Gov’t lost Ghc500m to duty exemptions in 2014

As government struggles to increase revenue generation, it has lost Ghc499.54 million revenue in 2014 due to exemptions granted on imports.

Exemptions granted by Parliament alone in 2014 amounted to Ghc214.18 million.

Revenue lost due to special permits also totalled Ghc285.36 million last year.

Commissioner of Customs, Mr Wallace Akondor disclosed this to The Finder in Accra.

According to the International Monetary Fund (IMF), there is a need for government to improve its revenue position by ensuring that sectors and firms which have long enjoyed tax breaks and exemptions are made to pay taxes.

To this end, the Fund wants government to review and streamline the tax exemption regime for Free Zones companies and State-Owned Enterprises (SOEs).

Mr Wallace Akondor stated that 30% of the revenue exempted by means of parliamentary approvals and special permits granted in 2014 would have yielded Ghc149.86 million for customs to have exceeded its revenue target for 2014.

Customs was given Ghc7,010.32 million revenue target in 2014, but the service managed to collect Ghc6,865.21 million, a drop of Ghc145.11 or 2.07%.

The Ghc6,865.21 million Customs collected last year represents a growth of 27.79% over the 2013 actual collection.

The breakdown of the Ghc6,865.21 million are import duty and levies -Ghc2,983.50 million; import Value Added Tax (VAT) - Ghc2,810.50 million; import National Health Insurance Levy (NHIL) - Ghc471.03 million; and petroleum tax -Ghc600.17 million.

On other factors that made it difficult for Customs to achieve the target, Mr Akondor explained that the volume of goods needed to generate the 2014 target was not achieved.

According to him, actual Cost Insurance Freight (CIF) of goods admitted for home consumption amounting to Ghc28,059.411 million fell short of target CIF of Ghc31,126.63 million by Ghc3,067.22 million.

He stated that the total value of imports admitted for home consumption during the year 2014 totalled $9,685.34 million, indicating a 22.11% decline compared to $12,435.08 million in 2013.

Mr Akondor explained that the value base for Customs duty calculation is tied to exchange rate and, therefore, depreciation of the cedi would mean more duty in cedi terms.

“However, this also reduces the ability of the importers to import same or more quantities, thereby reducing the volume of goods needed to generate the revenue target,” he said.

The Commissioner said the forex rules by Bank of Ghana (BoG) affected collection negatively because small-time importers found it difficult to get the foreign exchange for their imports.

Mr Akondor said their challenges include congestion at scanners, frequent power fluctuations, obsolete weapons for preventive duties, absence of examination sheds and warehouses at various stations, which affect quality of examination of goods, and inadequate means of transportation, as well as deployment of staff to remote areas.

Others are deplorable nature of roads in border communities, existence of numerous unapproved routes, poor accommodation for officers and no boats to combat smugglers.

In the three-year IMF bailout, the government is required to eliminate the granting of exemptions of tax on vehicles to Free Zones, reduce exemption on corporate income tax for Free Zones companies benefiting from tax holidays by increasing their corporate income tax from 8% to 25% after the tax holidays and freeze the issue of new permits pending parliamentary approval.

The government will conduct reviews by September 2015 to identify exemptions to be eliminated with the 2016 Budget.

The review will affect the Ghana Investment Promotion Centre (GIPC) law in order to eliminate its role in granting exemptions, tax exemptions granted to State-Owned Enterprises (SOEs), including VALCO and the VRA, overall tax treatment of Free Zones Enterprises.

The main objective of these reviews is to eliminate exemptions based on the analysis of their economic effectiveness in achieving the desired policy goal and their cost in terms of revenue foregone, plug loopholes through legislative review and check abuse through enhanced compliance mechanisms.