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Economist advocates tier tax regime for businesses

BY: Maclean Kwofi
Dr Sam Ankrah
Dr Sam Ankrah

A development economist and business strategist, Dr Sam Ankrah, has said Ghana needs a proper tiered tax regime that can allow large companies to contribute more on their profit towards national development.

The President of the Africa Investment Group (AIG) Ghana explained that the current regime where bigger and smaller firms were charged almost the same percentage in corporate income tax was not the best for the economy, as it prevented many smaller firms from expanding to create job opportunities for more Ghanaians.

Measures

Dr Ankrah, who said this in a public lecture at the Annual Economists Conference 2021 in Accra yesterday, noted that the review of Ghana's tax policy and administration and other solutions was a key factor to help revitalise the economy and make it more viable to support the needs of the citizenry.

“Why not review the corporate income tax law? Why is a mobile telecom operator paying corporate income tax of 25 per cent, the same as Joe Blogs Spare Parts Enterprise at Abossey Okai when energy companies are on a 35 per cent threshold?

“Why not digitalise revenue mobilisation and curb under-declaration and contraband goods?” he asked.

The conference

The conference was on the theme: “Restoring Ghana's Macroeconomic Stability and Revitalisation: The Word Becoming Flesh?”

Other speakers at the conference were the Chief Executive Officer (CEO) of Design Resource Estate, Professor Forster Sarpong Kum-Ankamah; a financial economist, Dr Daniel Addo, and an Associate Professor of Economics and Entrepreneurship at the Swiss Business School and the Nobel International Business School, Dr Hod Anyigba.

Ghana’s tax system

Dr Ankrah said Ghana’s tax system raised less than 50 per cent of the potential revenue due, thereby making it difficult to enact basic public administration and budget and fiscal management.

He said a significant number of informal sector workers in the country were trapped in poverty, as they did not earn enough to lift themselves and their families out of poverty.

“And it has never been a good policy anywhere in the world for policy makers to enact laws to tax poor people unfairly. Tax stabilisation normally directly correlates with economic growth, thus without education and digitalisation, we will never actualise employment beyond the informality that persists,” Dr Ankrah, the multi-disciplinary Ghanaian business advisor, said.

Electronic levy

The global business strategist and development economist said the new electronic levy (E-Levy) had short-term benefits; however, in the medium to long-term, it would have dire consequences on the economy.

He said apart from erasing all the efforts and hard work to cultivate a financially inclusive economic ecosystem and help in reducing the informal sector, it would also destroy most economic gains.

The budget states in paragraphs 315 and 316: “After considerable deliberation, Government has decided to place a levy on all electronic transactions to widen the tax net and rope in the informal sector. This shall be known as the ‘Electronic Transaction Levy’ or ‘E-Levy’.

“Electronic transactions covering: mobile money payments, bank transfers, merchant payments and inward remittances will be charged at an applicable rate of 1.75 per cent, which shall be borne by the sender, except inward remittances which will be borne by the recipient, the 2022 Budget stated.

With the imposition of the levy, Dr Ankrah said, the key area to be affected was foreign remittance from Ghanaians resident abroad, as it was the third highest foreign exchange earner after cocoa and gold.

Tax on remittances

The AIG President said a tax on remittances would raise the cost of remittances, in direct contravention of the G-20 commitments and the Sustainable Development Goal of reducing remittance costs and increasing financial inclusion.

“Poor migrant workers tend to be highly sensitive to the cost of remittances. A tax on remittances will drive these flows to unregulated, informal channels.

“That is likely to reduce the tax revenue, increase the cost of tax administration and encourage informal channels of money flows, raising security risks,” Dr Ankrah said.

He indicated that in the past, many developing countries had attempted to tax inward flows of remittances, but in the end, very few countries actually did.

“Taxes can drive remittances to informal channels, making tax collection difficult and costly,” Dr Ankrah posited.