The country presently finds itself in a serious debt situation, a development which has prevented the government from accessing the international capital markets to borrow.
Among other things, the present situation has triggered a number of actions by the government as part of efforts to increase its domestic revenue mobilisation efforts in an attempt to bridge the revenue gap.
In the 2023 budget and government economic programme, the Minister of Finance announced the introduction of an additional income tax band of 35 per cent for specified income levels for resident individuals.
This will introduce a new top marginal tax rate of 35 per cent above the current rate of 30 per cent on chargeable monthly income exceeding GH¢20,000 for resident individuals.
Additional revenue for govt
In its commentary about the new tax measure, Deloitte Ghana recalled that the government in August 2018, introduced the top marginal rate of 35 per cent but reversed it shortly afterwards to the current 30 per cent for specified levels of income for individuals.
According to the accounting and audit firm, with personal income tax (PIT) being the third largest source of tax revenue for government, its expected that the increase in PIT rate would help the government to mobilise additional revenue.
The flip side
Good as it may be for the government, there is also the flip side of the new policy. For instance, regarding resident individual employees within the specified income bracket, the tax rate hike will, all things being equal, mean a reduction in their net salaries and disposable income.
Again, self-employed individuals such as small business owners,whose chargeable income (taxable income) fall within the specified income tax band will also see an increase in their tax costs resulting in lower net profit after tax.
Taxable income refers to any gross income earned that is used to calculate the amount of tax one owes.
Although the Budget Statement does not indicate an increase in the PIT rate for non-resident individuals (currently at 25%), there could be a corresponding increase for non-residents as has traditionally been the case according to Deloitte.
Employers with high-income local or foreign employees may also see an increase in employment costs.
Against this background, there will be the need to make payroll adjustments, including hypothetical taxes for tax equalised assignees on assignments in Ghana when the proposal becomes effective.
There is also the need to ensure that the revenue accrued from the exercise will be put to very effective use for all to benefit.
The world over, taxpayers seldom grumble when they see what is milked from them being used for the development of the state for all to benefit.
It is expected that the same will happen so that the government would also reduce its appetite for commercial loans which are expensive to service.