A Tax Exemptions Bill will shore up Revenue – Tax Expert

A tax Expert and senior lecturer at the University of Ghana Law School, Dr. Abdallah Ali-Nakyea has added his voice to calls by Civil Society Organizations (CSOs) and the Tax Justice Coalition (TJC) for the swift passage of the Tax Exemptions Bill (2021) into law.

According to him the passage of the Bill into law will help improve revenue collection and reduce the pressure on government borrowing.

“The delay in the passage of the Bill since 2019 is worrying as it has denied the state the needed revenue to support critical expenditure-beyond increasing revenues, a tax exemption law would help harmonize the tax exemption incentives regime and help make it more efficient,” he stated.

Dr Ali-Nakyea was speaking in a recent lecture on the topic: “Ensuring an increase in revenue mobilization through taxation for the purposes of accelerated national development”.

He observed that the reason governments in developing countries had not been able to achieve revenue targets was because of tax exemptions, noting that these developing countries typically offer various tax exemptions in order to attract investment which lower tax revenue. He pointed out that these exemptions do not necessarily result in higher investment and are therefore a pure loss of revenue.

Dr Ali-Nakyea further explained that the problem also had to do with the fact that exemptions are often used for political reasons and consequently risked being linked with corruption. According to him, one obvious solution to this problem is to take away such exemptions. He was however of the view that if government finds it difficult to remove tax exemptions because of political reasons its negative effects could be mitigated by inducing transparency into the system, either by making rules about the practice firmly stated in laws and regulations or publicly disclosing  information about exemptions.

According to the tax expert, the consequences or barriers to tax revenue mobilization which often resulted in low tax revenue provided the impetus for revenue mobilization if political leaders sincerely wish to meet the needs of the people.

On tax collection, the senior lecturer said the current tax collection of between 10 and 20 percent of the country’s Gross Domestic Product (GDP) lacks the potential to support the rate of development the country requires, adding that there is room to enhance tax revenue mobilization to fill up the revenue gap which is the difference between taxes paid and taxes owed by law. This he observed necessitated the wider and renewed interest by governments and multilateral institutions in enhancing tax capacity which is the ability of individuals and businesses to pay taxes, stemming from the recognition that tax capacity is at the core of nation building and development.

Earlier this year, the International Monetary Fund (IMF) issued a statement to the effect that tax exemptions were the weakest link in all efforts to improve tax collection. It added that between 3 and 5 percent of GDP was lost every year to the current tax holiday regime which translates into a loss of between GHC11. 5 billion and GHC19.2 billion of taxes for 2020 using the years provision of GDP figures of GHC383.3 billion.

For 2021 when GDP is projected to rise to 433.8 billion, the IMF estimates pre-suppose that between GHC 13 billion and 21.7 billion will be lost to tax exemptions.

Tax Exemptions are tax waivers given to local and foreign companies to encourage increased investment and more foreign direct investments (FDIs) in the economy. There are however concerns from Civil Society Organizations (CSOs) that these tax exemptions are depriving the nation of expected revenue in taxes for development with groups like the Tax Justice Coalition (TJC) – an Advocacy Group working on recommendations to be included in the tax exemption bill calling for its immediate passage since it was laid before Parliament in 2019 but was yet to be passed into law.

The Bill when passed will regulate the application of tax exemptions and other exemptions and provide for related matters.