Ghana losing $1.2 billion annually through tax incentives

• Posted on February 26, 2014February 26, 2014
• by Nana Kwesi Coomson
• Comment

A new report published by ActionAid Ghana (AAG) reveals that Ghana may be losing an estimated $1.2 billion annually as a result of tax incentives.

This is usually about half the entire annual Government of Ghana budget for education. While the study recognises some usefulness of tax incentives, it emphasises the need to gauge how much is given as tax incentives against the expected benefits.

The study particularly identifies as a major problem the arbitrariness or the discretion in tax incentive administration in Ghana such as the use of permits at the ministerial level without recourse to procedural steps set out in the statutes.

Launching the report in Accra on Tuesday during a media sensitization workshop on tax justice and incentives in Ghana, Ms Adwoa Kwateng-Kluvitse, AAG Outgoing Country Director, said the colossal amount being lost by the nation through tax evasion was very worrying.

She urged the media to take the fight against tax evasion very seriously so as to up root it completely from Ghana.

The study said Ghana’s trade policy and development agenda had over the years been dictated by the desire to attract Foreign Direct Investment and to increase export earnings.

“Tax incentives have, therefore, been a major strategic tool to achieve these goals. The result is that, trade taxes have declined and currently Ghana has one of the overall lowest tax rates in the West Africa sub-region,” it said.

”While this may have boosted Ghana’s competitiveness it has tended to, at the same time, undermine the harmonisation of trade and investment regimes across the sub-region through initiatives such as the ECOWAS Common External Tariffs,” the study said.

The study dubbed “Investment Incentive in Ghana: The Cost to socio-economic development”, was conducted by the Integrated Social Development Centre (ISODEC) on behalf of AAG.

Mr Bernard Anaba, ISODEC Policy Analyst, said the objective of the study includes reviewing investment incentives offered by the Government of Ghana to investors and to identify areas of corporate abuse using at least two companies as case studies.

According to the report, Ghana’s trade and investment strategy had invariably contributed to the “race to the bottom” phenomenon that had bedeviled the sub-region in the last three decades.

It said while some gains had been realized in the form of marginal increase in investment and exports– these might return negative values when set against the numerous tax incentives granted these investors.

It said Ghana’s Free Zones in particular had shown significant improvement in financial performance since 2007, but the fact that the country’s trade balance is still in the negative suggests that the Free zones concept has so far failed to turn the trade balance in Ghana’s favour.

In almost all cases, parliamentary approval is required in the granting of tax incentives but evidence from this study shows that parliamentary approval is sometimes by-passed, resulting in excessive and unregulated granting of tax incentives.

Mr Emmanuel Budu-Addo, AAG Head of Finance, said tax systems must be transparent and foster mutual accountability between governments and citizens, declaring that collecting tax goes hand in hand with citizen scrutiny of how government spends their resources which should lead to more effective and transparent spending policy, creating mutual accountability.

The study estimates that Ghana lost about $90 million dollars between 2011 and 2012 in the mining sector alone as a result of stability agreement.

It said in the Oil and Gas sector, the estimate was about $70 million in two years, resulting from an ambiguous tax law, which could not be fully applied as a result of varied interpretation of the law.

The report recognises government’s efforts, especially in recent times, to streamline the tax incentive system, and believes this offers the best opportunity for civil society in Ghana to follow up on these interventions and related promises made by government.

-GNA