On Wednesday, April 13, 2022, on Good Morning Ghana (GMG), there was a head-scratching exchange between the host, Randy Abbey, and Dr. Kabiru Mahama, an advisor in the Vice President’s Office, over taxes that President Akufo-Addo’s government have either reduced or abolished since 2017.
You will recall that in his recent lecture on the state of the economy, the Vice President, Dr. Mahamudu Bawumia, affirmed the Government’s record in fulfilment of its promise to shift the focus of fiscal policy from taxation to production. In his speech, the Vice President listed eighteen (18) instances of tax reduction or abolishment, the majority of which were implemented in the first year of President Akufo-Addo’s government.
Before President Akufo-Addo’s government was elected, there was, among several others, the introduction of;
- 17.5 percent VAT/NHIL on financial services
- 17.5 percent VAT/NHIL on imported medicines,
- 17.5 percent VAT/NHIL on domestic airline tickets, and
- An increase in the Flat VAT Rate from 3% to 15%
These were all separate taxes, imposed on different products and services. We specified the taxes we intend to reduce or abolish in our 2016 Manifesto, including the four listed above, and we went ahead and abolished them when elected.
Ordinarily, this should not have been a matter for debate, seeing as these are matters of public record as seen in the extracts from our 2016 Manifesto, our inaugural 2017 Budget and the Vice President’s recent speech in Table 1 below:
Table 1 Tax Reduction and Abolishment Under President Akufo-Addo
- Abolished the 5% VAT/NHIL on Real Estate sales.
- Abolished 17.5% VAT/NHIL on selected imported medicines, that are not produced locally.
- Abolished the 17.5% VAT/NHIL on financial services.
- Abolished import duty on the importation of spare parts.
- Abolished 1% special import levy.
- Abolished 17.5% VAT on domestic airline tickets.
- Abolished Levies imposed on Kayayei by local authorities.
- Reduced import duty for some goods and vehicles.
- Abolished excise duty on petroleum.
- Provided full corporate tax deduction for private universities who plough back 100% of profits into the university.
- Reduced National Electrification Scheme Levy from 5% to 3%.
- Reduced Public Lighting Levy from 5% to 2%.
- Reduced special petroleum tax rate from 17.5% to 13% and introduced specific rates.
- Replaced the 17.5 VAT/NHIL rate with a flat rate of 3 % for traders.
- Granted Capital Gains Tax Exemption on stocks traded on the Ghana Stock Exchange or publicly held securities approved by the SEC.
- Abolished the income tax on mutual fund and unit trust schemes.
- Abolished income tax on REIT.
- Reduced withholding tax for gold exporters from 3% to 1%.
Of the 18 taxes listed as having been reduced or abolished by the Vice President 13 of them, or 72%, were implemented in the very first year of President AkufoAddo’s first term. This, more than any in our history, is the largest roll-back of taxes by any government, not only in its first year but over its entire tenure!
While not exhaustive, this is also evidence that even in the first year, the government went over and above the tax reforms it proposed before coming into office.
Randy Abbey seems to be confused about the nature of taxes, how they are imposed and collected, and their impact. The key ingredients of taxes are the product or service the tax is imposed on, the tax rate, and the tax incidence, i.e., the distribution of the tax burden along the production-to-consumption chain (who pays and what proportion). By itself, the generic descriptors of taxes, such as Value Added Tax (VAT), are of less importance as the coverage, rate, and incidence.
How these three are combined and implemented as tax measures determines whether it supports or hinders the productive, real sector of the economy. The more the number of tax items, the higher the rates, and the higher the share of burden on the productive sectors, the less supportive and the more the hindrances to growth and vice versa.
The tax regime before 2017 were obviously not supportive of production, given the number, the high rates, and excessive burden on businesses and industries. The results is reflected in the performance of the productive sectors and the economy overall. On the other hand, the results from 2017, until CoVID-19 struck in 2020, is a clear manifestation that the prevailing tax policies supported growth of the productive sectors as well as the economy writ large (See Figures 1 & Table 2).
As the Vice President stated at the lecture, changing the structure of our economy is a major pre-occupation of the government and will take time. Our continuing commitment to doing so is evidenced by our production-supportive tax policies as well as investment in the real sector through programmes and initiatives like “One District, One Factory,” the Strategic Industry Initiatives covering the Automotive and Pharmaceuticals sectors, and “Planting for Food and Jobs” among others.
Randy’s boisterous proposition might make for good political soundbite, but it flies in the face of the basic principles of taxation. GMG remains an influential platform for informed debate on public policy and it is my hope that Randy will take the next available opportunity to correct his clearly mistaken view in light of this brief.
By Evron R. Hughes
The writer is an Economic Advisor and Director, External Economic Relations at the Vice President’s office.