Govt grants tax relief to low income workers

Workers will not be required to pay personal income tax on the first GH¢1,584 of their annual income this year, the Minister of Finance, Mr Seth Terkper, has announced.

This means workers who earn GH¢132 a month will enjoy a tax free regime, while the next GH¢66 earned a month will attract five per cent income tax.

The tax relief is part of various fiscal measures introduced for the 2013 financial year, in line with the government’s social democratic persuasion to bring relief to the ordinary Ghanaian.

Presenting the 2013 Budget Statement and Economic Policy of the government to Parliament Tuesday, the minister said: “Mr Speaker, in line with our social democratic principles, personal income taxation will continue to be used as a measure for equitable distribution of income and also for protecting low income earners.

“Taking cognisance of current inflation trends in the country, the impact of real increases in gross domestic product (GDP) on personal incomes and to compensate for the loss in purchasing power of income earners, the annual income tax thresholds and brackets are being revised,” Mr Terkper said to cheers and jeers from the Majority and the Minority sides of Parliament, respectively.

The proposed tax rates increase exponentially with rising income levels. This means that the government is still pursuing the progressive tax policy which taxes the rich to subsidise the poor.

The minister also announced further personal income tax reliefs and incentives which increased reliefs for the married and people with dependants from 100 currency points (or GH¢100) to 200 currency points (or GH¢200) for a year.

This means that an additional GH¢200 income of a married person earned in a year will not be taxed. 

Again, the tax relief enjoyed by people who are responsible for the aged has been increased from GH¢100 of annual income to GH¢200, while families with children would enjoy GH¢200 of their annual income for each child up to three children.

Other annual  personal reliefs include when a person is sponsoring a child’s education, as well as relief of up to GH¢400 annual income for costs relating to personal training.

However, the cumbersome nature of filing tax returns or the reluctance of people to file tax returns has led to low patronage of such personal income tax reliefs, a situation which prompted the Minister of Finance to advise the public to file their tax returns.

“Mr Speaker, personal reliefs are a means of reducing the burden on taxpayers in certain categories. It is noted that not many taxpayers take advantage of personal reliefs which are granted when tax returns are filed. I would wish to encourage taxpayers to file their annual returns to take advantage of reliefs, since subsidies are not the right way for compensating low income earners,” he stressed.

Aside those reliefs, Mr Terkper also indicated the government’s intention to raise more revenue domestically in the ensuing year, saying there would be a set of initiatives to be spelt out in various tax bills to be presented to Parliament in the course of the year.

That, he said, had become necessary because the country was not raising enough funds locally in view of the recent rebasing of the economy which raised its status from a developing country to a lower middle-income status.

Domestic tax inflows expressed as a percentage of the total goods and services produced within the economy (GDP), without accounting for oil, improved from 15.1 per cent in 2011 to 16 per cent in 2012. However, the tax/GDP ratio, including oil (excluding exemptions), increased from 15.4 per cent in 2011 to 16.3 per cent in 2012.

“While recognising the strong revenue performance in 2012, the country needs to sustain revenue mobilisation efforts in view of the huge funding requirements needed to close the country‘s infrastructure gap and domestic payment of arrears,” Mr Terkper stated.

Subsequently, he added, the focus on revenue generation in the 2013 fiscal year would be to expand the tax base and improve the efficiency of tax administration.

He explained that reforms at the Ghana Revenue Authority (GRA), which is an integration of the Customs, Excise and Preventive Service, the Internal Revenue Service and the Value Added Tax (VAT) Service, “will ultimately lead to efficiency gain and remove duplication of functions”.

As a result, the GRA would also consolidate and harmonise all the various tax laws during the year to include the Revenue Administration Bill, the VAT Bill, the Income Tax Bill, the Customs Bill, and the Excise Bill.

The minister also announced an increase in the VAT registration threshold from GH¢90,000 to GH¢120,000 for the year, restricting businesses below that annual income level to pay a six per cent presumptive VAT.

He added that other businesses that did not deal in goods and services would apply to pay a presumptive VAT of three per cent on their value added incomes.

Besides those tax initiatives, all other tax initiatives had been deferred to be laid before Parliament later. They include vehicle income tax, environmental taxes and those on plastics, penalty for over-aged vehicles, tax amnesty, communications service tax and capital allowance.

The rest are windfall tax, withholding tax, tax refunds, as well as tax reliefs for agro-processing businesses.

Single Spine Salary Structure

About the Single Spine Salary Structure (SSSS), Mr Terkper said, in fulfillment of government promise of improving the conditions of service and productivity in the public service, the NDC government undertook to implement the SSSS; “an obligation that was bequeathed by the previous administration on the very eve of its departure from power”.

Nonetheless, he noted, that in the interest of social and industrial harmony the government proceeded with the roll-out.

“Government was mindful of the need to stop the continuing exodus of quality staff, improve salary levels and attract critical skill to enhance productivity”, he explained, adding that “The demands and pressures that came in the wake of the implementation of the scheme compelled government to shorten the 5 year implementation stretch.”

The Finance Minister said that “this has created the situation where compensation to public sector workers grew overnight to 72.3 percent of tax revenue (including oil) as at end December 2012: a figure that is in fact higher than the 60.9 per cent in November 2012 as cited in The State of the Nation address”.

He noted that the outcome had crowded out the fiscal space for spending on critical social intervention and other infrastructure programmes.

Mr Terkper said “at this stage there is, therefore, the need to strike a balance between; public sector productivity and remuneration and; the equally important allocation of national revenues to expenditures on goods and services, and investments.

According to him, the government aimed at achieving that through increased national output and higher levels of revenue mobilisation.

Story by Charles Benoni Okine & Samuel Doe Ablordeppey