New tax regime still lenient on informal players
The 2016 Budget and economic policy of the government presented to Parliament in November last year contained very little tax measures, except to signal that a new Income Tax Law would come into force from January.
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The implementation of the law, The Income Tax Act 2015 (Act 896), has already sent shock waves across segments of the economy, as people are met with surprises about its provisions.
The law, which the Ministry of Finance explains simplifies the provisions of the legislation and makes it more user-friendly, enhances efficiency and facilitates compliance, contains very harsh provisions that will heap additional burden on the already over-taxed citizens.
First of all, irrespective of where one earns income, the government of Ghana will now tax them. This means professionals working with international bodies and in countries with which Ghana does not have a double taxation agreement will be liable to pay taxes at home. In most cases, this would become double taxation because they would have to pay twice; to the country of their abode and their native country Ghana.
Again, soft loans provided by an employer to an employee are taxable, except if the loan size falls below the employee’s three months’ basic salary for a period not exceeding 12 calendar months.
Also, Capital Gains Tax will now be taxed at the standard corporate tax rate of 25 per cent, up from the special 15 per cent. There are several other provisions which affect individuals and corporate entities in an unprecedented manner.
The GRAPHIC BUSINESS believes that much as it makes sense to consolidate the income-related tax laws and overhaul the system after 15 years of implementing the old law, the provisions would put pressure on existing taxpayers, taxing new areas of their income, rather than going after segments of the population and businesses that are perpetually left out of the tax system.
The GRAPHIC BUSINESS believes that the new tax measures are part of a desperate move by the government to close the 10.3 per cent deficit gap to meet conditionalities set out under its extended credit facility agreement with the International Monetary Fund.
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But pandering to the whims of the IMF alone is not sufficient because the effect on the citizens and businesses must be taken into consideration in any major policy execution such as the implementation of Act 896.
The paper is also worried that throughout the drafting, passage and transitional period, it seems there was not much engagement with stakeholders with regard to crafting the provisions and sensitising the public to the new provisions.
It is indeed, gratifying, though, that the Ministry of Finance has recognised this and decided to send a proposal to Parliament for the withdrawal of the one per cent withholding tax on interests earned on investments. That granted, this one per cent tax will still be implemented pending the outcome of the proposal to Parliament.
The paper, therefore, calls on the fiscal authorities to intensify their engagement with stakeholders and the general public to improve understanding, take feedback and enhance compliance. — GB