws relating to the taxation of businesses like e-commerce, betting and gaming which are thriving in the digital economy.

The Government will in due course, submit the proposed amendments to these laws to Parliament for consideration and passage.

b. Introduction of electronic invoicing system (e-VAT)

The digitalisation of our Revenue Mobilisation processes remains a key focus; therefore, the GRA is finalising all relevant processes to facilitate the effective collection of VAT revenue.This includes a proposed amendment of the Value Added Tax Act 870 to enable its electronic collection, effective 1st October, 2022.

c. Introduction of VAT penalty on unregistered importers

To promote compliance, Government will impose a ‘recoverable penalty’ equivalent to the VAT non-registered persons are required to charge on their goods, payable at the ports of entry. The implementation start date for this policy is 1st October, 2022.

My opinion

My opinion on some of the tax measures in the 2022 mid-year fiscal policy review has been outlined below:

Tax-Exemption on Capital Gains on Listed Securities

My opinion: The waiver of the capital gains tax (CGT), for almost all these years the GSE has been in existence, has been a key attraction for investors who have provided the much-needed capital to our corporate institutions for investments and subsequent growth in the Ghanaian economy. I welcome the extension of this waiver as corporate Ghana requires more stable sources of funding in the form of readily available capital for investments.

Implementation of the Unified Common Platform for property rate administration (Direct Tax on Property)

My opinion: This is a laudable policy which can bring efficiency in the property rate management. GRA can leverage on the data from the recent housing census to rope in most property owners who are currently not covered for the payment of property rates in the current regime. This policy can rake in more revenue for the MMDAs for the execution of their mandate.

Reduction in the discount on the Benchmark Values of imports

My opinion: The discount was introduced to ensure more volume at the ports, and to prevent tax evasion and corrupt practices. A reduction of the discount from 50 percent to 30 percent for general goods, and 30 percent to 10 percent for vehicles is likely to trigger tax evasion and corrupt practices at the various ports of entry. This reduction in discount is likely to cause a consequential increase in cost of production for manufacturers who imports raw materials and other inputs. In order for Ghanaian manufactures to be able to compete with its peers in the sub-region, government should make deliberate efforts to increase the discount on raw materials and other inputs for members of Association of Ghana Industries (AGI).

Tolling of the Tema motorway project to pay back the financing cost of the project

My opinion: I was of the expectation that the minister would have used the opportunity of the mid-year review to reintroduce the tolls to shore up government’s revenue since the much-touted E-levy could not rake in the expected revenue. I am still of the opinion that the revenue from the tolls could still be maintained in one way or the other while we still achieve the free flow of traffic.

Extension of the Penalty and Interest Waiver policy to December 2022

My opinion: The proposed extension of the Penalty and Interest Waiver policy to December 2022 is a welcoming news to taxpayers and tax practitioners because this is expected to reduce tax burden and ensure voluntary compliance which will reduce tax administration cost and increase tax revenue. Since the waiver of penalty and interest is for only taxes payable in 2020 assessment year, I believe the policy would have gain more traction if taxes for 2021 assessment year had been added to the scope.

Amendment of tax laws to tackle the booming digital businesses (e.g. e-commerce, betting, and gaming)

My opinion: The attempt by government to harmonise the tax laws to tackle the digital economy is a welcoming news since the traditional ‘brick and mortar’ system of business is losing its relevance; hence, any tax laws which predominantly targets the traditional system of business will not thrive. With the application of some technologically advanced applications, GRA can identify both local businesses and multinationals plying brisk business in this space.

Introduction of electronic invoicing system (e-VAT) and imposition of penalty on unregistered importers

My opinion: Any attempt to enforce the VAT Act is a great news, especially where there is the application of innovative ways to use technology to ensure revenue assurance and real time monitoring. The introduction of the e-VAT is a welcoming news, and I wish GRA implements it in phases unlike how the E-levy implementation was done.

That notwithstanding, I am taken aback on the proposed imposition of upfront VAT on non-registered importers. I am struggling to find a law to support this policy. The VAT Act, 2013 (Act 870) as amended, has it explicitly covered on how to handle a person who fails to register as stated in section 6 to 16. Government must have a second look at this policy because it defies the core principle of VAT mechanism. There is a revenue threshold for registration, and importers must register and file returns if they meet the threshold, and they are required to pay VAT only when they make taxable supply, to slap someone with a penalty whether they have met the registration threshold or whether they have made a taxable supply or not is not supported by the existing VAT laws and the VAT mechanism.

  • Recommendations

 I recommend the following for possible consideration:

  1. GRA must sensitise taxpayers on the extension of the Waiver of Interest and Penalties since the previous dispensation was overshadowed by the E-Levy brouhaha. We will do our part in propagating the good news.

2. A special package should be made for Ghanaian manufacturers who imports raw materials and inputs to make them competitive with their peers in Africa to enable them to participate and take advantage of the African Continental Free Trade Area (AfCFTA).

3. My previous recommendation on the tolls still stands. The tolls should not be totally abolished; but the payment point should be taken from the toll booths as it has been directed, and make DVLA a collection point by adding an amount as a road toll to the road worthy fees for every vehicle owner to pay when renewing their road worthy certificates to rope more people into the tax net to shore up revenue.

4. GRA must harvest the data from Customs, and ensure that they follow up with importers who have met the registration threshold but have not registered and slap them with the appropriate penalties for non-registration. Ghana can raise the funds it requires without thinking of going to IMF if only sanctions for non-registration under Act 870 is enforced. The current proposed measure creates a smock and makes our VAT system very confusing, and I believe the policy can suffer a legal challenge unless it’s supported by an amendment.

This article is not to spite and belittle the good work done by the Finance Ministry Staff but to extend my professional opinion as a tax practitioner in the discharge of my duties as a GHANAIAN CITIZEN who seeks the success of Ghana.

I wish to use this opportunity to invite the business world, professionals, policy-makers, media and everyone to the 10th Annual Tax Conference slated for 24th to 26th August, 2022 at Alisa Hotel. The gurus of tax in Ghana and the world over will be there to discuss the very questions nagging your mind.

 The author is a Chartered Tax Practitioner – a Member of ICAG and a Member of the Chartered Institute of Taxation Ghana.

[email protected]; 0244 423 960

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