Ȼ1.6b lost to tax exemptions

The value of import exemptions for the first nine months of this year exceeded what the government has budgeted for the period by more than a billion Ghana cedis.

The revised budget of government estimated the value of import exemptions for the first three quarters of the year at a little above Ȼ541 million.

However, provisional figures from the Finance Ministry show that as at the end of September this year the value of import exemptions had ballooned to Ȼ1.6 billion.

More troublingly, government estimated in the revised budget for this year that -taxes on goods exempted from the payment of Customs import duties for the entire year will be Ȼ753 million, but the Finance Ministry projects that this figure could exceed Ȼ2 billion – creating a worrying situation for taxmen, policy analysts and the country’s non-concessional lenders.

The International Monetary Fund (IMF), which is overseeing the implementation of a three-year Extended Credit Facility Programme for Ghana, has raised questions about the country’s import exemption regime and asked government to overhaul it.

Professor Newman Kusi of the Institute of Fiscal Studies, in a paper published by the B&FT last week, also asked government to fix loopholes in the country’s revenue system arising from exemptions, under-invoicing, bonded-warehouse facility, transit goods, and export processing zones to enhance domestic revenue mobilisation.

The Chief Tax Policy Analyst of the Ministry of Finance, Larbi Siaw, in recent times has also raised concerns about the tax exemption regime – which some Ghana Revenue Authority officials have cited as one of the biggest challenges to meeting revenue mobilisation targets.

Finance Minister Seth Terkper has also recognised that Ghana has a high tax exemptions regime, and collection leakages that need to be addressed through reforms to ensure the country maximises revenue and creates the appropriate fiscal space for development.

He said government has planned new measures, for implementation next year, to streamline the exemption regime; which he said will help to bring the value of import in 2016.

At the presentation of government’s 2016 budget statement and economic policy, Mr. Terkper said: “Henceforth, no MDA should negotiate and conclude contracts that grant exemptions without the necessary approval from the Ministry of Finance. Exemptions granted without approval from the Ministry of Finance will not be recognised and processed to Parliament for ratification.

“Government will also put in place strict measures to curb abuses in Customs exemptions. Furthermore, government will consider replacing upfront exemptions with a tax credit note and Treasury credit note after a comprehensive study in 2016.”

Other measures government has planned to clean the exemption system include limits on the use of ‘permits’ to clear goods from our ports; improved coordination between MoF and GIPC leading to possible amendment of the GIPC Act; administrative review of the free zones regime following recent amendments; abolition of the VAT relief purchase order; and establishment of the General Refund Account, among others.

Mr. Terkper has explained that the decision to restructure findings from various studies conducted to estimate the quantum of Ghana’s tax expenditure over an eight-year period between 2008 and 2015.

A report by the Ministry of Finance and GRA team for instance estimates the average tax expenditure to GDP ratio at 2.01 percent. The tax expenditure to GDP ratio for 2013-2015 are 1.68 percent, 1.82 percent and 1.98 percent, respectively.

The studies also observed that MDAs and MMDAs include tax exemption provisions in contracts and dispensations to businesses and NGOs without authorization, and do not effectively verify or audit the exemptions granted.

Mr. Terkper said based on recommendations of the various studies, government has agreed to progressively use tax credit schemes instead of outright exemptions, and explore the use of Double Taxation Agreement (DTA) provisions to our advantage instead of granting outright exemptions.

“GRA and MoF will reinforce the measures taken so far to reduce the negative impact of exemptions on the tax base, which also leads to uneven playing fields for businesses and tax payers in general,” he added.