When the genre of rural and community banks was introduced into Ghana some three decades ago, it came with high hopes and anticipation of a most telling positive impact on both economic output and living standards in the rural hinterlands.
Those expectations have been largely realized. From a financial performance perspective, the sheer number of RCBs that are regular members of the Ghana Club 100 – instructively they are the best represented sector of the economy in that elite grouping – evidences their success. But even more important is the underlying reason for that financial success; they are proving to be exemplary financial intermediaries in a rural Ghana that hitherto had little or no access to formal financial services before their arrival.
Unfortunately, however, since 2018, government has made them victims of their own success, by removing their erstwhile preferential corporate income tax rate of eight percent and replacing it with the standard 25 percent tax rate applicable for most of corporate Ghana.
While we fully empathize with the Government of Ghana, having inherited an inordinately large public debt and thus very little fiscal space, this newspaper strongly protests the increase in the corporate income tax that has been imposed on the RCBs, for the simple reason that it is entirely counter-productive.
Curiously, it has come at a time that financial inclusion is high up on the list of state, but at a time that the admittedly direly needed clean up of Ghana’s financial intermediation industry has forced the Bank of Ghana to close down hundreds of financial intermediaries that hitherto were the only bet for rural enterprises and households.
The RCBs are supposed to take up the slack created by these compulsory liquidations, but the tripling of their income tax obligations has severely constrained the financing available to them for expansion of their geographical presence and their business volumes.
Worst of all, this is happening at a time when government’s flagship economic initiative – the one district one factory programme – is being fully implemented, creating more need for rural banking services than ever before.
All this means that at a time when the RCBs are more needed than ever before, a tightening of the fiscal framework within which they operate is constraining their expansion; and just when recapitalization is requiring them to attract significant new equity investment.
It is not for nothing that Ghana’s investment code provides incentives for investors willing to establish enterprises in the rural hinterlands, even though those incentives have not been taken advantage of as well as they should have been. It is therefore ludicrous that while rural enterprises are being encouraged through fiscal incentives, the frontline financial intermediaries being expected to finance them and their consumer markets are being constrained by a tightening of their fiscal framework.
Certainly, a reversal of this fiscal tightening, in freeing up finances of the RCBs for business expansion has the potential to give government more, rather than less public revenues, since the beneficiaries of their bigger financial intermediation volumes would have the capacity to pay bigger taxes themselves.
The public policy makers who devised the preferential tax rates for RCBs were not rocket scientists; their successors in office do not need to be either to see the sense in those preferential tax rates.