Ghana To Review Tax Expenditures
The International Monetary Fund (IMF) has welcomed the Ghanaian Government’s fiscal consolidation efforts, including its various revenue-raising initiatives.
The Government is seeking to implement an adjustment of two percent of gross domestic product (GDP). This would bring the country’s deficit to about 5.3 percent of GDP in 2016. Over the medium-term, it aims to progressively reduce the deficit to 3.7 percent and three percent of GDP by 2017 and 2018, respectively.
While continuing with measures in place since 2013, the Government said it would look to broaden the tax base and boost compliance rates. For example, a presumptive income tax for small businesses and new withholding tax mechanisms in key sectors have been introduced recently as part of the new Income Tax Act, 2015 (Act 896), which will simplify the country’s income tax regime and broaden its scope.
In the new Act, there are specific provisions governing the imposition of income tax and the various means and timing for its payment. The legislation defines chargeable income from any employment, business, or investment, and, in each case, sets out the deductions and allowances available.
Rules are also established with regard to the calculation of income tax, such as the methods to be used for tax accounting. It also sets rules for the calculation of gains and losses and on tax residence and permanent establishments. The Act includes a general anti-avoidance rule, rules on income splitting, and transfer pricing rules.
A review of Ghana’s investment promotion legislation is also proposed. This will preclude government ministries, departments, or agencies from negotiating contracts that grant tax exemptions without approval from the Ministry of Finance.
The Government has also asked the World Bank to conduct an independent assessment of tax expenditures, which have been quantified at around one percent of GDP of customs duties and corporate income tax, and close to four percent of GDP in relation to value-added tax. The Government is to request technical assistance from the IMF to guide reforms aimed at reducing tax expenditures substantially, and, in the interim, has agreed to increase the use of tax credits, instead of providing outright exemptions.
