Tax exemptions policy reversed - Huge relief for businesses
The Ministry of Finance has reversed the tax exemption policy that required exempted companies to pay import duties and later request a refund.
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This action follows persistent backlash from members of the business community who described the earlier action of the ministry as disturbing.
The ministry had explained that the policy, which was introduced in April 2017, was to help check abuses in the tax exemption system and sanitise it.
However, five months after its introduction, the ministry has reversed it after concerns of its illegality and the strains that it put on the working capital of the exempted companies.
The Deputy Minister of Finance, Mr Kwaku Kwarteng, at a press conference in Accra said the ministry was conscious of the fact that many genuine exemption holders had very legitimate concerns about being asked to provisionally pay import duties and taxes for which they are exempted as it posed avoidable cash flow burdens on their finances.
“In our recent consultations with stakeholders, we have better understood the weaknesses in our exemptions regime and we are in a better position to deal with the shortcomings in ways that pose less cost to genuine businesses and exemption holders,” he stated.
“As such, government has decided to discontinue the requirement for exemption holders to provisionally pay the import duty and taxes upfront and apply for a refund later,” he added.
Per the status quo, he said the following documentation should be attached to the application for the exemption: The basis for the exemption (that is by which law, or by which parliamentary resolution?), recommendation letter from the relevant sector ministry or agency, Customs Classification and Valuation Report (CCVR) or Customs
Declaration Form, Import Declaration Form/eMDA, Tax Clearance Certificate (bearing the Tax Identification Number) and Bill of Lading or Airway Bills.
Others include commercial invoices, packing list, tax exemption assessment report (where required) and other supporting documents for special cases.
Increased revenue
Despite the reversal of the policy, Mr Kwaku Kwarteng said the policy had yielded positive results, with revenue from import duties rising steadily.
Reports from the Ghana Revenue Authority (GRA) said for instance that GH¢7.22 million was received as import duty in the first eight months of the year, an increase over the GH¢5.95 million recorded during the same period in 2016.
Total tax exemption recorded in the first eight months of 2017 also amounted to GH¢1.22 million, representing 11 per cent of the total import duty collected within the period.
New measures
The deputy minister, however, pointed out that the government now appreciated the weaknesses in the tax exemption regime and had introduced new measures that would better deal with the shortcomings.
He said exemption status would now not be transferrable and under no circumstance should any person or business be exempted from the payment of any import duty or import tax by virtue of its association or relationship with an exemption holder.
He added that no imported goods would also be exempted from the payment of import duties and taxes unless the original importer of the goods, as stated on the bill of lading or customs declaration, was an exemption holder or the goods were generally exempted from import duties and taxes by law.
He stated that “these and many other measures that are all geared towards strengthening the country’s tax exemption regime will take effect from October 1, this year.”
Background
In the 2017 Budget Statement And Economic Policy, the government committed to a comprehensive review and reform of the import duty exemptions regime and tax reliefs, with a view to eliminating abuses and improving efficiency in the application of those incentives.
As an interim arrangement, and to facilitate the reforms, the Ministry of Finance instituted an administrative measure that required exemption holders to pay in advance all applicable import duties and taxes and apply for a refund with supporting evidence.
This administrative measure took effect from April 1, 2017. However, some tax experts and industry players raised concerns about the illegality of the policy as they said it was an affront to Article 174 of the 1992 constitution and also posed cash flow challenges to exempted companies.