The Akufo-Addo administration has decided to implement budget expenditure cuts of up to GHS850 million during the second half of 2018 in order to achieve its fiscal deficit target of 4.5% of Gross Domestic Product if its tax revenues continue to fall short of target. However government is still hoping it can introduce new tax measures that can avert the need for the spending cuts it is considering which are actually a last resort.
Nevertheless government has already identified where the spending cuts will come from if they indeed are needed. Importantly, the planned cuts will not affect key social protection programme expenditure. Specifically, the following programmes will not be affected by any spending cuts to be implemented during the second half of this year: the National Health Fund; Livelihood Empowerment Against Poverty [LEAP]; free Senior High School; Planting for food and jobs; Zongo Development Fund; Teachers and nurses trainee allowances; School Feeding programme; and health spending on essential drugs.
This implies that government’s capital expenditure on development projects will bear the major brunt of the spending cuts, since the public sector wage bill and interest payments on the inordinately high public debt account for most of Ghana’s tax revenues.
However, the Akufo-Addo administration is loath to severely cut the capital expenditure budget for the second year running and so is planning to introduce some major tax measures for the second half of the year, which would be announced at the mid year budget review, to be presented to Parliament a few weeks from now.
To this end government is considering the introduction of a temporary corporate minimum tax which effectively would be a charge on income which can be deducted against regular corporate income tax. This tax measure, if introduced, would be removed when the tax base is sufficiently broadened.
Another measure under consideration is an increase in excise duties on certain imported products such as luxury cars. Also under consideration is the repeal of some recently introduced indirect tax reliefs such as the removal of VAT on fee based financial services and real estate sales.
The free zones scheme is also being targeted. Under consideration in this regard is the replacement of tax holidays for free zones companies with investment allowances; a reduction in tax free maximum domestic sales from 30% to 20%; the removal of VAT and import duty exemptions; and the restriction of free zone status to only companies located in designated free zone industrial parks unlike the current situation where companies can be conferred with free zone status even at stand alone locations.
Furthermore government is planning a tightening of the fiscal regimes for Ghana’s extractive industries – mining as well as oil and gas. Indeed, government is actually considering a holistic review of the corporate income tax regime, even as its promised 2019 timeline for a reduction in the basic corporate income tax rate approaches.
Added to all these are proposed increases in personal income taxes particularly for those in the higher income brackets.
While government needs the increased tax revenues it is weighing the proposed new tax measures against its 2016 election campaign promise to lower taxes, on which it rode to power. Over the past five years, Ghana’s domestic tax collection has stalled in growth in real terms after significant increases between 2009 and 2011. This is despite major rise in petroleum taxes to almost 3% of Gross Domestic Product brought about by the Special Petroleum Tax and the Energy Sector Levies Act. However these gains have been negated by an erosion of revenues from direct taxes and VAT, while import duty revenues have been more or less flat.