The Economic Governance Platform (previously the Civil Society Platform on the IMF program) with support from Oxfam organized the High Level Dialogue on Tax Expenditures in Ghana at the Mensvic hotel, Accra on Tuesday, August 28, 2018 on the theme: Review of the Tax Incentive Policy in Ghana that Gives Rise to High Tax Expenditures.
The Dialogue brought together 80 participants from the Ministry of Finance, the Ghana Revenue Authority, Civil Society Organizations, Ghana Investment Promotion Centre, Ghana Free Zones Authority, Development Partners, Media, and other identifiable groups in Ghana.
Mr. Joseph Winful, Chaired the Dialogue whiles Mr. Daniel Nuer, Head of the Tax Policy Unit, Ministry of Finance was Guest Speaker. Mr. Abdallah Ali-Nakyea presented the main paper that reviewed the tax incentive policy in Ghana and Mr. Bernard Anaba presented a paper on the country’s fight against illicit financial flows. Below is the communiqué issued.
Having participated fully in the High Level Dialogue on Tax Expenditures in Ghana on the theme: Review of the Tax Incentive Policy in Ghana that Gives Rise to High Tax Expenditures, we hereby adopt and approve as a “Civil Society Position”, the following Communiqué to enhance effective tax revenue collection and administration in Ghana.
- That tax expenditure which is the revenue forgone through the granting of tax exemptions by law needs to be scrutinized and reviewed periodically to check abuse and revenue losses.
- That a constructive evaluation of the effectiveness of tax provisions should support decision making as to which tax expenditures a country should keep and the ones to let go.
- That addressing the issue of tax expenditures by reviewing tax exemptions and tax incentives can result in increased domestic revenue mobilization.
Hereby agree to
- Advocate for measures to reduce tax expenditures in Ghana given the country’s persistent revenue underperformance and the need to finance the country’s development agenda.
- Advocate for measures to effectively address the challenges and loopholes in the country’s tax system.
- Advocate for measures to enhance tax revenue collection and administration.
- There must be monitoring mechanisms in place to ensure that tax incentives are being used for the purpose for which they were granted and also verify the existence of the companies ostensibly taking advantage of the incentives.
- A stock-taking exercise should be undertaken of the tax expenditures in place-granted by the authorities including the Executive, Parliament, the Ministry of Finance (and other MDAs), and the Ghana Investment Promotion Centre (GIPC). The outcome should be published (or be available for public scrutiny) to inform the authorities and the general public as to which tax expenditures should be revised or enhanced as well as which beneficiary should continue to enjoy the incentive.
- Beneficiaries of tax incentives who do not comply with the conditions attached to the grant of the tax incentives should be sanctioned by being made to pay up the back taxes and duties.
Role of Parliament
- Article 174(2) of the Constitution gives Parliament a heavy duty with respect to the granting of tax waivers. It is, therefore, imperative that Parliament is concerned with the amount of exemptions it approves following a cost-benefit analysis, especially the ones that come with specialized agreements.
Role of Ministry of Finance
- In order to curb the incessant granting of tax waivers or exemptions in agreements entered into by Ministries, Departments and Agencies, Section 63(2) of the Revenue Administration Act, 2016 (Act 915) provides as that, “Subject to Article 174 of the Constitution, a ministry, department or agency shall not negotiate or enter into an agreement for the waiver of tax except with the approval of the Minister.”
- The Ministry of Finance must monitor MDAs to ensure that they adhere to these provisions in the Revenue Administration Act.
- The Ghana Revenue Authority together with the Ministry of Finance should ensure that there is a database of all exemptions granted to companies and individuals in order to ensure that the exemptions actually go to the intended beneficiaries.
- We should have a standard application to the Ministry of Finance to determine the granting of exemptions to curb abuse.
- In order to check the discretion of the Board of the Ghana Investment Promotion Centre (GIPC) in granting tax incentives, Section 26(2) (d) of the GIPC Act, 2013 (Act 865) should be amended to provide that the Board “shall” and not “may”, in the implementation of the objects of the Centre make recommendations to the President through the Minister of Finance on incentives for the promotion of investment and the eligibility criteria for the incentives and priority areas of investment.
