…Fiscal policy will create fear and panic – Minority
By: Stephen Odoi-Larbi
Beginning from January 2011, Ghanaians are going to pay more for goods and services rendered, as a result of the upward adjustment of taxes by the ruling left-wing government of the National Democratic Congress (NDC) to shore-up the economy.
The Minister for Finance and Economic Planning, Dr. Kwabena Duffuor, who read the 2011 Financial Policy Statement on behalf of President John Evans Atta Mills’ Government of Ghana in Parliament House yesterday, said the move was an internal resource mobilisation initiative, geared towards ‘Stimulating Growth for Development and Job Creation.’
However, the Minority New Patriotic Party (NPP) descended heavily on the statement, describing it as ‘Amina Budget’ – ‘Causing ‘Fear and Panic,’ against that of ‘Stimulating Growth for Development and Job Creation,’ insisting that it would worsen the plight of already hard-up Ghanaians.
According to Dr. Duffuor, in order to improve the efficiency in tax administration, following the integration of the Value Added Tax (VAT) and the Internal Revenue Service (IRS), the VAT threshold would increase from GH¢10,000 to GH¢90,000 for both goods and services.
VAT taxpayers who fall below the GH¢90,000 threshold, according to the Finance Minister, would now fall into a new scheme of combined VAT and income tax assessment.
According to him, deferred payments of VAT would be discontinued, whilst new measures would be introduced to improve the refund system.
This new initiative of combined assessment is expected to be in the VAT Amendment Bill, scheduled to be presented to Parliament by Dr. Duffuor for consideration, before the year 2010 comes to an end.
Communication Service Tax (CST) has also been extended to all companies and persons across the country. This, Dr. Duffuor said, was in conformity with the existing law, to ensure fairness across the industry.
Quarterly payment of royalties by the mining companies has been stopped with the leftist government, demanding monthly payments. “Mr. Speaker, mining royalties, henceforth, will be paid monthly, instead of quarterly,” noted Dr. Duffuor.
The practice of allowing importers of finished products to warehouse their products for up to two years before payment of assessed taxes, according Dr. Duffuor, was over, since the practice was not consistent with bonded warehousing regime.
He said the bonded warehousing facility would be restricted to only raw materials for manufacturing, as originally intended, because the old practice was imposing costs on the treasury.
The threshold of the five per cent withholding tax was also increased from fifty currency points (GH¢50) to five hundred currency points (GH¢500). However, the present exemption from withholding tax for compliant taxpayers on application, according to the Finance Minister, would continue and would be improved. Withholding tax on foreign supply of services has also increased from five to fifteen per cent.
“Mr. Speaker, the current withholding tax of five per cent applied across-board for foreign suppliers of services, makes local entrepreneurs, who are subject to 25 per cent corporate tax plus all other payroll taxes, uncompetitive, especially in the supply of services in the extractive sectors of the economy. This defeats our goal to enhance local content, particularly, in the petroleum sector. The withholding tax on foreign supply of services is hereby increased from 5 per cent to 15 per cent, and shall be treated as final tax,” stated Dr. Duffuor.
The government also announced its intention to abolish the five-year tax exemption for real estate developers. Dr. Duffuor said those developers who partner the Ministry of Works and Housing to provide affordable houses would continue to benefit from the five-year exemption.
“Mr. Speaker, the five years exemption period granted to companies engaged in the construction for letting or sale of residential premises, under Section 11(6) of Act 592, was mainly to create affordable accommodation for the middle to low income earners. Unfortunately, the real estate developers focused on building for the high and upper class of the society, while abandoning the original purpose. The government proposes to abolish the general five year tax exemption for real estate developers. However, given government’s heavy involvement with the provision of affordable housing, real estate developers who partner the Ministry of Water Resources, Works and Housing to provide affordable houses will continue to benefit from the five-year exemption,” noted Dr. Duffuor.
