Govt cautioned against over-reliance on tax cuts to grow private sector

The government has been urged not to overly rely on tax cuts as a means to free up capital and whip up private sector growth.

It has been advised to work at stabilising the local currency against the major foreign trading currencies, particularly the United States dollar.  

A researcher at RMB Global Markets Research, Ms Celeste Fouconnier, who made the call at the 2nd edition of the Economic Business Breakfast meeting hosted by First National Bank in Accra last Thursday, said “the tax cuts are good in a way but the currency stabilisation is equally good”. 

“A stable currency helps businesses to plan and, therefore, no matter how taxes are reduced, if the currency keeps depreciating, they will be losing their cedi value,” she added.

Tax cuts

After pledging in the 2017 budget statement and government economic policy to cut what it described as nuisance taxes, Parliament last week approved all four tax bills presented by the Finance Minister to enable the government to enforce the tax cuts outlined. 

The bills, including,  the Income Tax (Amendment) Bill, 2017, Special Petroleum Tax (Amendment) Bill, 2017, Special Import Levy (Amendment) Bill, 2017 and Customs and Excise (Petroleum Taxes and Petroleum Related Levies) (Repeal) Bill, 2017, were passed late Wednesday evening to give the government the legal backing to implement its promise in the budget.

Given the urgency of the bills, all four bills were taken through the stages in one day and have now been passed, awaiting Presidential assent before they can become a law.

To the government, the move is to signal to the private sector and the citizenry its intention to ensure that the general welfare of people is enhanced.

The Income Tax (Amendment) seeks to amend the Income Tax Act, 2015 (Act 896) to exempt the gain on the realisation of securities of companies listed on the Ghana Stock Exchange from income tax for the period 2017 to 2021.

Additionally, the Special Import Levy (Amendment) Bill 2017 is to amend Act 861 of 2013 to remove the levy payable on specific imported goods.

The Special Petroleum Tax Act,2014 (Act 879) is to amend the Petroleum Tax Act, 2014 to reduce the rate of the Special Petroleum Tax on petroleum products specified in the Schedule to Act 879 from 17.5 per cent to 15 per cent.

Ms Fouconnier said the tax cuts were positive signals but indicated that it would take time for the full realisation of its effects to be felt the way it had been anticipated.

Views on budget initiatives

The researcher began with the tax cuts and indicated that it was beneficial in spite of the challenges that might arise from its implementation. According to her, the move would spur private growth but would require more to ensure the benefits were sustained.

On the ‘One district one factory’ policy, Ms Fouconnier described it as a “great initiative to improve employment and productivity,” explaining that the move would enable the private sector to spread out wider to the other parts of the country to create the necessary jobs while tapping the potential of the districts.

Ms Fouconnier acknowledged the government’s free senior high school promise but noted that there were more questions that required answers.

For instance, in the 2017 Budget statement, the government announced its intention to release GH¢400 million to support the initiative but Ms Fouconnier said “more clarity is needed on the funding structure”. 

In the area of expenditure management, she mentioned what the government had done which included a Fiscal Council, Treasury Management Unit  among other things but noted that these were “nothing new”, adding that the implementation “success lies in enforcing existing rules”. 

On the whole, she described the plan as “Good initiatives, but timing will be tricky”.

For instance, she said the “private sector will still be struggling with power outages; and it takes time to derive results from formalising the economy to enable a wider tax base.”