Pass Tax Exemptions Bill to check financial drain - University don advocates

An Associate Professor at the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana, Professor Robert Darko Osei, has called for the urgent passage of the Tax Exemptions Bill to provide an appropriate and well-structured framework for its application.

He said the passage of the bill would not only help improve the country’s revenue generation effort but also ensure the right value from such exemptions, as well as reduce the amount of borrowing to support the economy..

The call comes on the back of concerns expressed by the International Monetary Fund (IMF) about the volume of tax exemptions in the country and its impact on the economy.

Prof. Osei, who was speaking in an interview with the Daily Graphic, said the passage of the Tax Exemptions Bill was long overdue.

“It [ bill] has to be passed, and soon, because it will also help clear the perception that the current murky state only helps political elements within the state to exploit,” he stated.

Tax exemptions are projected to cost the country between GH¢13 billion and GH¢21.7 billion this year

Fiscal space

Prof. Osei indicated that the passage of the bill was important, “as we try to improve, from all fronts, the revenue effort and create more fiscal space for the country”.

The IMF has indicated that tax exemptions remain the weakest link to all efforts to improve tax collection, which is necessary to narrow the fiscal deficit and tame a debt burden that now requires almost half of total revenue and grants to service.

The IMF Resident Representative in Ghana, Dr Albert Touna Mama, had, earlier this month, told the Graphic Business that exemptions were depriving the state of billions of cedis every year, with conservative estimates showing that between three and five per cent of Gross Domestic Product (GDP) was lost every year to the current tax holiday regime.

That, according to the fund, translated to a loss of between GH¢11.5 billion and GH¢19.2 billion in taxes for 2020, using the year's GDP estimate of GH¢383.3 billion.

For 2021, when GDP is projected to rise to GH¢433.8 billion, IMF estimates presuppose that between GH¢13 billion and GH¢21.7 billion will be lost to tax exemptions.

It comes at a time when the entire capital expenditure budget for 2021 is projected at GH¢11.4 billion, while funds needed to deliver these projects in goods and services are estimated at a little over GH¢5.9 billion.

In 2019, President Nana Addo Dankwa Akufo-Addo said tax exemptions were "proving to be the Achilles’ heel and a growing menace to fiscal stability and revenue generation".

He then promised to rid the system of such largesse.

A Tax Exemptions Bill, which was programmed to overhaul the system, starting from 2019, has since failed to go beyond the laying stage in Parliament.

Benefits to country

On whether the country got value from those exemptions, the Professor of Economics said: “I think it is fair to say that there are some exemptions that will be useful to the economy as a whole.

“However, there is a sense that we do have too many exemptions and so we need to do proper value analysis of all exemptions. For sure we need to reduce the level of exemptions, unless we can truly quantify this and be sure that it has a net value addition to the economy as a whole.”

On how to track that to get the right benefits, Prof. Osei, who is also the Vice Dean of the School of Graduate Studies of the University of Ghana, said he was not sure of the way forward in that regard.

“I am not sure exactly how, but I believe that we can get some IT solution to help in this,” he said.

“Exemptions should not be open-ended and so it will be critical for it to be time-bound and also there should be key performance indicators (KPIs) for beneficiaries,” he added.

According to him, that could greatly help if there could be a seamless monitoring of the KPIs.