Government has introduced new taxes less than a month into 2016. Business operators had a challenging year-2015, partly due to erratic power supply, fluctuating local currency and high interest on loans by financial institutions among others.
But how will these taxes introduced affect you the consumer and the business operator in general? The Ghana Revenue Authority will be the implementing government agency to enforce these new taxes, a review of the old Internal Revenue Act, (Act 592) which came into effect in January 1st 2016. Prior to this new law, many sectors were exempted from the taxes. Others already in the brackets will see the percentages they pay increase. Obviously, the average Ghanaian and business will be affected by these new taxes. Already, some public agitations are raging as to the rationale behind the introduction of these new taxes.
Some new taxes to be paid by individuals and businesses
| INDIVIDUAL | BUSINESS |
| • Businesses will pay 25 percent corporate tax | |
| • Commissions to insurance agents, salespersons, lotto receivers/agents will also attract 10 percent taxes | • Those engaged in non-traditional export will pay 8 percent |
| • Fees earned by Lecturers, examiners, part-time teachers, non-executive directors, board members will attract 10 percent tax | • Hotels will pay 22 percent |
| Allowances earned by a trustee, resident manager/director , a board member will now attract 20 percent | • Manufacturing business located in regional capitals except Accra and Tema will attract 75 percent of corporate tax (25%) |
| • Lottery winnings will attract a tax of 5 percent, supply of services 15 percent, supply of works 5. | • While those located outside the regional capital will attract 50 percent of corporate tax (25%). |
***SAVINGS (the 1% interest on savings has been suspended as we discuss these new taxes)
Ghana has a low savings rate and introducing these new taxes will hamper the efforts made at ensuring majority of Ghanaians save with the financial institutions. Financial institutions have in recent times advertised, encouraged and engaged in promotional activities to encourage savings. What this new tax does is that, it will take 1 percent tax on interest earned by individuals on their investments (i.e treasury bills, interest from saving with financial institutions and fixed income deposits among other investment schemes). Also, 10 percent tax will be deducted from fees to be paid to part-time lecturers/teachers, examiners, board members, endorsement fees paid to artiste/showbiz personalities. All these deductions will erode the savings ability of majority of Ghanaians.
INVESTMENT
Obviously, the investment climate in Ghana will see less local participation if all these new taxes are implemented to the latter. Companies will be paying so much in corporate taxes and this will erode gains made which could have been reinvested for growth. Companies especially those in the manufacturing sector have been dealt a big blow already for the last two-and-half years due to erratic power supply and for the fact that they had to resort to powering their plants buying fuel hiking their operational costs. Last year also saw some dip in the value of the local currency-cedi; it was a hard time for manufacturers who had to import raw materials outside the country. Statistically, the manufacturing sector recorded 2 percent growth in 2012, and negative growth of -0.4 and -0.5 percent in 2013 and 2014 respectively. If truly government wants to reverse these negative trends, the way to go should not be over-taxing the already overburdened sector. Manufacturing business located in regional capitals except Accra and Tema will attract 75 percent of corporate tax (25%) this will further exacerbate the negative growth. Chargeable income derived by financial institution from loan granted to a leasing company to fund acquisition of asset for lease will attract 20 percent tax.
One particular sector which needs investments is the agricultural sector. But chargeable income derived by financial institution from loan granted to a farming enterprise in the production of income of the enterprise will attract tax of 20 percent. Government is encouraging agro processing but these new taxes will adversely affect their operations. With the implementation of this new tax law, all agro processing companies conducted fully in the country for the first five years will now pay 1 percent tax. Same for cocoa by product business also conducted fully in the country for the first 5 years will also attract 1 percent tax. Tree crop farming and cash crop or livestock excluding cattle for the first five years will also attract 1 percent tax.
EMPLOYMENT
With increased investment comes increased employment. With the forgoing increases and introduction of new taxes business will obviously find ways to cut cost which will severely affect employment. With declining growths in the manufacturing sector for the past three years, unemployment obviously becomes the biggest loser.
SAVINGS=> INVESTMENTS=> EMPLOYMENT
***This article was originally published in January 2016.
