A recent ActionAid report shows that Ghana lost $901.1m as tax incentives through Parliamentary tax waivers alone, to corporations between 2018 and 2020. Also, about $657m was lost through the Ghana Investments Promotion Centre (GIPC) investment in 2018.
“From our estimation, between January 2018 – February 2020, Parliamentary tax waivers to corporate institutions alone amounted to $901.1m”.
The report says by this estimation; the country grants an average of 19.6 percent per initial project value as tax incentives. ActionAid noted that Parliamentary waivers are usually on customs and import duties and only a portion of the total tax incentives granted in a year.
The World Bank Group tax expenditure report (2017) on Ghana estimated that these Parliamentary waivers accounted for about 22.9 percent of the total tax incentives granted.
The report pointed out that Government expenditure allocation to the education sector is increasingly looking bleak, shifting away from the Global Partnership for Education (GPE) target of 20 percent.
The GPE tasks governments to spend 6% of GDP or about 20% of national budget allocations on education financing. The GPE supports Government financing of education with additional funds but requires clear commitments from Governments to finance education up to about 20% of annual budget allocations.
ActionAid argued that 20% of the $901m potential revenues lost to tax incentives could provide extra 950, 527 places for pupils in schools or more school infrastructure with the potential of 10,378 classrooms for pupils in Ghana. Alternatively, 9.7 million more children could be fed per year in basic schools with this amount.
“From only Parliamentary waivers, Ghana could be making substantial impact in the education sector if 20 percent savings of this tax incentive ($901.1million) is made. With an average funding gap of Ghc 4,198m between 2016 and 2020, a $180.2m (Ghc1027.1) savings from the above tax incentives could reduce the funding need by about 25 percent in a particular year.
“There is a consensus among policymakers, Parliamentarians, and tax justice advocates about the over-generous tax incentives system in Ghana. However, besides policy statements and lamentations, Ghana has not been able to make a strategic way forward in reducing the overall incentives granted per year thereby impacting adversely on potential tax revenues for development”.
The report further states that government’s elaborate Value Added Tax (VAT) exemptions are depriving the state of the needed revenues. ActionAid advised that VAT exemptions should be more effectively targeted to lower-income households or to sectors that generate positive social or economic externalities.
ActionAid noted that there has been some notable improvement in the administrative processes involved in the granting of tax incentives when Parliament got accorded its rightful role of approving tax waivers. However, this system has been reduced to a routine process where some tax handles, such as customs levies, VAT, Export-Import (EXIM) and National Health Insurance Levy (NHIL) levies are granted without the needed scrutiny on project by project basis or on project merit.
The report points out that tax incentives (expenditures) for all tax categories are not routinely estimated and published as part of the annual budget process. Currently, only revenue foregone on import exemptions are estimated.
Tax incentives are also known as tax expenditures because of their cost in terms of revenue loss to governments.
In Ghana, the granting of tax incentives is vested in Parliament under Article 174 (2) of the 1992 Constitution of Ghana, which gives the august house the sole power to grant incentives. But with the passing of the Ghana Investments Promotion Centre (GIPC) Act, 2013 (Act 865) by Parliament, the GIPC has been given the authority to grant tax incentives through its business promotion activities, subject to Parliamentary approval.
Incentives in Ghana generally include exemption from customs import duties on plant and machinery, reduced Corporate Income Tax (CIT) rates; more favorable investment and capital allowances on plant and machinery; reduction in the actual CIT payable, where appropriate; retention of foreign exchange earnings, where necessary; guaranteed free transfer of dividends or net profits, foreign capital, loan servicing, and charges in respect of technology transfer; and guarantees against expropriation by the government.