At the Graphic Business/Stanbic Bank Business Breakfast Series on the topic, “The New Tax Law: Its Implications for the Economy and Businesses, Mr TerKper said the government had had to resort more to taxes as a source of revenue to correct the fiscal gaps.
“It is important to situate this in the context of using taxes as a means of correction as part of macroeconomic policy and as part of fiscal policy. I know it has been made to look simple that you can do a correction [resuscitating an economy] without falling on taxes”, he said.
Criticisms of new tax
The government has come under criticisms lately from business concerns for its excessive tax policies. The Association of Ghana Industries (AGI) has identified excessive taxes as one of the main problems hindering the operations of its members in its 2016 Business Barometer Report for the first quarter.
The Integrated Social Development Centre, the Consumer Protection Agency, and the opposition New Patriotic Party (NPP)have blamed sharp spikes in electricity prices as a consequence of high taxes imposed on the cost of power.
The Chartered Institute of Taxation Ghana (CITG) has backed calls for the suspension of the new Income Tax Act, 2015 (Act 896), describing portions of the law as a mockery of the international guidelines on taxation.
Beyond being counter-productive, the institute said the government’s desire to mobilise more revenue through taxes caused it to overlook pertinent regulations on taxation during the formulation of the Act; hence, the need to suspend its implementation until such flaws were addressed.
It mentioned the introduction of the one per cent windfall tax on companies enjoying tax holidays, the adjustments made to the capital gains and withholding taxes and the new 10 per cent withholding tax on the purchase of unprocessed minerals as some of the provisions that were counter-productive and contrary to the general regulations on taxes.
But Mr Terkper said the economic misalignment started in the implementation of the Single Spine Pay Policy, which led to huge ballooning of the wage bill.
“In fact, we just paid the final GH¢3 billion of the salary arrears. At the same time, oil production dropped from 90,000 to 70,000 barrels and, more recently, huge drops in all three commodity prices,” he argued.
According to the finance minister, no country in history has successfully manoeuvred through such economic challenges without increasing taxes.
He said the new tax law had become necessary because some tax- payers were either avoiding or evading tax by hiding their income in areas which were previously not taxed.
Under the new Act, taxes on employee allowances such as clothing, as well as on retiring benefits will attract a 20 per cent tax.
“Our experience in structural adjustment programmes and our own use of the home-grown policy, before the situation affected our reserves, leading us to go for the IMF bailout program suggest that no country can do a turnaround without falling on taxes”.
“I challenge anyone to look at Spain, Ireland, and other countries who have done a turnaround and look at the instruments they used and see whether they did not use tax instruments”, he argued.