Economist proposes more taxes on banks ...2 MPs, bankers disagree
An international economist, Dr Sajid Mukhtar Chaudhry, has called for the introduction of a special tax on banks in Ghana to provide the government with a sustained source of revenue that can move the country’s economy beyond dependence on aid in the long term.
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Dr Chaudhry, who is a Senior Lecturer at Aston University in Birmingham, United Kingdom (UK), explained that banks in the country were making a lot of profit and needed to be taxed more to help drive the country’s economy out of its current challenges.
However, in a sharp rebuttal two Members of Parliament (MPs) from both sides of the house, as well as a banking consultant, had disagreed and maintained that banks could not be burdened with additional taxes at this moment.
Presenting highlights of a report on the banking sector at an economic policy forum organised by the Institute of Economic Affairs (IEA) in Accra at the weekend, Dr Chaudhry noted, for instance, that the profit of the 10 biggest banks in the country in 2021 totalled GH¢8.55 billion, equivalent to 1.97 per cent of the national economic output, measured by gross domestic product (GDP).
The top 10 banks are Ecobank Ghana, GCB, Stanbic Bank, Absa Bank, Fidelity Bank, Standard Chartered, Access Bank, Zenith Bank, Cal Bank and First Atlantic Bank.
“I propose a tax of two per cent of total liabilities net on equity and insured deposits for the long term or 10 per cent of profit before tax, whichever is higher.
“For the short term, I propose a 10 per cent tax on investment in treasury securities,” he said during the presentation of the report titled “Profits and risk of banks in Ghana: a case for permanent bank taxation”.
Reliance
The lecturer observed that a tax on total liabilities net of equity and insured deposits would act as a catalyst for banks to reduce reliance on short-term funding sources and also help reduce their risk in the long term.
He said tax on liabilities would particularly be helpful when banks were bigger, riskier and earning even more profit in the future.
He noted that several countries had introduced a bank tax with the latest to do so being Australia in May 2017, to tackle its budget deficit.
“Net interest margin, return on assets and return on equity for Ghanaian banks are too profitable, especially for the top 10 banks and they also earn much higher profits compared to other industries with most of the profits coming from investment in treasury securities.
“Imposing a special bank tax of 10 per cent on the profit of the big 10 banks alone would yield approximately GH¢528 million for the government,” he added.
Regulations
The Vice Chairperson of the Finance Committee in Parliament, Patrick Boamah, who chaired the forum, disagreed with the proposals made in the report but rather underlined the need for the government to strengthen banking regulations in the country to protect customers.
He said most of the banks, especially the indigenous financial institutions, were in distress and rather needed help and not imposing more taxes on their profit.
If taxed more, he said, the banks would not hesitate to pass on to the customer and for that reason, any such attempt should not be mooted at this moment.
He said with the exception of the foreign banks that received timely support from their parent banks, the indigenous banks had huge problems with regard to liquidity support and for that reason, an attempt to impose additional taxes would not go well for the industry.
Survival
Corroborating the views of the vice chairman, the MP for North Tongu, Samuel Okudzeto Ablakwa, who is also a member of the Finance Committee in Parliament, stated that banks were currently finding means of survival under the ongoing domestic debt exchange programme (DDEP).
“I am not sure you will propose that banks should be taxed more if you are privy to how the domestic debt exchange programme is having an impact on the operations of the banks.
“I know you are looking at the medium to long term; but even with that, we are not too clear on when we will be able to come out of the current challenges,” he said.
Mr Ablakwa said banks should rather be encouraged to support areas such as agriculture and entrepreneurship, which held much potential for growth and job creation.
“The government recently introduced the YouStart initiative but has not been able to take off properly mainly because the Electronic Transfer Levy (E-Levy) did not meet projections,” he said at the forum.
DDEP
A banking consultant and lecturer, Dr Richmond Atuahene, in an interview with the Daily Graphic at a different forum on June 2, said most of the banks were likely not to make a profit in the next three years for the government to even consider imposing an additional tax.
That, he said, was due to the fallout of the domestic debt exchange programme, which had affected their bonds.
“It would have been right in 2021 should anyone propose that Ghanaian banks needed to be taxed some more but in 2022 the picture is difficult, and it would be very difficult for them to make a profit going forward between 2023 and 2025.
“And so, imposing additional taxes on banks would collapse the industry,” he said.
He added that the government should rather consider imposing a tax on the profits of telcos in the country.
When contacted, a source at the Ghana Association of Bankers (GAB) told the Daily Graphic that the banks had already been overburdened with many taxes and levies with two additions recently introduced in the 2023 budget.
“We recently saw an increased value-added tax (VAT) threshold on banks to about 2.5 per cent and an increase in the marginal income tax rate to 35 per cent,” the source added.