- The current 1995 Regulations tied to the GIPC Act of 1994 must be updated in line with the new GIPC Act, 2013 (Act 865) to enhance the operations of the Centre.
Compliance with Filing of Returns
- The GRA should make sure that companies enjoying tax holidays file their tax returns at the appropriate time. This will enable the GRA keep track of the companies enjoying the tax exemptions under the various tax laws.
- The GRA should also apply the law where the companies fail to consistently file their tax returns as required under Section 28 of the Revenue Administration Act, 2016 (Act 915), since there are penalties for failure to file returns on due dates as provided for under Section 73 of Act 915. Filing of tax returns would enable the GRA monitor and keep track of when the exemptions or incentives are expired and thus to ensure the affected entities pay the required taxes (applicable after the expiration of their exemptions or incentives).
Introduction of Exit Taxes
- We also recommend the introduction of exit taxes. If this is introduced, it will curb the situation where some investors fold up and leave the country after they have benefited from tax incentives only to return and set up again as a different company to take advantage of the tax incentives in another field – the so-called ‘fly by night’ phenomenon. This especially occurs in the industries that find themselves under the free zones regime with tax holidays and have export processing investments.
- The introduction of this exist tax will require that the Ghana Revenue Authority and other relevant agencies put in place a robust monitoring mechanism to ensure that companies enjoying these tax holidays and incentives are well monitored or else the introduction of the taxes may fail miserably.
- Policymakers and stakeholders should in the long term be looking at different forms of incentives which are not tax related.
- Investors would normally be looking for a conducive socio-economic environment, including consistent and stable macroeconomic and fiscal policy, political stability and adequate physical, financial, legal and institutional infrastructure, among others, as the determining factors for investment. The government needs to take steps to enhance these.
- From a business perspective, investors will be looking at which country would ensure that they achieve a particular investment objective and how activities would be structured to minimize tax liabilities.
- The country must stop giving out her taxing right in donor-funded projects to the countries where contractors executing these projects come from. Contractors must include their tax obligations in their bids and not be exempted from paying income taxes because they return to their home countries and pay taxes to their governments on income earned in Ghana.
To Win the Fight Against Illicit Financial Flows (IFFs):
- The continuous vigilance of civil society, media, intelligence agencies and the general public is crucial. The success of CSOs, workers of the VRA and ECG in fighting the Ameri deal is commendable and must continue to protect the public purse.
- The government must stop signing double tax agreements (DTAs) with countries such as Mauritius, Ireland etc, alleged to be conduits to IFFs, especially that Ghana is largely a capital importing country. Government should review existing DTAs in order to streamline the benefits to the nation when these are due for review.
- Gold smuggling, and the inability of the Customs Division of the GRA to certify every ounce of Gold that leaves the shores of Ghana is a worrying trend that require urgent redress.
- Weak monitoring of technical agreements (TAs) and technology transfer agreements (TTAs) are a drain on our economy particularly where tax waivers have been granted for such purposes.
- Standardization of fiscal terms in contracts is the way to go.
- It is important that all government agencies abide by Section 67(6) of Income Tax Act, 2015 (Act 896) within which extractive industries can carry forward costs and grant five years of capital allowance at 20% on a straight line basis.
- The Bank of Ghana (BOG), Minerals Commission (MinCom), Customs Division of GRA and the Precious Minerals Marketing Company (PMMC) should reconcile export records and proceeds from the export of Ghana’s minerals on a quarterly basis to improve transparency in sector.
- The Customs Division of the GRA should publish the findings of the Post-Clearance Unit on under-invoicing detected on imported items to check the illicit financial flow losses from under-invoicing as this will enable the perpetrators to be surcharged and punished.
- Strengthening the informant reward system of GRA will make it attractive for the public to report on illicit financial flows and revenue leakages.
ADOPTED THIS 28TH DAY OF AUGUST 2018, MENSVIC HOTEL