Anxiety builds over budget review, Finance Minister says mid-year package good

Ahead of the mid-year budget review in Parliament next Thursday, the business community, the political class and the entirety of Ghanaians await with bated breath indications that the government will introduce new taxes and increase some existing ones in the presentation.

Although the Finance Minister, Mr Ken Ofori-Atta, remains tight-lipped over the possibility of an increment in taxes, he is reported to have, in reaction to rumours of an impending increment, said he had "no clue where that is coming from" and that "until I come to Parliament, we won't know".

While debunking the rumour, he was, however, quick to add: "But expect a good mid-year review."

But a post on the Facebook page of a leading member of the New Patriotic Party (NPP) and former Director of the Danquah Institute, Mr Gabby Asare Otchere-Darko, seemed to lend support to speculations about an increase in the Value Added Tax (VAT) and that have set the tone for a spirited national discourse.

His post has given the greatest hint yet of the government’s plans to increase taxes to raise more revenue.

Support for an increment

Mr Otchere-Darko posted: “Will you support a VAT increase to keep your lights on, your secondary schools filled, your school kids fed, your streets clean, your streets safe, young graduates employed and decent, affordable homes built for working families?”

The excitement in the public discourse has bordered on what has been described as a turnabout in the 2016 manifesto of the NPP.

Page 17 of that manifesto, under the sub-heading: “Shifting the Focus of Economic Management from Taxation to Production”, said the mismanagement of the economy under the Mahama-led NDC government had resulted in an increase in taxes on virtually everything taxable.

That, the NPP posited, had increased the burden on the private sector and become a disincentive for production.

The NPP’s manifesto promise on taxes

To address those challenges, the manifesto said, the NPP would shift the focus of economic policy away from taxation to production by reducing the corporate tax rate from 25 to 20 per cent, removing import duties on raw materials and machinery for production within the context of the ECOWAS Common External Tariff (CET) Protocol, abolishing the Special Import Levy and the 17.5 per cent VAT on imported medicines not produced in the country.

It also promised abolishing the 17.5 per cent VAT on financial services, the five per cent VAT on real estate sales, the 17.5 per cent VAT on domestic airline tickets and reducing VAT for micro and small enterprises from the current 17.5 per cent to the three per cent flat rate introduced by the Kufuor-led NPP government.

The manifesto promised introducing tax credits and other incentives for businesses that hired young graduates from tertiary institutions and reviewing withholding taxes imposed on various sectors, including the mining sector, that have constrained the liquidity of many businesses.

Possible new introductions

However, information from grapevine sources indicates that the mid-year review will see an increase in the Communications Service Tax from six to 12 per cent, a mandated minimum corporate tax, an expanded stabilisation tax and a collateralisation of royalties from minerals to enable the government to raise loans.

There are also hints of increased social security (SSNIT) contributions to the NHIS, as well as a Financial Service Tax.

The government is also likely to increase VAT from 17.5 to 21 per cent in the mid-year budget set to be presented to Parliament next Thursday.

VAT history

Ghana first enacted a value-added tax (VAT) in December 1994, with collection to begin in 1995. However, challenges with implementation led to its repeal after three and half months. It was reintroduced in 1998 at a rate of 15 per cent. It was increased to 17 1/2 per cent in January 2014.

Financial Management Administration Act

The Financial Management Administration Act requires the Finance Minister to, not later than July 31, prepare and submit to Parliament a Mid-Year Fiscal Policy review.

This often allows the Finance Minister the opportunity to review the targets set in the budget.

It is also expected to contain an analysis of the total revenue, expenditure and financing performance for a period up to the first six months of the financial year, as well as a presentation of a revised budget outlook for the medium-term fiscal expenditure framework, if and where necessary.

The NPP Member of Parliament (MP) for Ofoase-Ayirebi, Mr Kojo Oppong Nkrumah, is of the view that Ghanaians will rally behind any plans by the government to raise revenue.

Opposition from the NDC

However, ahead of the presentation, the opposition National Democratic Congress (NDC) has descended heavily on the government for its purported plan to increase taxes in the country.

The Greater Accra Chairman of the NDC, Joseph Ade Coker, is reported to have said Ghanaians would resist any attempt to introduce new taxes.

“The burden is too heavy to carry to add more taxes. I’m sure the people will not accept it,” he observed.

He asked for the rationale behind the introduction of new taxes when the NPP, in fulfilment of its promise to remove “nuisance taxes”, started off by actually scraping some taxes.

He contended that since the NPP claimed to have made an impact with the removal of some taxes in 2017, it should remove more taxes to get higher results.

Former President Mahama’s contribution

Former President John Mahama, in making a contribution to the debate, wrote on Twitter that the proposed new taxes would cripple businesses in the country.

“The Ghanaian business sector has never experienced such difficult times in the history of the 4th Republic. Akufo-Addo's proposed new taxes will cripple businesses further and also defeat his much-touted mantra of from taxation to production," he wrote.