[ 2016-01-06 ]

Election year discipline shows cracks
Government’s determination to avoid the
perennial election year fiscal indiscipline
appears to be showing visible cracks after
portions from a raft of new tax measures meant to
shore-up revenue were withdrawn following strong
public disapproval.

The new tax measures were passed last year -- but
implementation was pushed to after the Christmas
and New Year holidays -- and sought to introduce
new tax rates for returns on investments,
commissions earned by sales personnel, and a host
of other measures.

But a Ministry of Finance statement issued on
Monday said government’s decision to impose a 1
percent withholding tax on interest earned by
individuals on their investments will not be
implemented after all.

“Following passage of the Income Tax Act, 2015
(Act 896) in September 2015, government has taken
note of taxpayers and the general public’s
concerns on some provisions of the Act; especially
those relating to the withholding tax on the
provision of services and payment of tax on
interest paid to individuals.

“On the issue of a 1 percent tax imposition on
interest earned by individuals, government has
already submitted proposals for Parliament to
reverse the position,” the statement said.

The new income tax regime is expected to
contribute a significant part of government’s
GH¢12billion tax revenue from income and
property.

The move by government to put on hold aspects of
this new income tax law following public outrage
shows its vulnerability in implementing key
reforms during a year in which it will be seeking
a renewal of its mandate.

In addition to the new income tax regime, there
were significant adjustments in utilities as well
as the imposition of new taxes on fuel prices
which saw massive price hikes -- much to the
disapproval of consumers.

The announcement of increases in electricity and
water tariffs to 59.2 percent and 67.2 percent
respectively by the Public Utilities Regulatory
Commission (PURC), took effect on December 14,
2015, while the average 25 percent petroleum
increase became effective yesterday.The fuel
increases were occasioned by passage of the Energy
Sector Levy, 2015, by Parliament last
December.Convincing the IMFWith the International
Monetary Fund (IMF) set to meet on January 13th
for a second review of the country’s
US$918million fund programme, moves by government
to pass on recent hikes in utilities to consumers,
as well as introduce new taxes on petroleum
products, is intended to send a signal to the Fund
that government’s intention is to not compromise
the ongoing programme because of the upcoming
elections.The two decisions and not backtracking
on the withholding tax for interest on investment,
government hopes, will demonstrate its resolve to
take unpopular decisions to save the economy even
if it has the potential of costing it in the
general elections.President John Mahama will be
seeking a second 4-year term on November 7th, and
has consistently maintained that his government
will maintain the needed fiscal discipline after
the last election left government with an excess
of 11 percent budget deficit.The deficit incurred
in the last elections was so wide that its effects
cascaded into subsequent years, finally prompting
government to turn to the Washington-based lender
in 2014 for assistance to solve the widening
deficit.This year, Finance Minister Seth Terkper
is projecting that the budget deficit will drop
from 7.3 in 2015 to about 5.3 percent this year,
and then to about 3.7 percent in 2017.

Source - Bus & Fin Times

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