Economist explains why tax exemptions can be beneficial or deadly

A Professor at the University of Ghana Business School, Lord Mensah, has explained that the act of exempting certain companies and entities from taxes must be well thought through in order not to enable persons who will abuse them.

He said for tax exemptions to achieve their intended purpose, it has to target entities whose growth will help expand the economy.

According to him, when the right companies are given tax exemptions it leads to growth for the economy, therefore the government must streamline its focus and decide on what trajectory it was to take.

He made the comments on the back of an allegation made by the Minority against the government about certain tax waivers and exemptions.

They noted that the government is planning to give tax waivers amounting to GH¢7 billion to individuals associated with the trade industry.

Prof Lord Mensah said: “It depends on the motive behind the exemptions, there are some exemptions that can be given one way or the other to stimulate the economy. For instance, if you are giving incentives for businesses to expand, then one way or the other you encourage employment and other things. Another thing will be particularly looking at exemptions in an environmentally friendly investment area, that one you are less propagating or enhancing investment in areas that are environmentally friendly.

He emphasized that the current state of the economy and the revenue targets that have been set do not exactly allow for the government to grant tax waivers anyhow.

“From where I sit it sends on the motive behind the exemptions. But We should also appreciate that every single exemption that we provide is a cost to the economy and so an economy that struggling for revenue generation and especially when we find ourselves with IMF that we have outlined revenue generation patterns that we want to follow and for which we have frontloaded it in such a way that in the next two to three years we want to hit a certain target of revenue generation about 16 to 30 percent of our revenue generation of GDP, obviously it is expected that we will not give chance to these exemptions but it depends on the focus of the government. If the government has a plan as to the kind of exemptions to provide,” he said.

He further noted that “There could also be an abuse of these exemptions especially when it is politically aligned and it turns out that those influential people who are running the businesses who are importing and are the ones that are enjoying these exemptions, then it becomes a problem, then the economic motivation for the exemptions is not what we are looking at. So, exemptions, one way or the other can be good depending on the focus.”

SSD/NOQ