Taxation yafo

From Abolishment to Introduction: The Manoeuvring Taxation Art of the NPP Government Under Scrutiny

According to Investopedia, taxes are mandatory contributions levied on individuals or corporations by a government entity. These taxes serve as revenue to the economy in order to assist in economic growth and development. In addition, the International Centre for Tax and Development reveals that total tax revenues account for more than 80% of total government revenue in about half of the countries in the world. For over two centuries now, it is believed that in the process of development, governments increase taxation or widen the tax base in order to accumulate more revenue in the long run.

During the 2016 presidential campaign, the New Patriotic Party (NPP) promised Ghanaians that if elected, they will take urgent action to repeal some burdensome levies known as “nuisance taxes.” The NPP led by President Nana Addo – who was the opposition leader at the time – pledged to reduce the tax burden on residents and companies, underlining their intention to build a more friendly and efficient taxation system if given the mandate to rule the country. This became famously known in the words of Dr. Mahamudu Bawumia, now Vice President, as ‘moving from taxation to production’.

However, having assumed power, this pledge is yet to be realized. Rather, what is being experienced under the NPP government is a manoeuvring art of abolishing fewer taxes and introducing more taxes to cover up what has been abolished. Let us review the taxes abolished by the existing government and the taxes introduced or revised from 2016 to date.

In February 2020, during the Government’s town hall meeting in Kumasi, Dr. Mahamudu Bawumia, the Vice President, told the people of Ghana that no matter the challenges and economic hardships inherited from the previous government, they have been able to abolish at least 15 taxes and levies introduced by the previous government. Some of these taxes and levies are as follows;

  • Abolished the import duty on the importation of spare parts: This was geared towards reducing the prices of vehicle parts in the country. This came into being through the successful passage of the Customs Amendment Bill 2017.
  • Abolish the 17.5% VAT/NHIL on real estates:
  • Abolished the 17.5% VAT/NHIL on selected imported medicines, that are not produced locally: 
  • Abolished the 17.5% VAT/NHIL on financial services
  • Abolished 1% special import levy. 
  • Abolished 17.5% VAT on domestic airline tickets 
  • Abolished levies imposed on Kayeyei (head porters) by local authorities 
  • Reduced import duty for all goods excluding 50% and vehicles by 30%.
  • Abolished excise duty on petroleum
  • Provided full corporate tax deduction for private universities who plough back 100% of profits into the university 
  • Reduced National Electrification Scheme Levy from 5% to 3%
  • Reduced Public Lighting Levy from 5% to 2%
  • Reduced special petroleum tax rate from 17.5% to 13% and introduced specific rates
  • Replaced the 17.5 VAT/NHIL rate with a flat rate of 3 % for traders
  • Granted Capital Gains Tax Exemption on stocks traded on the Ghana Stock Exchange or publicly held securities approved by the SEC
  • Abolished the income tax on mutual fund and unit trust schemes
  • Abolished income tax on Real Estate Investment Trust (REIT)
  • Reviewing the tax threshold for flat VAT
  • Reduction in withholding tax for gold exporters from 3% to 1%.
  • Removal of VAT on lotto stakes
  • Removal of 7.5% income tax on the commission of lotto agents and tax on lotto winnings

Per the data presented by Dr. Mahamudu Bawumia during this Town Hall meeting, it was reviewed that the country’s economy increased by about 25% from 2017. According to OECD.stat, it is believed that Ghana’s total tax revenue increased from 35,342.629 in 2017 to 51,467.311 in 2020 (all in millions) but at a decreasing rate.

Despite effectively waiving certain taxes, the NPP government has also reintroduced new taxes and revised existing tax legislation. As a result, the cost of living has risen more than expected. Under the NPP Government, the Parliament of Ghana passed five (5) Acts relating to taxation. Three (3) of these Acts changed existing tax laws, while the remaining two (2) Acts propose wholly new tax policies. These reforms have had a significant influence on the economic environment, raising worries about the increasing financial burden that citizens and businesses may bear. These acts are stated below;

  1. Ghana Revenue Authority Act, 2023 (Act 1096) – Amended
  2. Income tax, Act 2023 (Act 1094) – Amended
  3. Excise duty Act, 2023(Act 1093) – Amended
  4. Revenue Administration Act, 2022 (Act 1086) – New 
  5. Growth and Sustainability Act, 2023 (Act 1095) – New 

