As stated in Articles 179 and 180 of the 1992 Constitution of the Republic of Ghana, the Executive is required to present an account of the management of the economy for 2022 and a Budget Statement for 2023 financial year to the Legislature for approval. The Budget Statement and Economic Policy of the government for 2023 was presented by the executive on 24th November, 2022. The Budget Statement serves as the Financial Policy of the Government of Ghana which directs the financial and economic activities in the country.
From the budget statement, the government gave account of revenue generated and expenditures made up to September 2022 financial year, made projections on revenue to be generated for 2023, and estimated expenditure to be incurred for 2023.
Among the projected sources of revenue for the government is taxation. The government has made various proposals on taxation in the 2023 Budget.
This article is to provide highlights of tax issues raised in the 2023 Budget Statement, and proffer my opinion on some topical tax issues in the budget which can inform authorities in their approach to implementation and legislations formulation.
- Highlights of tax issues in 2023 Budget Statement
Highlights of tax issues in the 2023 budget statement are as follows:
a) Revision of the upper limits for the vehicle benefits
The upper limits for the vehicle benefits will be reviewed from its current values (GH¢250, GH¢500, and GH¢600). There was no mention of the direction of the revision as to whether it will be revised downward or upward, but looking at the state of the economy and government’s desire to increase revenue as it has been shown in increase of rates, widening of scope, and introduction of new tax measures, I expect the revision of the upper limits to be upward. This will mean employees who enjoy vehicle only; fuel only; vehicle with fuel only; and vehicle with fuel and driver as benefits are likely to pay higher PAYE when the revision is done.
b) Introduction of an additional income tax bracket of 35%
An additional income tax bracket of 35 percent will be introduced. This measure will affect income earners who fall within the highest income band who are currently taxed at 30 percent on the excess income. I expect this revision to result in realignment of the income tax bands because the current band require that any income in excess of the band taxable at 25 percent are supposed to be taxed at 30 percent; so, an introduction of a new bracket will require, at least, a revision of the last band.
c) A return and withholding tax rate for gains on realisation of assets and liabilities, and review the optional rate for individuals for realisations
There is not much clarity on this policy statement, and we will have to wait for the passage of the amendment Acts to ascertain the details of the policy and how it will be applied. But the optional rate for individuals for realisation mentioned can be found in paragraph three of the first schedule to Act 896 as stated;
d) Revise the Income Tax Act to exclude unrealised exchange losses from deduction and ensure that realised exchange losses on capital assets are capitalised.
The Income Tax Act will be revised to exclude unrealised exchange losses from deductions, and ensure that realised exchange losses on capital assets are capitalised. We await the amendments to gain details on the provision.
e) The one percent (1%) Concessional Rate will be increased to five percent (5%)
The income of persons entitled to concession under the sixth schedule to Act 896 as amended, which is subject to tax at the rate of one percent (1%) shall be revised to 5 percent of the chargeable income. Some provisions will also be made for implementation of a minimum chargeable income system.
f) Unification of carried forward of losses provisions in the Income Tax Act and restriction on treatment of foreign exchange losses to actual losses.
The carried forward of losses provisions in the Income Tax Act will be unified while the treatment of foreign exchange losses will be restricted to actual losses. Currently, losses can be carried forward in priority sector of up to five years, and three years for any other sectors.
g) Reforms in the excise regime
Excise tax reform will include revision to the taxation of cigarettes and tobacco products to align with ECOWAS protocols. The reform will also target increase in the excise rate for spirits above that of beers. There will be taxation of products such as electronic smoking devices and liquids which are not currently taxed.
h) Revision in VAT registration threshold, reforms in VAT exemptions, and increase in the VAT rate from 12.5% to 15%
There will be some reforms in the VAT regime, which include the increase in the VAT standard rate by two and a half percentage points (2.5%) from 12.5 percent to 15 percent. There was no indication whether the rate review will have some impacts on the Flat Rate Scheme. The VAT registration threshold will also see some review which is currently unclear on the direction of the review as to whether it will be upward from the current GH¢250,000 of annual revenue or it will be lowered; and some major reforms are expected to be implemented with respect to VAT exemptions.
i) Abolition of the benchmark discount policy
The benchmark discount policy will be fully phased out in 2023 while the Customs Regulations, 2016 (LI 2248) will be amended to allow for self-clearing of goods by importers at the ports of entry without recourse to a customs house agent. The abolition of the benchmark discount policy will lead to the payment of high duties on imported goods.
j) Conversion of National Fiscal Stabilisation Levy (NFSL) into Growth and Sustainability Levy (GSL)
With the aim of burden-sharing, the National Fiscal Stabilisation Levy (NFSL) will be converted into a Growth and Sustainability Levy (GSL) to cover all entities. Category ‘A’ entities comprising those currently paying the NFSL, and six additional sectors will have a rate of five percent (5%) on Profit-Before-Tax (PBT). Category ‘B’ comprising all other entities – with the exception of the extractive sector – will have a rate of two and a half percent (2.5%) on PBT. Category ‘C’ comprising entities operating Restoring and Sustaining Macroeconomic Stability and Resilience through Inclusive Growth & Value Addition in the extractive sector will contribute up to one percent (1%) of production to the Levy.
k) Reintroduction of road tolls
Toll charges on public roads were removed as part of supportive policy measures under the 2022 Budget Statement and Economic Policy of Government. The fiscal policy measures to underpin the 2023 Budget for consideration and approval by Parliament include reintroduction of tolls on selected public roads and highways, with a renewed focus on leveraging
technology in the collection to address the inefficiencies characterised by the previous toll collection regime.
