BUDGET: Basket full of tax relieves

Accra, Nov.16, GNA 96 The Government on Thursday proposed a number of measures aimed at promoting the practice of efficient taxation and enhance confidence in the tax system.

These include a tax amnesty programme for the Ministry of Lands, Forestry and Mines, as part of its policy to encourage land registration and for investment purposes.

Mr Kwadwo Baah-Wiredu, Minister of Finance and Economic Planning, who announced the package in the 2006/2007 Budget Statement in Parliament, said the Government, through the Lands Commission as Administrator of State lands, would waive any interest on arrears of rent owed to Government by lessees of Government land for 2007. "To encourage title registration, fees on land registration will no longer be based on land value as currently pertains since stamp duty under the Stamp Act is also based on land value," he said. He explained that fees would rather be based on flat rates irrespective of land value as follows: Up to 0.405 hectares (one acre), 350,000 cedis and 40.5 hectares (100 acres) 500,000 cedis. Mr Baah-Wiredu said above 40. 5 hectares (100 acres); 10,000 cedis would be charged for each additional 0.405 hectares (one acre). Mortgages would stand as 350,000 cedis and Discharge for 100,000 cedis.

He said for sometime now the collection of a three per cent export levy on timber by the Forestry Commission and its alleged adverse impact on the fortunes of the timber industry had generated controversy. Mr Baah-Wiredu said in 2007 the Ministry of Lands, Forestry and Mines together with industrial representatives would review the fiscal and financial framework of the Commission in particular and the forestry sector in general in order to effect the necessary legislative amendments to address the concerns of stakeholders decisively. In the meantime the collection of the three per cent levy would continue.

Mr Baah-Wiredu said in the 2006 Budget, Government promised to rationalise the Excise Tax Regime thus facilitating the engagement of the services of consultants to carry out a comprehensive review of the excise duty.

"The rationalisation of the excise tax regime has focused on achieving simplicity in administration and enforcement, ensuring a steady stream of revenue, discouraging tax evasion and smuggling, curtailing the consumption of harmful products and removing the distortions,=94 he said.

Mr Baah-Wiredu said: "Achieving these objectives generally involves a move from the current ad-valorem regime to a specific tax regime that provides scope for differentiation. This shift in policy regime is in line with current international trends and best practices."

He said during 2007, a comprehensive bill would be prepared to rationalize excise taxes. The general objective of the rationalization would be to convert the excise tax on alcoholic drinks (beer, stout, branded spirits and wines), malt drinks, carbonated soft drinks, and cigarettes and other tobacco products from the current structure to a specific rate structure.

The general effect of this change would be a reduction in the excise taxes on beer and stout and carbonated soft drinks. To reduce the incidence of smuggling, the excise tax on cigarettes and other tobacco products would also be reduced.

Mr Baah-Wiredu said: "However, excise taxes on spirits will be increased. Details of these changes will be worked out for implementation by end March, 2007."

Commenting on the National Reconstruction Levy, he said it was introduced in 2007, as a temporary measure to address the Government's critical fiscal position at the time.

"In the 2005 Budget Statement, the Government promised to abolish the National Reconstruction Levy with effect from 2007. Mr Speaker, I am pleased to announce that the National Reconstruction Levy will cease to exist starting on January 1, 2007," he announced.

He noted that revenue loss from exemptions granted in duties and taxes continue to rise.

"It is estimated that in the year 2006, a total amount of 2.3 trillion cedis of revenue due on imports cleared through customs will have been given away on exemptions for various reasons. Mr Baah-Wiredu said this trend undermined Government efforts at increasing the share of total revenue that was generated from domestic sources.

To reverse the trend and rationalize the use of exemptions to effectively service productive areas of the economy, Government intends to review the exemption regime as a whole to reduce the scope and to eliminate abuses in the administration and application of the facility.

Mr Baah-Wiredu said one of the major challenges facing Ghana was how to broaden the tax net, adding that out of a pool of five million potential taxpayers; only one million were paying income taxes. "Apart from employees on the Government payroll, only about 350,000 employees in the private formal sector pay taxes. Mr Speaker, the fact that the vast majority of Ghanaians are in the informal sector makes revenue generation a daunting task."

The Minister said experience in other countries indicated that nations making the transition from informal to formal economies had to use innovative methods to mobilize tax resources.