The Government of Ghana also announced her intention to repeal the Legal Instrument (LI) 1817, which empowers the Ghana Investment Promotion Council (GIPC) to grant tax exemptions for the hotel and hospitality industry.
Gift Tax was also increased from to fifteen per cent, to be in tandem with general income tax. “This will avoid shifting of Capital Gains to Gift Tax,” said Dr. Duffuor.
In order to protect the environment, the Government of Ghana proposed a twenty per cent environmental tax on plastic packaging materials and products, excluding bottled water, which already attracts excise duty.
Touching on Vehicle Income Tax rates, the Government of Ghana proposed an upward revision of presumptive vehicle income tax rates. This, Dr. Duffuor said, would help improve fairness with the payment of personal income tax and other income taxes.
“Mr. Speaker, this is not a tax on drivers, as is erroneously believed. Transport owners have the right to claim the advance tax paid as credit. Let me emphasise that “taxis” and “trotros” are, in line with our social democratic ideals which are pro-people, exempted from the new vehicle income tax rates,” argued Dr. Duffuor.
According to the Minister for Finance and Economic Planning, Tax Stamp would be reviewed for the Informal Sector Operators, whilst taxation of professionals and the informal sector would be effectively monitored, with the Mining List, which was last reviewed in 2004, be reviewed in 2011.
He said the National Fiscal Stabilisation Levy would be extended for an additional year. He added that the Minister of Finance of Economic Planning would amend the law to allow the Commissioner-General to tax all commercial activities of institutions with Tax-Free status.
According to Dr. Duffuor, Personal Income taxation would continue to be used as a major tool for equitable distribution of income, and for the protection of low income earners.
To that end, the Government of Ghana would revise the income tax threshold and bracket in the fiscal year 2011.
He said the revision would take into account the inflationary impact on wages and salaries, with the first GH¢1,140 of income, being tax free. However, the next GH¢360 would attract a tax rate of five per cent whilst that of GH¢840 would attract a tax rate of ten per cent.
The next GH¢17,976 would attract a tax rate of 17.5 per cent, whilst income exceeding GH¢20,280 would attract a tax rate of twenty five per cent.
Furthermore, the Government of Ghana proposed, in its 2011 Financial Policy statement, to increase airport tax from US$75 to US$100, US$150 and US$200 for economy, business and first class passengers, respectively for international travel; US$50 to US$60 for regional travel, and GH¢1 to GH¢5 for domestic travel.
In addition to this, the Government of Ghana proposed an upward adjustment of the current Debt Recovery Levy, to retire the Tema Oil Refinery debt, and reduce its negative effect on the banking system.
“Consequently, we propose to increase the TOR Debt Recovery Levy on premium and gas oil in the petroleum price build-up formula, from GH¢0.02 to GH¢0.08 per litre,” said Dr. Duffuor.
To help grow local industry, based on the ratification of the ECOWAS CET, the Government proposed that the CET’s recommended tariff of 35 per cent be imposed on imported rice and poultry products.
However, the APEX Bank, which had already enjoyed a five-year tax holiday for the period 2005-2009, was again granted an additional five-year tax holiday by the Government of Ghana, which ends in 2014.
The motive, according to Dr. Duffuor, was to help improve the bank’s capital base, strengthen its credit portfolio to agriculture, whilst concentrating on its mandate to service the rural communities.
Additionally, the Government of Ghana proposed a 2.5 per cent reduction on ad valorem on all excisable goods, except on spirits and cigarettes.
“In fact, Mr. Speaker, for health reasons, and to better align with international agreements, the excise duty on cigarettes will rise from 140 per cent to 150 per cent,” argued Dr. Duffuor.
Furthermore, to help encourage energy savings and reduction in power consumption, local companies producing energy saving bulbs, according to Dr. Duffuor, would be exempted from all taxes under the present tariff code.
However, the Minority NPP in Parliament said the upward adjustment of taxes would bring hardship conditions in the country, and said the government could have concentrated on widening the tax base instead.