Ghana, with a small open economy, has 27 tax handles many of which are described as ‘nuisance taxes’.
These nuisance taxes, per research findings by Dr. Richmond Atuahene (Banking Consultant), Isaac Kofi Agyei (Data & Research Analyst), and K.B Asante (Chartered Certified Accountant) are a result of the country’s debt overhang from the debt crisis.
According to the research findings, the debt overhang has led to an increase in taxes towards generating adequate revenue to settle both foreign and domestic creditors which has, in turn, discouraged investments.
“As part of the country’s debt crisis, the government has introduced a myriad of taxes in 2023 and 2024 to address revenue shortfalls,” noted the study.
Recent taxes introduced include the Value Added Tax (Amendment) Act, 2023 (Act 1107), the Excise Duty (Amendment) (No.2) Act, 2023 (Act 1108), the Stamp Duty (Amendment) Act, 2023 (Act 1109), the Exemptions (Amendment) Act, 2023 (Act 1110), and the Income Tax (Amendment) (No.2) Act, 2023 (Act 1111).
According to the study, the new myriad of taxes introduced in the 2023 and 2024 budget statements has been impacting negatively on the private sector, especially the SMEs.
Further asserting that the recent 21% value-added tax for residential customers of electricity is one of the nuisance taxes introduced in the 2024 government budget statement which imposed hardship for individuals and households in an already bad economic condition.
Read the research paper’s take on Ghana’s taxes below:
Ghana’s public debt crisis: Lessons for the present and the future
- As part of the country’s debt crisis, the government has introduced a myriad of taxes in 2023 and 2024 to address revenue shortfalls. Currently, Ghana with a small open economy has 27 tax handles. The country has been overburdened with nuisance taxes. The debt overhang has led to an increase in taxes towards generating adequate revenue to settle both foreign and domestic creditors, thus discouraging investments due to a sudden increase in taxes.
According to recent reports, Ghana enacted legislation for the 2024 Budget on 29 December 2023, including the Value Added Tax (Amendment) Act, 2023 (Act 1107), the Excise Duty (Amendment) (No.2) Act, 2023 (Act 1108), the Stamp Duty (Amendment) Act, 2023 (Act 1109), the Exemptions (Amendment) Act, 2023 (Act 1110), and the Income Tax (Amendment) (No.2) Act, 2023 (Act 1111).
A VAT flat rate of 5% is introduced on the following, without a deduction for input tax: the supply of a (commercial) immovable property for rental purposes, other than for accommodation in a dwelling or a commercial rental establishment; and the supply of immovable property including land by a real estate developer; A new penalty equal to 30% of the VAT amount due is introduced for appointed VAT withholding agents that fail to withhold and remit VAT by the 15th of the following month (7% withholding on standard-rated invoices); VAT exemptions are revised, including the VAT exemption is removed for imported textbooks, exercise books, newspapers, publications, and charts (locally produced remain exempt), as well as architectural plans and similar plans, drawings, scientific and technical works, periodicals, magazines, trade catalogues, price lists, greeting cards, almanacs, calendars, diaries and stationery, and other printed matters.
A new penalty equal to 30% of the VAT amount due is introduced for appointed VAT withholding agents that fail to withhold and remit VAT by the 15th of the following month (7% withholding on standard-rated invoices); VAT exemptions are revised, including the VAT exemption is removed for imported textbooks, exercise books, newspapers, publications, and charts (locally produced remain exempt), as well as architectural plans and similar plans, drawings, scientific and technical works, periodicals, magazines, trade catalogues, price lists, greeting cards, almanacs, calendars, diaries and stationery, and other printed matters.
VAT zero-ratings are revised, including the VAT zero-rating for locally manufactured textiles by approved manufacturers the VAT zero-rating for locally manufactured textiles by approved manufacturers is extended to 31 December 2025; the VAT zero-rating for supplies of locally assembled vehicles under the Ghana Automotive Development Programme is extended to 31 December 2025; and The stamp duty rates are revised, including new fixed rates from GST 18 to GHS 896.30 and ad valorem rates of 0.25% to 0.5%; and the individual income tax brackets/rates are amended as follows: up to GHS 5,880 – 0%; over GHS 5,880 up to GHS 7,200 – 5%; over GHS 7,200 up to GHS 8,760 – 10%; over GHS 8,760 up to GHS 46,760 – 17.5%; over GHS 46,760 up to GHS 238,760 – 25%; over GHS 238,760 up to GHS 605,000 – 30%; over GHS 605,000 – 35; The measures of the amendment acts generally apply from 1 January 2024, government introduced taxation on lottery operations and winnings from lottery. The gross gaming revenue from lottery operations, including betting, gaming, and any game of chance is taxed at an income tax rate of 20%.
Payments in respect of winnings from the lottery are subject to a final withholding tax rate of 10%. vi) Increase in the upper limits of quantifiable motor vehicle benefits. The upper limit of motor vehicle benefits to be included in the employment tax computation has been increased as follows: Driver and vehicle with fuel – GHS1,500; Vehicle with fuel – GHS1,250; Vehicle only – GHS625; and Fuel only – GHS625. vii) Revision of the personal income tax bands and rates: The personal income tax bands and rates for individuals have been revised to align with the 2023 minimum daily wage. There is an introduction of an additional tax rate of 35% on income exceeding GHS600,000 per year.
Growth and Sustainability Levy, 2023 (Act 1095) Act 1095 repeals the National Fiscal Stabilization Levy, 2013 (Act 862) and introduces the Growth and Sustainability Levy (GSL or levy). The GSL is payable by entities categorized into three groups as follows: Category A- Existing National Fiscal Stabilization Levy entities plus six additional sectors: 5% of profit before tax; Category B- Mining companies and upstream oil and gas companies: 1% of gross production); and Category C- All other entities not falling within Category A or Category B: 2.5% of profit before tax.
The levy is applicable for the 2023, 2024, and 2025 years of assessment. It is payable quarterly and due on 31 March, 30 June, 30 September, and 31 December of the year. The above new taxes introduced by the government have affirmed the debt overhang hypothesis. Excessively high rates of tax exact a high cost in terms of lower private investment and growth. They reduce the incentive to invest because the after-tax returns to investors are lower. In addition, the cost of compliance with the administration of taxes can be high.
The literature shows that lower rates of tax can increase investment and growth. Higher rates of tax have decreased business entry and the growth of established firms, with the medium-sized firms hit hardest, as the small ones can trade informally, and the large ones avoid taxes, which have also resulted in the existence of some multinationals in nearby countries. As well as reducing tax rates, policies that broaden the tax base, simplify the tax structure, improve administration, and give greater autonomy to tax agencies help to reduce this constraint.
The new myriad of taxes introduced in the 2023 and 2024 budget statements has been impacting negatively on the private sector, especially the SMEs. The recent 21% value-added tax for residential customers of electricity is one of the nuisance taxes introduced in the 2024 government budget statement which imposed hardship for individuals and households in an already bad economic condition. Instead of the government improving electricity transmission losses by 30%, the government has decided to impose a 15% consumption tax this will likely affect the country’s growth targets as the move is expected to increase the the cost of operations of SMEs and slow down production and thus worsen the already bad unemployment situation in the country.
