Do we need tax incentives for creative arts?

If you’ve been following the creative arts industry in Ghana, you've likely observed a surge in debates and discussions regarding the impact of taxes on its growth and development.

From late 2023 to early 2024, various stakeholders have argued for the removal of taxes or the implementation of a tax holiday for various institutions connected with music, movies, theatre, and the event organising sectors.

Comedian DKB, for instance, called for tax cuts for businesses that support culture and arts activities.

Ola Michael, a film producer and critic, also advocated for tax incentives for production houses and cinemas.

Event organiser, George Quaye and musician Diana Hamilton have both lamented the high ticket taxation for their events.

“After putting up 'The Gods Are Not to Blame', I was looking at the taxes that we have to pay as compared to the other expenses. The biggest beneficiary was the government. And you know the taxes; they take it straight at the door. After everything, we paid a tax of almost GH¢60,000. Meanwhile, our profit as Image Bureau was GH¢4,000.

“I have no problem, but I would be happy to pay taxes if I entered the venue where the play was hosted, the National Theatre and the air conditioning was working, the washrooms were tidy, the seats were comfortable and I could see that that was what the government did with our taxes. I would be happier,” George Quaye said on an interview with Hitz FM.

So, the consensus seems to be similar; reduce taxes!

But is it that simple? What are the pros and cons of tax incentives for the creative arts industry? And what are the alternatives or complements to tax incentives that can boost the sector?

Tax incentives are special provisions in the tax system that reduce the tax liability of certain taxpayers or activities, to encourage or discourage certain behaviors or outcomes.

Pros

Higher profit margins: Less taxes for production houses, record labels, event organising companies, etc. would increase the profit margins for these companies.

This means more cash for everybody (logically speaking).

This would also lead to a trickle-down effect: higher pay for everyone, resulting in improved productivity; increased hiring, facilitating the expansion of these companies; and more money flowing into construction, offices, and stationery, among other areas.

Boost for local communities

The communities to which these institutions expand would experience a boost, with increased employment opportunities, an influx of people relocating from other parts of the country, and heightened spending, ultimately generating more opportunities for the locals.

International exposure

Ultimately, as these institutions extend their reach beyond the country, they can contribute significantly to Ghana's foreign exchange reserves. Simultaneously, this expansion has the potential to elevate the global standing and recognition of Ghana's creative arts industry, drawing in more tourists, investors, and collaborative opportunities.

Overall, these institutions and their human resources, such as actors, producers, directors, cinematographers, etc. would get the chance to grow their influence and brand.

This would enhance their reputation, credibility, and competitiveness in the market, and enable them to create more quality and diverse products and services.

However, tax incentives are not without costs and drawbacks.

Cons

Revenue loss and fiscal imbalance

Reducing taxes in a particular sector would leave a dent in the government's coffers, as it would reduce the tax revenue and the fiscal space of the government.

This would limit its ability to provide public goods and services, such as infrastructure, education, health, security, etc. or increase its borrowing and debt.

The government would need its money back, meaning it would have to reduce expenditure in other sectors or increase taxes in other sectors.

This could create resentment and discontent among other taxpayers and sectors, who may feel that they are being unfairly treated or burdened.

Tax incentives can also distort the allocation of resources and create inefficiencies in the economy, by favouring certain sectors, activities, or taxpayers over others, or by creating market failures.

For example, tax incentives for the creative arts industry may divert resources from other productive or essential sectors, such as agriculture, manufacturing, or health.

It could be easy to imagine an angry doctor saying “If taxes can be reduced for singing and dancing, why not for the healthcare sector?”

Semi-Inflation

In financial psychology, there is something called “Lifestyle Creep," a situation where one’s standard of living improves as their discretionary income rises and former luxuries become new necessities.

If an individual survives on 1000 cedis monthly and suddenly has his income at 2000 cedis, He may pick up certain habits that are in line with the 2000 cedis income.

This tends to also happen in this sector.

An artificial demand or supply for certain products or services leads to price inflation or deflation.

Dependency

They may also discourage innovation or improvement, as the beneficiaries may become complacent or dependent on the tax incentives, rather than on their own merits or competitiveness.

So what can fix this? Money. But what kind?

Tax incentives should not be seen as the only or best solution for the creative arts industry, but rather as one of the possible tools or instruments that can be used in conjunction with other policies or measures.

Investments can come from various sources, such as the government, the private sector, civil society, or the international community.

Investments can help the creative arts industry access more capital, technology, skills, networks, and markets, and improve their quality, diversity, and competitiveness.

Despite various news articles about Loan facilities being made available for creative arts projects in the country, no one has testified to being a successful beneficiary of such projects.

Well-tailored loans can help the creative arts industry overcome liquidity or cash flow problems and expand or diversify its operations or products.

Overall, a roadmap can provide the direction and guidance that the creative arts industry needs to achieve its goals and objectives.

A roadmap can be developed by the government, the industry, or a combination of both, through a participatory and consultative process.

Tax incentives for the creative arts industry can have both positive and negative effects, depending on their design, implementation, and evaluation. Tax incentives are not a one-stop solution, but rather one of the possible tools or instruments that can be used in conjunction with other policies or measures.

The creative arts industry can benefit from more investment, easy access to loans, and a specific roadmap to prevent mismanagement and promote growth and development.

ID/BB/MA

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