Tax Cuts in Ghana's 2017 Budget to Boost Growth

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Paa Kwesi Morrison

Paa Kwesi Morrison, ENSafrica, Accra

Paa Kwesi Morrison is a partner at ENSafrica in Accra

The 2017 Ghana Budget Statement introduced a number of tax cuts with the aim of freeing up capital in the private sector and boosting growth in the economy.

The 2017 Budget Statement of the Government of Ghana made several tax cuts. These include the abolishment of some existing taxes, granting of new tax exemptions, reduction in selected tax rates, re-characterization of supplies made by traders for purposes of value added tax (“VAT”), and a phased reduction in the corporate income tax rate.

The government expects the tax cuts to free up capital in the private sector to propel growth and reduce the high unemployment levels in the country.

Special Import Levy

The Special Import Levy of 1 percent on the importation of machinery and equipment listed under Chapters 84 and 85 of the Economic Community of West African States Common External Tariff Protocol (the “ECOWAS CET Protocol”) has been abolished. The Special Import Levy was imposed as an additional levy to the existing import duty on the affected items, which increased the cost of equipment and machinery imported by farmers and fishermen, resulting in a corresponding increase in the price of food.

Import Duties
Import Duties on Raw Materials and Machinery for Production

The ECOWAS CET Protocol levies customs duty of up to 5 percent on raw materials and is targeted at ensuring that the same tariff is imposed on an eligible item imported into the ECOWAS region, irrespective of the ECOWAS member country it first lands in. The government aims to initiate steps to remove the import duties on raw materials and machinery for production under the ECOWAS CET Protocol in order to reduce the cost of production in the manufacturing and industrial sector.

Import Duty on Spare Parts

The import duty ranging from 5–20 percent on importation of vehicle spare parts has been abolished.

Financial Services
VAT on Financial Services

VAT (and a National Health Insurance levy (“NHIL”)) of 17.5 percent were levied on fee-based financial services, despite some opposition from players in the financial services sector. This tax was seen as discouraging the use of the services of financial institutions and increasing the cost of doing business generally. The VAT has been abolished under the 2017 Budget. It is hoped that the abolishment will reduce the cost of doing business in Ghana, while encouraging the use of financial institutions by businesses and individuals.

Stamp Duty Exemption for Financial Services Industry

Government has exempted the financial services industry from the payment of stamp duty for a period of two years to assist with the re-capitalization of the industry. Lenders to the financial institutions usually take some form of security to secure the debt obligations of the borrower, with the stamp duty cost being passed on to the borrower, thus increasing the cost of borrowing. Stamp duty costs will usually range from a minimum of 0.5 percent to 1.25 percent of the loan amount.

VAT
VAT on Real Estate Sales

VAT at a rate of 5 percent on real estate sales has been abolished. It is expected that this will boost the real estate sector to enhance growth and reduce the housing deficit in Ghana.

VAT on Domestic Airline Tickets

VAT at a rate of 17.5 percent (including NIHL of 2.5 percent) on domestic airline tickets has been abolished. While there is potential for growth, the domestic airline business in Ghana is currently small due to low income levels, high tax cost of air travel and the absence of tax incentives for airline businesses. It is expected that the proposed tax cuts will stimulate growth and employment in the sector.

Flat VAT Rate for Traders

The standard VAT rate of 17.5 percent (including NIHL of 2.5 percent) on trading has been replaced with a flat rate of 3 percent in order to simplify the compliance requirements and incentivize qualifying traders to register and comply with their VAT obligations.

Gains from the Realization of Securities

Gains from the realization of securities listed on the Ghana Stock Exchange or publicly held securities approved by the Securities and Exchange Commission are now exempt from income tax. It is expected that the exemption regime will increase investment and strengthen the country's capital market.

Other Tax Reductions
Excise Duty on Petroleum and Special Petroleum Tax

The government has reduced the special petroleum tax rate from 17.5 percent to 15 percent. Subject to foreign exchange fluctuations, this will reduce the cost of petroleum products and the cost of living in Ghana.

National Electrification Scheme and Public Lighting Levies

The National Electrification Scheme Levy of 5 percent has been reduced to 3 percent, with the Public Lighting Levy being reduced from 5 percent to 2 percent in an attempt to reduce the cost of electricity and boost industry.

Measures to Increase Tax Revenue

The government has noted that the underperformance in tax revenue collection is mainly caused by three factors: (i) weak tax compliance; (ii) tax leakages; and (ii) high exemptions. Government has outlined several measures aimed at improving compliance, reducing exemptions and plugging revenue leakages. It has proposed to review the import duty exemptions and tax reliefs to reduce revenue leakages from unjustifiable tax exemptions. Applicants for tax exemptions will be required to pay all applicable import duties and taxes in full and apply, with justification, for refund.

Paa Kwesi Morrison is a partner at ENSafrica in Accra.He may be contacted at: mailto:pmorrison@ENSafrica.com

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