[ 2015-11-17 ]

Ȼ1.6b lost to tax exemptions
The value of import exemptions for the first nine
months of this year exceeded what the government
has budgeted for the period by more than a billion
Ghana cedis.

The revised budget of government estimated the
value of import exemptions for the first three
quarters of the year at a little above Ȼ541
million.

However, provisional figures from the Finance
Ministry show that as at the end of September this
year the value of import exemptions had ballooned
to Ȼ1.6 billion.

More troublingly, government estimated in the
revised budget for this year that -taxes on goods
exempted from the payment of Customs import duties
for the entire year will be Ȼ753 million, but
the Finance Ministry projects that this figure
could exceed Ȼ2 billion - creating a worrying
situation for taxmen, policy analysts and the
country's non-concessional lenders.

The International Monetary Fund (IMF), which is
overseeing the implementation of a three-year
Extended Credit Facility Programme for Ghana, has
raised questions about the country's import
exemption regime and asked government to overhaul
it.

Professor Newman Kusi of the Institute of Fiscal
Studies, in a paper published by the B&FT last
week, also asked government to fix loopholes in
the country's revenue system arising from
exemptions, under-invoicing, bonded-warehouse
facility, transit goods, and export processing
zones to enhance domestic revenue mobilisation.

The Chief Tax Policy Analyst of the Ministry of
Finance, Larbi Siaw, in recent times has also
raised concerns about the tax exemption regime -
which some Ghana Revenue Authority officials have
cited as one of the biggest challenges to meeting
revenue mobilisation targets.

Finance Minister Seth Terkper has also recognised
that Ghana has a high tax exemptions regime, and
collection leakages that need to be addressed
through reforms to ensure the country maximises
revenue and creates the appropriate fiscal space
for development.

He said government has planned new measures, for
implementation next year, to streamline the
exemption regime; which he said will help to bring
the value of import in 2016.

At the presentation of government's 2016 budget
statement and economic policy, Mr. Terkper said:
"Henceforth, no MDA should negotiate and conclude
contracts that grant exemptions without the
necessary approval from the Ministry of Finance.
Exemptions granted without approval from the
Ministry of Finance will not be recognised and
processed to Parliament for ratification.

"Government will also put in place strict measures
to curb abuses in Customs exemptions. Furthermore,
government will consider replacing upfront
exemptions with a tax credit note and Treasury
credit note after a comprehensive study in 2016."

Other measures government has planned to clean the
exemption system include limits on the use of
'permits' to clear goods from our ports; improved
coordination between MoF and GIPC leading to
possible amendment of the GIPC Act; administrative
review of the free zones regime following recent
amendments; abolition of the VAT relief purchase
order; and establishment of the General Refund
Account, among others.

Mr. Terkper has explained that the decision to
restructure findings from various studies
conducted to estimate the quantum of Ghana's tax
expenditure over an eight-year period between 2008
and 2015.

A report by the Ministry of Finance and GRA team
for instance estimates the average tax expenditure
to GDP ratio at 2.01 percent. The tax expenditure
to GDP ratio for 2013-2015 are 1.68 percent, 1.82
percent and 1.98 percent, respectively.

The studies also observed that MDAs and MMDAs
include tax exemption provisions in contracts and
dispensations to businesses and NGOs without
authorization, and do not effectively verify or
audit the exemptions granted.

Mr. Terkper said based on recommendations of the
various studies, government has agreed to
progressively use tax credit schemes instead of
outright exemptions, and explore the use of Double
Taxation Agreement (DTA) provisions to our
advantage instead of granting outright
exemptions.

"GRA and MoF will reinforce the measures taken so
far to reduce the negative impact of exemptions on
the tax base, which also leads to uneven playing
fields for businesses and tax payers in general,"
he added.

Source - Bus & Fin Times

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