L) Revision of the Electronic Transfer Levy (e-levy)
Government has received several proposals for review of the Electronic Transfer Levy, and is working closely with all stakeholders to evaluate the impact of the levy in order to decide on the next line of action which will include revision of the various exclusions. As a first step, however, the headline rate will be reduced to one percent (1%) of the transaction value alongside the removal of the daily threshold.
m) Some additional revenue and administrative measures
Some additional revenue and administrative measures proposed for implementation as part of the fiscal consolidation programme of the government include:
- Sale of 5G Electromagnetic Spectrum;
- Enhance Rent Tax Compliance;
- Pursue Additional Oil Entitlement (AEO) in relation to the Jubilee Field;
- Freeze on tax waivers for foreign companies;
- Tax exemptions for companies in the free zone and the extractive industries will be reviewed, and there shall be no exemptions
to such entities for the 2023 financial year;
- The Electronic VAT Invoicing (E-VAT Invoicing) system which is under implementation is expected to cover all VAT
taxpayers by 2024; and
- Electronic Tax Clearance Certificate (ETCC): Effective October 1, 2022, taxpayers are to apply for TCC online or
electronically through GRA taxpayers’ portal.
2. My opinion
My opinion on some of the tax measures in the 2023 Budget Statement have been outlined as follows:
a) Revision of the upper limits for the vehicle benefits and the introduction of 35% tax bracket
My opinion: The revision of the upper limits for the vehicle benefits and the introduction of the 35 percent tax bracket will have effects on the earnings of employees. The ordinary employees who enjoy vehicle benefits are likely to experience an increase in their PAYE if the upper limits are adjusted upward, and high-income earners will also pay more since their highest tax bracket will be increased from 30 percent to 35 pecent.
b) Revision in VAT registration threshold, reforms in VAT exemptions, and increase in the VAT rate from 12.5% to 15%
My opinion: I am quite concerned about the polarisations of the VAT regime, and of the opinion that the levy system in the VAT calculation could have been abolished in place of one unified VAT rate as it was some time back. It’s the expectation that the increase in the standard rate of 12.5 percent to 15 percent will result in price hikes which may lead to collusion between taxpayers and VAT agents to avoid the tax. I am unsure whether there will be a corresponding increase in the rate of the Flat Rate scheme as well.
The poor masses will suffer the most as prices soar, and indirect taxes do not have any mechanisms to relief them. This will cause low-income earners to relatively pay more taxes in proportion to their income.
c) Revision in the Electronic Transfer Levy Act (e-transfer levy)
My opinion: Government’s decision to review the law and its operationalisation is in order, but it seems the horse has already bolted before we took steps to close the stable because all users who switched from the use of mobile money and digital payments are now conversant with living without those services; and getting them back to use the service will be quite daunting. I believe the rate should have been lowered to 0.5 percent transaction amount instead of the 1 percent, and the daily exemptions on momo increased from GH¢100 to GH¢500 to relieve low-income earners due to the effect of inflation on their purchasing power. But the existing exemptions have been scraped entirely. As it stands, I am unable to tell how the revision of the exempt list will end and which services might be roped in scope.
d) Reintroduction of tolls on public roads and bridges
My opinion: It’s welcoming to hear that road tolls are being reintroduced. The outright abolition of all road tolls in my opinion was a misjudgement. The reasons sighted for abolishing road tolls include cost of collection – including financial cost to the government and social cost like huge traffic motorist faces to pay their tolls. In my opinion, the collection of the tolls could have been taken from the toll booths as it has been directed to allow the traffic to flow; but an analysis could have been made to add an amount to the road worthy fees for every vehicle owner to pay when renewing their road worthy certificates at the DVLA. This measure would not require the deployment of any extra resources to administer, and a lot of vehicle owners who were previously not paying road tolls because they don’t travel beyond toll booths would have been roped into the tax net to shore up revenue.
3. Recommendations
I recommend the following for possible consideration:
a) The review of the E-Levy is welcoming, and I believe the rate should be lowered to 0.5 percent instead of the 1 percent, and the daily exemptions on momo increased from GH¢100 to GH¢500 to relieve low-income earners due to the effect of inflation on their purchasing power. Authorities should also have a second look at the decision to revise the exemption list, and not to widen the scope which may pose more difficulties for charging entities to align and the ability of the poor to pay.
b) In order to extricate ourselves as a nation from the economic challenges confronting us, as government puts in measures to shore up its revenue base, management of the economy must take critical look at some expenditure cut and implement measures which will avoid waste of our hard earn resources as Ghanaians are made to feel the pinch of swallowing bitter pills as a result of our economic challenges.
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.
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
