Dr. Mahmudu Bawumia’s promise to grant tax amnesty to businesses and individuals in the country if elected President has been met with strong opposition by a former finance minister under the erstwhile Mahama administration, Seth Terkper.
As part of his economic policies, the New Patriotic Party (NPP) flagbearer for the 2024 Presidential Elections has announced that a potential NPP government will grant tax amnesty to businesses and individuals to pave the way for the introduction of a flat tax system.
“For the business people, I am introducing a new tax policy to help everyone. The new tax policy is a flat rate of tax as practised in Estonia. If it’s 10%, everybody will pay 10% like the tithing system in church where everybody pays the same rate. It’s a simple system that will not lead to any scuffle with the Ghana Revenue Authority (GRA). You can calculate your tax liability on your own. Before we implement this system, next year I will grant all businesses and individuals tax amnesty,” the Vice President explained.
This tax amnesty involves the pardoning of tax obligations by authorities for remorseful tax defaulters. According to GRA’s website, tax amnesty in Ghana includes a reduction in the payment of actual taxes owed, exemption from the payment of taxes for a specified period, and waiving of interest and penalties.
However, the Vice President’s promise, which is expected to bring relief to all Ghanaians and businesses who have defaulted on their tax obligations, is being opposed by Seth Terkper, who says such a policy is unfair and unjust.
According to the former finance minister, Bawumia’s policy is a blow to tax justice and will be unfair to businesses and individuals who have faithfully honoured their tax obligations.
He further revealed that if Bawumia’s promise is carried out, it will be the third time the NPP government has granted tax amnesty since 2017. However, the previous pardons granted have not yielded any positive outcome on the country’s total revenue.
With this, he stressed that Dr. Bawumia’s policy would mean continuous rewards for tax defaulters and hence is not worth pursuing.
“It will be the third tax amnesty since 2017. Yet, as we posted recently in tables and graphs, total revenue remains flat at best. Tax justice matters. It’s not fair to continue rewarding defaulters while others pay, even through deduction at source from salaries,” the former finance minister criticized.
It should be noted that granting tax amnesty to defaulting entities can lead to a short-term boost in revenue. Defaulting taxpayers usually come forward to pay the agreed settlement to avoid further penalties or prosecution. A properly implemented tax amnesty program can also help to broaden the tax base if delinquent taxpayers comply. In addition, there are also possible economic benefits since resolving outstanding tax issues enables businesses to operate with confidence and certainty.
However, the downside of pardoning tax defaulters, apart from the tax injustice mentioned by Mr. Terkper, is the potential to encourage non-compliance. Taxpayers might delay in meeting their obligations since they begin to expect amnesties.
Moreover, he argued, frequent tax amnesties could also distort the government’s fiscal policy. Frequent amnesties lead to unpredictability of revenue inflows, hence impacting the government’s plans and programs.