"Evidence indicates that a significant percentage of vehicle registrations are from informal sector operators most of whom are not taxpayers", he said.

Mr Baah-Wiredu announced that during 2007, Government would develop and implement a system that would enable the country to assess and collect income tax using the value of vehicles registered.

"This measure will not only enhance revenue collection but will also bring a fairer distribution of the tax burden which currently is primarily borne by those employed in the formal sector."

Mr Baah-Wiredu said in line with Government's objective of increasing disposable incomes of taxpayers and to encourage tax compliance, the following tax reliefs were being proposed.

He said the current personal/marriage and old age relief of =A2300,000 would be increased to A2 350,000; Children' Education/Child from A2240,000 to A2300,000; aged dependent from =A2200,000 to A2200,000 and cost of training from A2200,000 to one million cedis.

Mr Baah-Wiredu said to enhance transparency in tax administration and expedite the resolution of appeals; the Government was proposing the establishment of a Tax Arbitration Board (TAB) to decide on appeals against the decisions of the Revenue Commissioners. The Revenue Agencies Governing Board would facilitate the setting up of the TAB.

Mr Baah-Wiredu said the current rate of taxation of benefits-in-kind relating to transport and accommodation, which was fixed in 1995, had become unrealistic in the light of present economic realities.

In view of this, the following adjustments are proposed: Accommodation with furnishing is reduced from 15 per cent to 10 per cent of the person's total cash emoluments.

Accommodation only is reduced from 10 per cent to 7.5 per cent of the person's total cash emoluments while furnishing only is reduced from five per cent to 2.5 per cent of the person's total cash emoluments. Shared accommodation is reduced from five per cent to 2.5 per cent of the person's total cash emoluments.

Vehicle with fuel has been reduced from 15 per cent to 10 per cent and capped at 3,000,000 cedis per month.

Vehicle only has been reduced from 7.5 per cent to five per cent and capped at 1,500,000 cedis per month.

Fuel only is reduced from 7.5 per cent to five per cent and capped at 1,500,000 cedis per month.

Driver, vehicle with fuel is 12.5 per cent and capped at 3,500,000 cedis per month.

Mr Baah-Wiredu said in order to reduce the level of non-compliance and other forms of abuse in the importation of used vehicles, changes in the mode of depreciation of used vehicles for valuation purposes and a review of the policy towards discouraging the importation of over-aged vehicles would be proposed.

The changes to be initiated are intended to improve compliance through realistic valuation and simplified administration of the used vehicle importation regime for both customs officers and importers. He said a bill would be laid in Parliament in the course of the year to rectify the defects in the current law.

Mr Baah-Wiredu said the Venture Capital Trust Fund Act was passed to provide a vehicle for Small and Medium Scale Enterprises to raise equity and quasi-equity.

"Since then, the Venture Capital Trust Fund has signed two investment agreements with venture capital finance companies. However, Government will like to see many more venture capital finance companies participate in the scheme," he said.

Mr Baah-Wiredu said a five-Year full exemption from corporate income tax, dividend tax and capital gains tax for eligible venture capital finance companies was now extended to 10 years.

=93The 100 per cent chargeable income deduction granted to financial institutions investing in venture capital finance companies is now expanded to include all corporate and individual investors who invest in venture capital financing companies.=94

Distributions of interest, dividends and capital gains to investors in venture capital finance companies shall be tax exempt.

He said losses from disposal of the shares of a venture investment may be carried forward for a period of up to five years after disposal. Mr Baah-Wiredu said final withholding taxes (WHT) had remained at their 2004 level in spite of the reduction in general corporate tax rate.

He said proposal for the final withholding taxes was reduced proportionally to reflect the reduction in general corporate tax rate as follows: WHT on Dividends paid; eight per cent; WHT on Management and Technical Services, 15 per cent and WHT rate on Rent is eight per cent. Mr Baah-Wiredu said in order to encourage the public to register changes in ownership of properties, the capital gains tax was reduced from 10 per cent to five per cent.

To facilitate the efforts of the Value Added Tax (VAT) Service at ensuring full compliance and also consistent with international best practices, it has been decided that VAT Clearance Certificate would be issued to VAT registered businesses in good standing on application from the first quarter of 2007.

These certificates would have a validity period of six months, and would be used as passes by businesses in activities such as competitive tendering and the clearing of goods at the ports among other things.