Finance Minister, Ken Ofori-Atta
A tax expert and the Fiscal Policy Lead at Oxfam Ghana, Dr. Alex Ampaabeng is calling on the Akufo-Addo-led government to re-introduce the Luxury Vehicles Tax which was abolished in 2019 few months after its introduction amidst criticisms.
Ghana’s overall fiscal deficit for the year 2020 is expected to increase from the programmed GH¢18.9 billion (4.7% of GDP) to GH¢30.2 billion (7.8% of revised GDP) due the sharp decline in global crude oil prices as a result of the novel coronavirus (COVID-19) pandemic,
The country is expected to suffer a loss of GH¢5,679 million in expected oil revenue and a shortfall in non-oil tax revenues amounting to GH?1,446 million.
This according to the tax expert posed a massive challenge to government’s projected programmes.
Speaking in an exclusive interview, Dr. Alex Ampaabeng explained the government is confronted with daily and often overwhelming expenditure; thus there should be an urgent need to improve domestic revenue through taxation and other means to meet government expenditure.
He hinted that one area which is a potential avenue where the government can rake in more revenue to fill in the gap is the re-introduction of taxation on luxury vehicles.
“To effectively re-introduce this levy, governments must ensure that it captures the real luxury vehicles, and not to use Co2 emission rate as the basis.
For instance, as a guide, vehicles with list price starting from US$30,000, for example, may be classified as luxurious. To promote fairness in the policy design, there should be brackets.
For example, vehicles with a value of US$30,000 – US$50,000 may be subject to US$150 levy; between US$50,000 and US$80,000 pay US$200; and over US$80,000 pay US$400 a year. The policy must consider reducing the taxes as vehicles become old. In this case, revaluation may be done every 3 – 5 years.” He suggested.
Dr Ampaabeng was of the view that the luxury vehicle tax failed when it was first introduced because it was poorly implemented.
He said another area the government should consider is to review the existing tax codes and introduce additional tax brackets on higher incomes.
Dr Ampaabeng went on to explain that Ghana has a high tax rate which concentration is at the lower-end of the income bracket, therefore, making the country’s income tax regime generally regressive.
Currently, a taxpayer earning GH¢420 a month has a marginal tax rate of 10%, a taxpayer on GH¢20, 000 has 25% and an income of GH¢50, 000 attracts 30%.
To promote fairness, the government may consider introducing an ‘additional rate’ tax band of say 35% on incomes over 25,000 a month. Introducing an additional tax rate band could be useful in bridging the inequality gap whilst increasing tax revenue. Dr Ampaabeng pointed out.
According to him another window of opportunity for the government to generate additional income during and after the COVID-19 pandemic is to remove personal reliefs on higher income earners. He says tax reliefs in the tax code must aim at reducing inequality, rather than being given on a wholesale basis, as it is in the case of Ghana.
“Currently, Ghanaian taxpayers are entitled to a tax-free amount of GHC 3,828 annually. Even though this aims at reducing inequality through tax codes, every taxpayer in the country qualifies.
Aside from the personal reliefs (i.e. personal allowances), there are several tax reliefs such as married couples’ allowance, child education support, dependent spouse, etc.
which are again given to any taxpayer. Removing such tax ‘freebies’ for higher income tax earners, for example, those earning over GH¢20,000 a month, could generate substantial revenue whilst promoting one of the core aims of taxation, fairness.” He added.
Dr Ampaabeng again called on the government to as a matter of urgency review and amend what he called ‘generous’ tax exemptions.
The tax expert explained further that Ghana, a developing country, incurs a substantial revenue loss through poorly-designed tax exemption policies, such as generous no sunset clauses tax holidays and other investment allowances which have little or no impact on investment decisions.
He disclosed that Ghana’s tax exemption grew from approximately $85m, (0.6%) of GDP to $1.1bn, (1.6%) of GDP in an eight-year period, between 2010 to 2018. A properly reviewed exemption will directly increase revenue urgently required at this time.
“The exemptions must be reviewed to ensure that key sectors likely to drive the economy are supported and not powerful corporations. The government may consider temporary liquidity enhancing measures such as deferring tax payment to support business cash flows.” Dr Ampaabeng cautioned.
Other areas, Dr Ampaabeng noted government can leverage on to improve its domestic revenue mobilization are; implementation of effective Taxation of High Net Worth Individuals (HNWIs), Implement a digitized Property Taxation system, Improve on tax communication, and Implementation of a robust ICT-led administration system among many other.
