Nuisance tax scrap 'political gimmick' – Lord Mensah

The decision by the Akufo-Addo administration to scrap some nuisance taxes in the 2017 budget statement was only to satisfy political campaign promises, Dr Lord Mensah, a senior lecturer at the University of Ghana Business School, has said.

According to him, the scrapping of those taxes had a negative effect on the implementation of social intervention programmes including the Free Senior High School programme.

Last year, Finance Minister Ken Ofori-Atta announced that the government had reduced the special petroleum tax rate on petrol from 17.5% to 15%.

Other taxes that were completely abolished include the following:

1. The 1% special import levy

2. The 17.5% VAT on financial services

3. The 17.5% VAT on selected imported medicines not produced locally

4. The 17.5% VAT on domestic airline tickets

5. The 5% VAT on real estate sales

6. Duty on importation of spare parts

Also, the 17.5% VAT imposed on traders was replaced with a 3% flat rate, while businesses that employ young graduates from tertiary institutions were given tax credits and other incentives.

In the 2018 mid-year budget review presentation on Thursday, 19 July 2018, Mr Ofori-Atta announced a restructuring of the components of VAT.

He said there will be a 2.5% conversion of the National Health Insurance Levy (NHIL) component to a straight levy as well as a conversion of the Ghana Education Trust Fund (GETFund) VAT rate from 2.5% to a straight levy.

“On the under-performance for the first five months of 2018, we will end the year with an estimated deficit of 4.9% of GDP compared to the programmed target of 4.5%, resulting in a fiscal gap of GHS870 million, unless we immediately implement some fiscal measures; intensive tax compliance measures, New revenue measures, Intensive Conversion of NHIL (2.5%) to a straight levy, Conversion of GETFund VAT rate of 2.5% to a straight levy, Imposition of luxury vehicle tax of GHS1,000 – GHS2,000 on non-commercial vehicles with capacity of 3.0 litres and above, review of PIT to include an additional band of GHS10,000 and above per month at a rate of 35% and downward adjustment discretionary expenditures,” The Finance Minister said.

Contributing to a discussion on Atinka TV on Monday, 23 July, Dr Mensah said government was forced to remove those taxes following the promises made during the campaign season.

“The removal of those taxes took a toll on the government and that it was admitted during the mid-year budget review, about GHS1 billion was lost following the tax cut.

“The removal of those taxes was just a political gimmick, this is something they promised, and, so, they had to do it, but it had a toll on the government.

“You know that all the social interventions are supported by taxes, yet when you came you announced the removal of some of the taxes, and, so, they started on a wrong footing. You need taxes to create the environment for businesses, to build roads and do other projects.”