The bleak economic story of Ghana, since 2013 continues as silent taxes embedded in the 2016 budget will dampen investor and consumer confidence in the country’s economy.
These new taxes which the government is silent on will discourage investors from investing in the country, which is already facing large fiscal and external imbalances and macroeconomic instability.
It also implies that Ghanaians will expect to pay more taxes in the coming year, following the revised Income Tax Income Act which takes effect this year (2016).
The Income Tax Act, 2015 (Act 896) which was recently passed by Parliament will be fully implemented in January 2016. The new Act which replaces Act 592 seeks to simplify the income tax regime and improve tax compliance, is expected to yield additional revenue equivalent to 0.3 percent of GDP, the Minister of Finance, Seth Terkper states.
Although, he referred to the revised tax laws in the Act during his presentation in Parliament in November 2015, Mr. Terkper declined to provide more details.
Blowing the cover on the hidden taxes, Abeku Gyan-Quansah, a Senior Manager of Tax Services at PricewaterhouseCoopers (PwC), a global consultancy firm, maintains that regardless of where incomes are generated once a person becomes a Ghanaian resident, it must be taxed under new Act.
“Now for resident persons, if you earn income your worldwide income will be taxed. Let’s say I’m a resident in Ghana, staying in the USA and I came home on holidays and sent some money into my bank account.
“Under the old law if I’m resident in Ghana, the only amount that will be taxed is the one I sent home”.
“Now we are moving to a regime whereby whether or not you send the money home, as long as you are a Ghanaian resident your money will be subjected to tax in Ghana. This was not mentioned in the budget”, according to Mr. Gyan-Quansah
Similarly, an increase in Capital Gains tax from 15% to 25% will increase businesses’ cost of doing business which they will pass on to the consumers.
Simply put, capital gains tax is a tax levied on capital gains incurred by individuals and corporations. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price.
Capital gains taxes are only triggered when an asset is realized, not while it is held by an investor. An investor can own shares that appreciate every year, but the investor does not incur a capital gains tax on the shares until they are sold.
For instance, you sell a building or a piece of land you will be subjected to 15% tax but now that has been removed and you will be subject to tax at the general rate (25%). In Ghana, the general rate is now 25%, while Withholding Tax on services has increased from 5% to 15%.
Mr. Gyan-Quansah tells Joy FM, an Accra-based radio station: “For example, previously if PWC wanted Joy FM to do something for it, it is expected that when paying, PWC will withhold 5% of that to be sent to government and we will give evidence of that but now the amount has been revised to 15%”.
The good aspect of the revised laws is that some companies will enjoy some tax reliefs in 2016. They could also enjoy some respite as per the revised Income Tax Act. From 2016, businesses who suffered losses in the previous year may be compensated in their tax returns, according to tax experts.
But a renowned Chartered Economist and Senior Lecturer of the University of Cape Coast (UCC), Dr. John Gatsi explains to African Eye Report that the major focus of every tax administration is equity by widening the tax net, and allowing those in the up-income bracket to pay more and block existing leakages.
“Over time, it is recognized that widening the withholding tax base and addressing the inconsistencies in the exemption regime and implementing a policy that deepens the utilization of electronic systems and cashless platforms will help improve revenue collections and bridge the gaps between revenue and expenditure of the country”.
However, companies who used to benefiting from exemptions upfront may find it difficult to adjust to the new policy of exemption. Also, companies who have taken undue advantage of the Free Zone’s law may conclude that the new measures are not in their interest, Dr. Gatsi argues.
The renowned chartered economist admonishes: “It is however, important for the state to put in measures to derive maximum revenues from all economic entities operating in the country, and put in measures to reserve any fiscal policy measures to discourage activities that deprive the state of the needed revenues”.
Overall, the amendments to the tax law do not in any way undermine the many incentives available for investors, Dr. Gatsi tells African Eye Report in a telephone interview.
Some analysts are worried that with the government putting a freeze on employment into the public service (excluding education and health) and non-replacement of departing employees in overstaffed areas, the burden of job creation falls on the private sector. Yet, the government turns around to slap these revised taxes on them.
By Masahudu Ankiilu Kunateh, African Eye Report
