From January next year, companies applying for tax exemptions will do so online, as the government plans to roll out a paperless tax exemption system to block the revenue leakages that recur with the current manual system.
With the country losing more than GH¢4 billion last year to tax exemptions, a Deputy Minister of Finance, Mr Kwaku Kwarteng, has said the system will ensure that at all times the government keeps track of how much exemption has been given out.
How it works
The system will make use of the e- MDA portal on which the investor/company sends an application for tax exemption, along with all supporting documents.
It is then scrutinised by the concerned ministry, department or agency (MDA) and then granted approval online or rejected.
When approved by the MDA, it then goes to the Ghana Revenue Authority (GRA) which also does its assessment. If approved, a bill of entry (BoE) is created and then processed, with the trail kept from the beginning to the end.
However, when it is rejected by the GRA, it goes back to the MDA for processing and re-submission.
On the other hand, exemptions granted by Parliament will be billed into the system, and when the threshold allowed is exhausted, the system will automatically block any further exemption on the item, thereby saving the country taxes and duties it would have lost through the manual system.
Although the current system follows the same chain, it is manual and tends to be disorganised and lends itself to abuse, since it revolves around discretions.
But, speaking at a stakeholders’ meeting on the GCNet revised electronic exemption process, Mr Kwarteng said the new system “will be faster and ensure that revenue leakages are minimised”.
“We have done the paperless clearing of goods at the ports. We are still doing some manual work in respect of the granting of exemptions from the payment of duties and other taxes.
“The time has come to do the paperless approval regime for exemptions from taxes and import duties.
Taxation and exemptions from taxation are matters of law and it is not as though anybody has the power to either grant exemption or deny exemption to those who are entitled,” he said.
He said what the system sought to do was make paperless approval regimes that would determine that a particular application for exemption was compliant with law.
“Thus if people or taxpayers are entitled by law to exemption, they would need to demonstrate that by a particular parliamentary resolution that they are entitled to exemption, and through the system somebody will look at that and clear that this applicant is entitled to exemption,” he said.
Statistics from the GRA indicate a rise in imports associated with five per cent tax exemption from five per cent in 2014 to 14.20 per cent in the first half of 2015.
In the case of 20 per cent tax exemption, the figure had gone up from 20.44 per cent in 2014 to 22.43 per cent in the first half of 2015. By the end of 2015, the country had granted tax exemptions amounting to GH¢4.5 billion, according to GCNet statistics.
In 2014, tax exemptions accounted for about GH¢3.2 billion of gross domestic product (GDP), as against GH¢2.95 billion in 2013.
An estimated US$876 million was also lost to direct tax and VAT exemptions in 2012.
The amount, which would otherwise have been channelled into segments of the economy that needed it, mainly went to foreign companies operating in the country.
According to experts, a single window environment was a crossborder, intelligent facility that allowed parties involved in trade and transport to lodge standardized information, mainly electronic, with a single entry point that made it easy to track for regulatory requirements.
With the establishment of the National Single Window in Ghana, all shipment activities and transit related businesses have been integrated to achieve efficiency and enable the government to generate more revenue at the ports.
But tax exemptions from those activities are haphazardly documented, leaving loopholes for exploitation by parties involved.
The Deputy General Manager of the GCNet, Mr Emmanuel Darko, stated that beyond enhancing government revenue, the new exemption system would create a platform for “better record-keeping of the exemptions we have given which will be necessary for policy formulation to ensure that thresholds given to exemption holders are not exceeded”.
He said because it was electronic, the new system would help curtail some of the irregularities that went with it because “an MDA could issue a letter stating a certain amount for exemption.
That letter could be scanned, photocopied and used repeatedly and once this is not being tracked electronically within the system, that approval of a certain value that has been given could be abused”.
He said the solution was that “the current manual application which involves the movement of documents from one office to another will be paperless, so that all the approvals will be given on the e-MDA portal so that it could leave the trail”.
Currently, more than 20 MDAs, including the Minerals Commission, the Environmental Protection Agency, the Food and Drugs Authority, the Ghana Free Zones Board, the Ghana Investment Promotion Centre, the Timber Industry Development Division, the Ministry of Trade and Industry, the Ministry of Foreign Affairs, the Customs Division and Ghana National Petroleum Corporation, are connected to the e-MDA portal which handles requests and approvals for permits and exemptions.
Tax/duty exemptions, apart from presumably helping the country to stay in competition for foreign direct investment (FDIs), are aimed at incubating new companies into maturity, as well as helping in job creation.
In other instances, some companies benefit from waivers on imported items because they are executing projects in Ghana, but critics of this system say it is discretionary and highly abused because of lack of adequate parliamentary oversight.
According to a report titled: ‘The West African Giveaway: Use and Abuse of Corporate Tax Incentives in ECOWAS’, and authored jointly by ActionAid International and Tax Justice Network-Africa, those tax freebies cost the Ghanaian economy around $2.27 billion every year.
The report, released in 2015, also observed that “despite years of granting generous incentives to investors, the objectives of increased job creation and employment have not been realised in most ECOWAS countries”.