Financial Analyst Dr. Richmond Atuahene has made a justifiable case in support of President-elect John Dramani Mahama’s agenda to abolish some nuisance taxes, which he hopes will bring relief to Ghanaians when he assumes the reins of government.
Mr. Mahama in his 120 Days Social Contract to Ghanaians indicated that taxes which include E-levy, Betting Tax, COVID-19 Levy, and Emissions will be scrapped just within 90 days in office.
This promise when implemented is expected to create a revenue gap of about GHC 6.4 billion. This implies the government will lose revenue worth GHC 6.4 annually should these so-called nuisances be scrapped.
The development has generated a heated debate among analysts and economists. While some believe this tax relief is uncalled for and unjustified given the overall low tax revenue of the country, others believe it is doable considering the numerous unmerited tax exemptions.
Former Vice President of Unilever Ghana and Nigeria, Yaw Nsarkoh is a strong advocate against these tax reliefs. He argues that a “bankrupt” economy like that of Ghana does not need to throw away a revenue stream worth over GHC 6 billion annually. In his own words, he says these tax cuts are a “dangerous road to hell” although the promise is shrouded with good intentions.
But Banking Consultant and Financial Analysts, Dr. Richmond Atuahene believes otherwise. Dr. Atuahene justifies that the plans to scrap those nuisance taxes are doable and must be implemented to bring some relief to Ghanaians made poorer by these “obnoxious” taxes.
He tells The High Street Journal that there are numerous ways John Mahama’s government can make up for the estimated revenue loss. The analyst believes among these options is the numerous tax exemptions offered to “underserving” companies and individuals robbing the state of its revenue.
In his research paper on “Exploring Tax Reforms and Implications on Ghana’s Fiscal Space” which seeks to make a case for the scrapping of the nuisance taxes, Dr. Atuahene admitted that Ghana’s tax-to-GDP ratio averaging between 13% and 14% is far below its peers in the Lower Middle Income and Sub-Saharan African countries.
This low tax-to-GDP ratio is partly due to the numerous tax exemptions offered by the government which do not generate any major economic benefit. He reveals that the World Bank estimates have noted that Value-Added Tax (VAT) exceptions alone contribute to between a 2% and 3% decrease in the country’s tax-to-GDP ratio.
“Ghana’s tax-to-GDP ratio averaged 13.8 percent for the 2017–23 period, well below most other lower-middle-income countries (16.9 percent in 2023) and the rest of Sub-Saharan Africa (18.4 percent in 2023),” he noted adding that “World Bank and IMF estimates show that value-added tax exemptions only, on average, result in 2%–3% reduction in the tax-to-GDP ratio.”
Even the current controversial US$350 million tax exemptions before parliament being pushed by the NPP Caucus is almost the same amount scrapping the nuisances will cost the country. He therefore cannot fathom why the government will push “to throw away” such tax revenue through an exemption that is almost the same amount as the last tranche of disbursement received from the IMF this month but cannot abolish nuisances taxes that will bring direct relief to Ghanaians.
“The NPP current tax exemptions and reliefs of US$350 million (GHC5.6 billion) are close to the nuisance tax of GHC6.4 billion),” he stated.
Dr. Atuahene is convinced that the scrapping of taxes is doable since reforming the tax exemptions regime could generate revenues that are in excess of those estimated to be lost through the nuisance taxes. In his view, there are many ways the government can compensate for the estimated GHC6.4 billion revenue loss.
“The ability to review the widespread tax exemptions and reliefs of 2%-3% will go a long way to compensate the abolishing of the nuisance taxes in both short and medium terms,” the financial analyst insisted in the document copied to The High Street Journal.
He argues that many of these tax exemptions do not serve the intended purpose leading to significant loss. Others, he says are offered on a silver platter to cronies and politically exposed persons hence the need for the president-elect to relook at the exemptions regime.
“The government must urgently review all tax exemptions and zero-rated items at the Ports. Cutting down on non-essential exemptions, reviewing zero-rated items and concessions granted to mining companies, and amending existing tax concessions on imported items can potentially recover revenue loss from abolishing these two levies,” he noted.
He further added that “Reviewing and rationalizing these exemptions can help the government recover substantial revenue. If the government undertakes a thorough review of direct port exemptions, revisits zero-rated imports, and reconsiders items taxed at 5% due to special concessions, such as imports within the mining sector, there is a substantial potential to generate enough revenue to offset the revenue loss from abolishing the E-Levy and COVID-19 Levy, and still ensure fiscal stability and alleviate the tax burden on citizens.”
Dr. Atuahene further proposes other tax reform measures that can replace these taxes and mobilize more revenues while bringing relief to Ghanaians.
