Breaking Down Ghana’s Three New Tax Laws: Implications for the Economy

In the country’s bid to be in good standing for an Extended Credit Facility (ECF) from the IMF, the parliament of Ghana on 31st March 2023 passed three additional revenue mobilization strategies. These were The Excise Duty Amendment Bill 2022, The Growth and Sustainability Levy Bill 2022, The Ghana Revenue Authority Bill 2022, and The Income Tax Amendment Bill 2022.

The new bills that were submitted to parliament on the 14th of December, 2021 by the Deputy Minister for Finance on behalf of the Finance Ministry, are to help generate more revenue domestically, boost Ghana’s fiscal position, and also facilitate a clear roadmap for the approval of the $3billion IMF bailout programme. The new taxes introduced, are expected to generate a revenue of about four (4) Billion Ghana Cedis yearly. 

What the Three New Taxes Are About?

The Excise Duty Amendment tax is to target a 20% tax on cigarettes and e-smoking devices as well as beverages, spirits, and wines. E-smoking devices such as vaping devices are battery-operated devices that people use to inhale aerosol, which typically contain nicotine (though not always), flavorings, and other chemicals. There are about 460 brands and still counting. Could it be that aside from the basic intuition of increasing revenue, the government seeks to limit the consumption or importation of these goods as their prices are expected to increase consequentially?

The Income Tax Amendment bill is aimed at revising the income tax rate of individuals and introduces an additional tax bracket. This will also affect the liability and winnings on lottery, introduce a withholding tax rate on the realization of assets, revision on the upper limits for the quantification of motor vehicle benefits, and increase the concessional income tax rates.  This bill is intended to exempt the minimum wage earners in the economy.  

The Growth and Sustainability Levy (GSL) constitutes some percentage of the profit before tax of companies and institutions on production in the case of mining, upstream oil and gas companies specified in the first column of the Schedule of the bill. This is to affect 2023, 2024, and 2025 years of assessment. This levy is somehow in relation to the National Reconstruction Levy and National Fiscal Stabilization Policy which was amended in 2019 to operate until 2024.

The Expected Revenue Target

The Excise Duty Amendment Bill 2022 is projected to increase the revenue generated by the country by about Four hundred Million Ghana Cedis annually (Gh¢ 400million).

The Income Tax amendment Bill is also projected to generate about Gh¢ 1.2billion annually (ir. The Growth and Sustainability levy is projected to generate an average revenue of two billion, two hundred and sixteen million Ghana Cedis (GH¢ 2,216,000,000).

The country is expected to improve its revenue by approximately 4 billion Ghana cedis. 

The Implications for The Ghanaian Economy

The Growth and Sustainability Levy (GSL) is set to raise additional revenue for national development and social protection for the vulnerable. This tackles the growth and fiscal sustainability of the economy. However, the imposition of GSL affects all companies which will stifle growth and productivity in Ghana. The GSL imposes 5% of profit before tax on Banks, Non-Banks, Insurance Companies, Telecommunication Companies, Breweries, Inspection Companies, Bulk Oil Distributers, and OMCs. In addition, 1% is imposed on gross production on Mining Companies and Upstream Oil & Gas Companies. Everyone else finally gets to pay a levy of 2.5% of profit before tax. The impact on growth and expansion would be huge and enterprises (formal and informal) are not left out. 

At the moment, the economy suffers from a deteriorating balance of payment, high inflation, depreciating exchange rates, and increasing youth unemployment, coupled with strike actions by labor unions in the country. It suffices to say that the country is broke to the core forcing the government to tax everything including lottery and gambling wins. However, cutting down on government expenditure and size, and reviewing populist policies that are draining public funds are not being considered.

In the meantime, Ghana is yet to make headway with the extension program as the country has successfully reached a staff level agreement in December last year. Could the government meet these revenue targets? Judging from the performance of E-Levy (the government’s immediate passed electronic tax­) which could not meet the revenue target as people find ways to avoid it. Certainly, we cannot tax our way into prosperity.

Article by

Asamoah Kwaku Junior

He is the Development Manager at YAFO Institute and liaises with the entire team to oversee growth projects by creating development plans and identifying market opportunities. He also has a degree in Economics.

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