Under the Ghana Revenue Authority Act, 2023 (Act 1096), there are about 32 taxes of which about 17 are already existing taxes that have been amended. The remaining 14 taxes are newly introduced taxes of the existing government. Some of the taxes under these acts are as follows; 

  1. Excise Duty Act: This was reviewed to increase the excise duty for some commodities to conform with ECOWAS protocols and also expand the basket of goods under this act. 
  2. Energy Sector Recovery Levy: This levy imposes a levy of 20 pesewas per litre on Petrol and diesel and 18 pesewas per kilogram on LPG, and a sanitation and pollution levy of 10 pesewas per litre on Petrol and Diesel. 
  3. Income Tax: This indicates a tax rebate of 30% on the income tax liability of individuals operating in specific sectors of the economy. Some of these sectors are education, travel, and tours among others. 
  4. Electronic transaction levy: This levy was initially a 1.5% charge on all electronic transactions above a threshold of GHs 100.00 which was reviewed to 1% after concerns were raised. This was to be spearheaded by the Ghana Revenue Authority. With the aim of increasing internal revenue, the levy failed to achieve its purpose in the first few months. 
  5. The financial sector recovery levy: This indicates a 5% on the profits before tax made by the financial institutions (banks). 
  6. Penalty and interest waiver Act: This represents a waiver of penalties and interests on accumulated arrears up to December 2020 for persons who make arrangements to pay the principal tax. 
  7. Covid-19 Health Recovery Levy: This is a levy introduced to be charged on the supply of goods and services and imports to raise revenue to support Covid-19 expenditures and to provide for related matters. 
  8. Minimum Chargeable Income: This is a turnover tax of 5% applicable to businesses declaring losses consistently for the past 5 years but is inapplicable to farming businesses and businesses in their 5 years of operation.
  9. Growth and Sustainability levy: This levy is imposed on the profit before tax or the gross production of certain companies and institutions. The percentage change varies from company to company following the category they fall under.
  10. Increased in Special Elected Rate for Gifts and Gains: This was initially pegged at 15% which was revised to 25%. 
  11. Changes in Motor Vehicle Benefit for Employees: The taxable cap of motor vehicle benefits for employees. 
  12. Withholding tax on Realization of Assets and Liabilities: A new withholding tax of 3% for residents and 10% for non-residents applies on the consideration received on the realization of assets and liabilities.
  13. Increased Marginal Income Tax Rate for Individuals: The Income tax rate for individuals was between 25% and 30%. This was marginally increased to 35% on the chargeable income of individuals exceeding GHs 600,000 per annum.
  14. New Income Tax on Companies Lotteries, Betting, and Games of Chances: This comes with a 20% tax rate on companies involved in these activities. 
  15. Pension-Related Tax Exemption for 2023:
  16. New Tax Return for Realization of Assets and Liabilities:
  17. Unified Loss Carry Forward Position: All businesses can now carry their losses for a maximum of 5 years which initially used to be 3 years for some priority businesses. 
  18. Foreign Exchange loss: Foreign exchange losses will only be allowable deductions if they are realized. Losses of a capital nature will not be allowed as a deduction but can be added to the cost of an asset. However, both exchange rate and gains were excluded until they became realized. 
  19. Withholding tax on winnings on betting, lottery, and games of chances: This comes with a 10% withholding tax on winnings on betting, lottery, and games of chances. This was a new tax introduced as a result of an identified expansion in this field by the authorities. These activities are seen as investments. This tax charge does not have any exemptions. This makes the rate too high. 

Livingcost.org has ranked Ghana 186th out of a total of 197 countries on the basis of cost of living. The average salary of a Ghanaian after tax can cover living expenses for just 0.7 months. The inflationary rate of Ghana is on the rise which can be attributed to an increase in the tax base of some already existing taxes and the introduction of new taxes which basically affect the prices of goods and services. 

It is important to note that among the abolished taxes, some are reintroduced at a higher cost. For instance, VAT on lotto stakes was removed only to be reintroduced as a withholding tax on winnings on betting, lottery, and games of chance. In effect, the reintroduction has included betting and all games of changes that were not taxed previously.

Can this be evident enough to conclude that the NPP government’s campaign promise to reduce taxes in order to create a breathing space for Ghanaian citizens has failed deception?

Article by

Asamoah Kwaku Junior

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

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