Budget highlights
In our previous article published in the Daily Graphic, we provided a summary of the tax policies highlighted in the 2017 Budget Statement. In this article, we focus on the proposed direct tax changes attributable to the budget.
Advertisement
Exemption capital gains on the GSE
The government proposes to exempt from taxation gains from realisation of securities listed on the Ghana Stock Exchange (GSE) or publicly held securities approved by the Securities and Exchange Commission (SEC).
Currently, gains from sale of securities are subject to income tax if it meets specified conditions.
Until November 2015, gains from realisation of securities on the GSE were exempt from taxes. The Income Tax Act, 2015 did not renew this waiver, causing concerns for investors. The government plans to restore the waiver in the hope to boost investment and strengthen Ghana’s capital market.
Two-year stamp duty holiday
The government proposes to exempt the financial service industry from stamp duty for two years to enable the recapitalisation of the industry as per the new SEC law. A question that readily comes to mind is the equity and efficiency rationalisation for this policy.
There is the potential for other sectors to push for similar exemption on re-capitalisation. The government must, therefore, monitor the effectiveness of this policy and also ensure that this temporary measure does not fall into the trap of unjustifiable revenue leakages as is the case for a number of our existing tax reliefs.
Intensifying Transfer Pricing and integrated audits
The government has proposed to strengthen the Ghana Revenue Authority (GRA) to enable it to build capacity to conduct Transfer Pricing (TP) audits in the extractive sector, and to also conduct integrated audits in free zone and specialised sectors.
The Transfer Pricing Regulations, 2012 (L.I 2188) came into force in 2012 to ensure that taxpayers price related party transactions at arm’s length. This is to ensure that government gets a fair share of tax revenues from related party transactions. However, little has been done in the area of TP enforcement since its introduction in Ghana, and as such government’s proposed focus on the regime is one that is expected to correct the loss of revenues through potential mispricing of related party transactions.
Integrated audits is also one proposal that could lessen the cost of audits on taxpayers. This will take the form of harmonising the audits from various divisions of the GRA audits to promote information exchange and make the process more efficient.
Increasing compliance with PAYE
The Finance minister reported that only a third of individuals in employment were captured on the records of the GRA.
This suggests that the majority of individuals engaged in employment do not pay tax on their employment income. To avert this, government proposes to ensure that all employers file Annual Tax Deduction Schedule. In addition, relevant records at SSNIT and GRA will be reconciled and self-employed persons will be identified. This reconciliation will reduce the tendency of employers deducting SSNIT payments from their employees’ salaries, taking deductions from taxable profits but not remitting such amounts to the SSNIT.
Filing of Employer’s Annual Tax Deduction Schedule by the employer has been a provision in the erstwhile Internal Revenue Act, 2000 (Act 592), but its implementation left much room to be desired. The key questions to ask therefore are: why was this provision not enforced?; what new tax administration measures will the GRA put in place to ensure that employers comply with this requirement?
Extending the coverage of self-assessment
The government has proposed to pilot a self-assessment system in five selected Small Taxpayer Offices.
At present, companies registered with the Large Taxpayer Office and Medium Taxpayer Office are required to self-assess to income tax. The government is considering extending the coverage of the self-assessment regime to companies registered with the Small Taxpayer Office, provided the pilot project proves successful.
To ensure a successful pilot and full implementation, the GRA must provide intensive taxpayer education and also build its own capacity for tax audits and investigations. The three per cent turnover-based presumptive income tax regime should also be implemented and strictly enforced.
Broadening the taxpayer coverage
Government intends to relaunch the national identification scheme and roll out a national digital address system as a means to improve taxpayer identification.
The National Identification Authority Act, 2006 (Act 707) was passed to give mandate to the National Identification Authority to issue national identity cards to residents and to manage the National Identification System. This was part of measures to provide data for socio-economic policy making, including making decision on taxation. In the 2016 budget, government indicated its commitment to relaunch the national identification initiative but that could not be done.
In our opinion, the proposal to reconsider the national identification system and introduce the national address system is a policy in the right direction. A key quality of a good tax administration is the ability of the tax administration to identify taxpayers, which is one of the objectives of the Revenue Administration Act, 2016 (Act 915) which came into force in January 2017. The absence of this may be deemed as “default exemption” to individual taxpayers who operate outside the formal sector.
In the next article, we will provide our commentary on the indirect tax changes proposed in the 2017 Budget Statement.
