The Ministry of Finance says plans are far advanced for the implementation of a new mechanism to replace the granting of total exemption of tax to businesses.
[contextly_sidebar id=”M4gKgFRw4dgNMQVzx8uNB4VwyRz6msDt”]The tax credit policy according to the Ministry will require that businesses make an upfront payment of the required taxes and given a credit note which will enable them credit themselves subsequently.
Provisional figures from the Ministry of finance have shown that Ghana lost about GH¢1.6 billion to tax exemptions for the first nine months of 2015.
The International Monetary Fund (IMF), which is managing Ghana’s three year extended credit facility, has also expressed concern about the increased revenue losses due to tax exemptions and called for an overhaul of the policy.
Explaining how the policy works to Citi Business News, Tax policy advisor at the Ministry of Finance, Dr. Larbi Siaw, stated that the move will help government accrue more revenues.
“The new instrument we want to use is a tax credit. If you bring your goods in, instead of going for outright exemption, you the contractor you should pay the taxes and then you will be given a credit note. For example if you pay taxes up to a 100 million cedis, you will be given a credit note up to the 100 million so when you start selling then you pay yourself,
“That is if you made a profit of 50 million in the first year, you won’t pay any tax. Supposed the tax is 25percent, which is a quarter of 50 million, which is 12.5 million, you will credit yourself and for the next few years you will make sure you have recouped your 100 million and it is after that that you pay the tax to the state.” He said.
Dr. Larbi Siaw added, “Of course, your interest rate will be calculated on your cost of production and that system is applicable in other parts of the world. We made mention of it last year and in the budget, we also repeated and said we will be coming out with modalities of how it will be implemented.”
Meanwhile a managing partner of WTS, Abdallah Ali Nakyea, has described the GH¢1.6 billion losses as worrying.
He further warned that the successful implementation of the tax credit policy will largely depend on government’s ability to ensure a prompt refund of money to enable tax payers access to their credit.
“My challenge is how efficient and effective will that be because government will be increasing the amount that will go into general refund account from 4 to 6 percent. If the money goes in, how swift is the payment going to flow to the taxpayer who has the credit? That is what will determine how efficient the system will be. The refund should be faster and quicker.”
Ali Nakyea also recommended that mechanisms are put in place to ensure that the credit due to businesses are used to offset other tax obligations,
“I think that if an investor has other tax obligations and he has tax credit from VAT, he will not mind if that credit is used to credit the other taxes, because all the monies are going to the government so it should use it to set it off and if there is a net, it can credit it to the businesses. That will be an effective way to conserve revenues than losing them to exemptions,” he stated.
By: Pius Amihere Eduku/citifmonline.com/Ghana