Graphic Business and Stanbic Bank organized a breakfast meeting at the Labadi Beach Hotel, Accra on 31st May, 2016. The meeting was intended to discuss the new Tax law Act 896 and its implications for the economy and businesses. Hubert Nii-Aponsah and Roland Baimbill-Johnson, both Researchers at IMANI represented the think tank.
Reported by Hubert Nii-Aponsah | IMANI Africa
After attendance, registration and the opening prayer said by Pastor Chris Abbey, the program kicked off with the introduction of the Chairman.
The Chairman made remarks regarding the need to spend in order to increase growth but lamenting that, in Ghana’s case, expenditure has not been matched with revenue. Thus, he says, with taxes as the lifeblood of government, no one should be excluded from a just tax burden.
After the members of the high table were introduced, Mr Ken Ashigbey, Managing Director of Graphic Communications Group Limited delivered the welcome address. He welcomed everyone and emphasized the need to rope in those who do not pay taxes since only about 30% of Ghanaians pay taxes. Consequently, the program, according to him, is a good platform for members of academia, private and public sectors to come together and discuss the way forward. He also promised to publicize the discussions.
There were three presentations by Hon. Seth Terkper (to explain the motive and importance of the new tax law), Mr Edward Gyamerah from the Ghana Revenue Authority (on some changes made in the new tax law) and Abdallah Ali-Nakyea (on the implications of some provisions of the law on businesses).
Hon. Terkper emphasized the necessity of the new tax law for expanding the tax net and ensuring compliance. He also stressed that Act 896 is not a tax law in isolation but rather a conscious effort to improve the previous tax law(s). He underscored its importance against the backdrop of expenses made on Single Spine, falling commodity prices, production of oil below expectation and the move away from aid to domestic revenue mobilization as countries move from MDGs to SDGs. He also mentioned that, in examining the new tax law, it is important not only to consider tax rates but also to take cognizance of the (positive) tax incentives inherent within the tax law not only for foreign companies but for local firms as well on condition that these local firms file their tax returns appropriately. Furthermore, he explained that it is fair for government to tax allowances and not just salaries since some individuals earn higher allowances than others.
Mr Gyamerah explained some features of Act 896 and how it differs from the previous tax law Act 592. Among other characteristics, he mentioned that permanent residents will now be taxed not only on income obtained from Ghana but also abroad (world-wide source), 5% tax of lottery winnings above GHS 2,592, separation of interest and financial cost and capital allowance cannot be deferred but unused capital allowance will be recognized as business loss and carried forward in order to prevent tax evasion. He also stressed a penalty of 125% of Bank of Ghana (BoG) discount rate on the entity who understates tax payable by installment.
Mr Abdallah Ali-Nakyea lamented that because loss carried forward is restricted at 3 years for all businesses and 5 years for specialized businesses, companies in a heavy investment sector will lose out because of what they could have claimed after the restriction. He also questioned the policy rate that will be used for the computation for the penalty since the monetary policy rate is contingent of the outcome of Monetary Policy Committee of BoG meetings. Mr Ali-Nakyea also pointed out that the call for entities in the financial sector to maintain separate records for different activities and file separate self-assessment estimates was commendable. He also called for the reduction in the withholding tax for individuals from 15% in Section 116 (2c) as was done for businesses from 15% to 7.5% for fairness.
There were several comments and questions after the presentations including the need to make the work of GRA more efficient by upgrading their technology and how government will have details of resident’s income generated abroad. Respectively, Hon. Terkper responded by citing that works are ongoing to make GRA more efficient and that government will know about incomes abroad due to its arrangements with the countries in question.
From Imani’s perspective, Hubert asked Hon. Terkper to what extent the Ministry of Finance has taken into account the negative incentive effect (behavioral revenue response) of the higher tax rates since he mentioned the need to consider not only the tax rates but also the related incentives. Against the background of a generally declining trajectory of economic growth since 2011, it was important to have a good sense of the cost (behavioral revenue response) and compare it with the benefit (mechanical revenue effect) in order to appreciate whether the tax reform would be worthwhile or not. But Seth Terkper responded by urging think tanks to be cautious about their statements because statements from think tanks could discourage foreign investors who take them seriously.