By Ebenezer Chike Adjei NJOKU [email protected]
The Ghana Stock Exchange (GSE) is pushing for the reinstatement of the capital gains tax exemption on listed securities, with Managing Director Abena Amoah confident it would deepen investor participation and solidify the bourse’s gains.
She believes the tax break, coupled with tax incentives for listing companies, would significantly enhance the market’s attractiveness for domestic and offshore investors alike.
“We are looking at what would encourage more people to invest in our market. We used to have a waiver on capital gain tax for securities that are listed on the stock exchange. The government had indicated that it intended to renew the waiver but it has not been implemented yet.
“We think that there are too few of us investing and we believe that a tax incentive is needed to make sure that we keep saving and investing in companies on our market… we also think that certain tax concessions would encourage many more companies to come to the market,” she said during a breakfast meeting with the media.
The GSE MD added that visibility for companies from the tax initiatives, coupled with the requirement to publish periodic financial statements, would possibly enhance revenue generation for the state.
The exemption on capital gains – which allows resident investors to “elect to pay tax on capital gains on the realisation of an investment asset at 15 percent; otherwise, the capital gain is taxable at the investor’s marginal tax rate” – was introduced in 2016 to invigorate the market. It expired in 2021 and has not been reintroduced ever since.
This has created a degree of uncertainty, dampening investor sentiment as evidenced by the market’s performance in 2022, when it was mentioned as a contributing factor to the bourse’s slow start.
Governor of the Bank of Ghana, Dr. Ernest Addison, at the time, cited it as a reason for the Composite Index (GSE-CI) recording a loss of 1.79 percent on a year-to-March 22, 2022 basis, compared to the same period of 2021, when the index returned 14.06 percent.
“The year-to-date loss has been driven by a variety of factors – including the re-imposition of capital gains tax on securities listed on the GSE, which is inducing some investors to switch to government securities,” the governor said at the end of a Monetary Policy Committee (MPC) press briefing at the time.
This came after the former Finance Minister, Ken Ofori-Atta, in the 2021 budget, highlighted the exemption’s positive impact. “The reinstatement of tax exemptions for capital gains for listed companies in 2016 encouraged investors,” he said.
“This exemption has made the market more competitive, especially compared to other African markets,” he added, expressing the government’s intention to make the exemption permanent.
Despite engagements between the GSE and the fiscal authority, the 2022, 2023 and 2024 budget statements were silent on the matter.
“We want to continue to engage the Ministry of Finance, the Ghana Revenue Authority and other stakeholders to implement some of these incentives for the industry to grow. We have seen it work in other places and we have seen it work in Ghana, and we would like to see it work again,” she added.
However, analysts, while acknowledging the potential benefits of the tax measure, argue that the government has very little wiggle room to make these adjustments due to the prevailing fiscal consolidation under the current International Monetary Fund (IMF) programme.
They have pointed to the government’s recent suspension of the planned value added tax (VAT) on electricity following the public uproar as giving the managers of the economy little room for further tax cuts.
Possible solutions that have been mooted include exploring alternative incentive structures or implementing the tax break in phases.
Already, at the close of the third trading week in March 2024, the Composite Index had surpassed the 3,500 point mark, returning 13.02 percent year-to-date, with the market capitalisation at GH¢78.53billion. This has been driven largely by the market leader, MTN, which has seen its share price appreciate by 17.9 percent this year and was trading at GH¢1.65 percent at the time of writing.
