Tax exemptions cost Ghana GH¢2.6bn in 2017
Last year, import exemptions granted to foreign companies and other institutions rose by 15.5 per cent to GH¢2.6 billion.
The rise in exemptions from GH¢2.3 billion in 2016 to last year’s figure brings to the fore the country’s inability to control the amount of tax freebies granted to foreign firms in spite of the government’s pledges to help curb it.
The 2017 provisional outturn for import exemptions also means that the government missed its import exemptions target of GH¢1.3 billion by 100 per cent.
Though an annual ritual, the continuous rise in import exemptions impacts negatively on how much the country earns from international trade taxes and by extension, revenue accruing to the state.
Provisional fiscal data from the Ministry of Finance showed that international trade taxes amounted to GH¢5.5 billion, about 18 per cent below the budget target of GH¢6.7 billion.
The amount lost to import exemptions is about 8.1 per cent of last year’s tax revenue, which was GH¢32.2 billion.
An Economist and Senior Research Fellow at the Institute for Fiscal Studies (IFS), Dr Said Boakye, said the strong growth in import exemptions was “a strong failure” on the part of the government.
He added that the disparity between the estimate and provisional outturn for import exemptions was also worrying, given the impact on budget credibility.
“What kind of budgeting is that? You did this in March and you got it wrong, no problem. In July, you revised and you are still getting this huge miss,” he retorted.
In the 2017 budget presented to Parliament in March, international trade taxes were pegged at GH¢7.1 billion but revised to GH¢6.7 billion in July in the budget review.
“In the budget, you programmed that exemptions would be GH¢1.3 billion and GH¢1 billion would be captured under international trade taxes, and this was one of the reasons why they thought they could do such a high jump in revenue.
“But the data is showing now that it is not only that they could not peg it at GH¢1.3 billion, but they have even exceeded the 2016 figure of GH¢2.3 billion. This is very serious,” he told the Graphic Business on April 17.
He blamed it on abuses to the exemptions regime and called for measures to help curb it.
While emphasising that he was “shocked” to hear the amount lost to exemptions, Dr Boakye said: “There should be a serious study into exemptions” to help reveal the beneficiaries and prescribe measures to deal with it holistically.
Although an incentive for foreign direct investments (FDIs), import exemptions granted to investors and other institutions have been a major drain on national revenue.
Of particular concern is the strong growth over the years. From GH¢778.9 million in 2012, tax exemptions rose to GH¢1.2 billion in 2014 before almost doubling to GH¢2.1 billion in 2015.
The exemptions are always granted to businesses coming into the country through the Ghana Free Zones Authority (GFZA), the Ghana Investment Promotion Council (GIPC), diplomatic and development institutions, as well as specialised bodies such as members of the Ghana Medical Association.
By increasing the amount of import exemptions granted to businesses, the country is continuously limiting the amount of revenue collected through international trade taxes.
Given that low revenue inflow forces the country to borrow more, many analysts and institutions, including the International Monetary Fund (IMF), have asked for concrete steps to help cut down the amount given out as exemptions.
In February 2016, the fund’s Deputy Managing Director at the time, Mr Min Zhu, said the country needed to eliminate tax exemptions to help spur revenue growth and reduce debt growth.
His concerns were later shared by the Chief Executive Officer of the GIPC, Mr Yoofi Grant, who traced the strong growth in import exemptions to the wrongful application of the exemptions regime. That, he said, meant there were “significant abuses in the system”.
On April 8, the Vice-President, Dr Mahamudu Bawumia, also bemoaned the opaque nature of tax exemptions in the natural resources sector and repeated his call for review to help streamline the process.
“Improper accounting of resources on the part of concessionaires is a major source of revenue loss and it is for this reason that we are reviewing the exemption process,” he noted.
Although he said the government was reviewing the entire exemptions regime, he did not explain the form it was taking and when it would be concluded.