Tax evasion, avoidance imminent: Analysts caution as new tax regime kicks in
Government’s three new taxes to improve its badly needed cash flow makes tax evasion and avoidance imminent, tax analysts have cautioned.
The experts strongly believe that the Excise Duty (Amendment); Income Tax (Amendment); and the Growth and Sustainability (Amendment) Acts, which kicked in from May 1, would rather impact tax revenue collection negatively.
The new tax regime expected to generate an additional GHȼ4 billion also threatens the competitiveness of local businesses, particularly those competing with their counterparts from other African countries leveraging the opportunities under the African Continental Free Trade Agreement (AfCFTA).
It is also seen as a trigger to further decline in business activities leading to lower growth, which will eventually lead to retrenchments as business owners cut expenditures to stay afloat.
Assented by the President and gazetted on April 3 to allow for its full implementation with effect from May 1, as per the Commissioner-General of the Ghana Revenue Authority (GRA) notice on the implementation of the new tax laws, the trio, which were passed under certificates of urgency, have also been described as counterproductive by experts, various business associations and chambers because of their negative impact on their operational sustainability and potential expansion.
The government’s revenue collection authority has a target to rake in GHȼ106 billion at the end of the year.
Although there are reports that the GRA, in a rear scenario, has, for the first time in many years, managed to exceed its first quarter 2023 target, fears linger about the performance of tax collections in this second quarter and beyond.
Financial analyst with Deloitte Ghana, Dennis Brown, and a tax consultant, Eric Boateng, told the Graphic Business in separate interviews meant to elicit responses on the effects of the implementation of the government’s new tax measures on businesses, and the way out, that increasing taxes without addressing the tax burden issue may force the overly burdened taxpayers to find ways to evade or avoid taxes, thereby reducing the extent to which these taxes can contribute to closing the revenue gaps”.
Consequently, Mr Brown said, instead of increasing taxes, the government should prioritise its agenda to expand the tax net to cover economically active people and businesses that are not paying direct taxes.
“It will also require reforming and repackaging some non-performing taxes like the dreaded Electronic Levy (E-levy) and improving the effectiveness of tax administration over other non-performing taxes such as property taxes,” he added.
Facts about new taxes
The Excise Duty (Amendment) Act, which imposes a 20 per cent tax on cigarettes and e-smoking devices, as well as sweetened beverages, spirits and wines, is projected to rake in about GH¢400 million annually, while the Income Tax (Amendment) Act will generate about GH¢1.2 billion.
The Growth and Sustainability (Amendment) Act, which will replace the National Fiscal Stabilisation Levy that currently imposes a levy on companies operating in selected sectors, is also projected to raise about GH¢2.2 billion.
The National Fiscal Stabilisation Levy itself replaced the National Reconstruction Levy, 2001 (Act 597) and the National Reconstruction Levy (Amendment) Act, 2005 (Act 687), which imposed a 1.5 per cent non-deductible levy on profits before tax of all companies, except rural and community banks.
The House also approved the Ghana Revenue Authority Bill, 2022.
The passage of the Acts comes at a time when the government is currently racing against time to secure a $3 billion bailout from the International Monetary Fund (IMF).
Mr Brown said the path taken by the government by increasing taxes was not the right way to go, under the present circumstances, describing it as counterproductive.
“Increasing taxes does not guarantee that the government will be able to close its revenue gaps,” he said.
He referenced the unpopular Electronic Levy (E-Levy) which was introduced to shore up revenue, saying “If the E-levy, which was expected to contribute significantly to shoring up our revenue, ended up failing woefully in its first year of implementation, then we must be cautious.
Taxes are mainly driven by economic activity and will naturally increase with the level of economic activity.”
He added that where taxes have the effect of constricting the capacity of individuals and businesses to produce or engage in economic activity, it is likely to have the opposite effect on its intended objective.
Mr Brown said there have been concerns raised recently regarding the tax burden on the minority of individuals and businesses captured in the tax net, giving cause for worry.
Meanwhile, the Ghana Joint Business Consultative Forum has expressed its displeasure at the President’s assent to the three newly introduced taxes.
The Chairman, Dr Joseph Obeng, and Convenor, Mr Mark Badu-Aboagye, in a joint release, described the three new taxes as obnoxious, inimical and counterproductive taxes which will collapse businesses in the country.
He described the present business environment as toxic, which required quick fixes with friendly policies and not those that compounded the problems with the introduction of new “killer taxes”.
The Ghana Upstream Petroleum Chamber has earlier warned that the proposed Growth and Sustainability Levy, which seeks to impose a one per cent tax on gross production for oil and gas companies, would breach provisions of Petroleum Agreements which could trigger litigation through the international courts.
The chamber was of the view that the provision for a one per cent tax on gross production for oil and gas companies represents an
increase in royalty to all intents and purposes.
It has, therefore, called on the government to reconsider the imposition of the levy on the upstream oil and gas sector.
The chamber, in a release, has, however, noted that the introduction of this levy could not have come at a worse time when the country was struggling to attract new investments in oil and gas exploration.
It believes the levy, if not reconsidered, will lead to the collapse of indigenous oil service companies as well as trigger disinvestment by international oil companies.
It, therefore, urged the government to rather pursue a path of reserves and revenue growth through the expedited award of exploration blocks to prospective investors.
The Chief Executive Officer of the Chamber, David Ampofo, in an earlier interview said Ghana was losing its shine as the best investment destination for oil exploration and petroleum (E&P) companies.
He said this was evidenced in the mass exits of firms, the reduction in crude oil production and the government’s inability to sign new exploration agreements since 2017.
The chamber therefore believes the introduction of this new levy would further compound the situation.
Government is seeking $ 3 billion financial bailout from the International Monetary Fund (IMF) in effort to balance its books and bring down the debt to Gross Domestic ratio within permitted levels of about 55 per cent.
Currently government’s Debt to GDP ratio is hovering well over 100 per cent.
This has lead the government to seek budgetory support. As part of the conditions to access the IMF funding, government has undertaken a number of policy decisions such as the domestic debt exchange programme which say government exchanging its bonds for 12 new bonds at longer majorities and an interest rate of less than 10 per cent.
The introduction of the 3 new taxes is yet another conditionality which is to bring government revenue to GDP at par with neighbouring countries of close of 20 per cent.
Currently Ghana’s revenue is the lowest in the sub-region, estimated at about between 12 and 14 per cent of GDP.