Expensive Hon. Finance Minister (Tax Specialist)
It is a continuation of my earlier considerations, this time specializing in key amendments wanted in our tax system. A few of these modifications intention to simplify the tax legislation to enhance compliance, whereas others search to make sure equity.
- Restate GETFUND/NHIL to its previous system:
I perceive that you simply plan to revert the modifications made in August 2018 to the earlier system, and I strongly assist this transfer. Restating the GETFUND/NHHIL to its previous system is a good thought. Companies are usually not shoppers however somewhat producers, and so they shouldn’t be burdened with consumption taxes. As an alternative, they function intermediaries or brokers, amassing these taxes on behalf of the federal government. Underneath the precept of consumption tax, companies typically are granted enter tax credit, making certain that the tax burden is shifted progressively to the ultimate client. Nonetheless, by splitting VAT right into a 12.5% enter VAT and a 6% non-deductible VAT, companies are pressured to soak up the 6% as an extra value. Worse of all, the implementation strategy we adopted is such that, these levies are added on at every stage of invoicing, making a cascading impact of the taxes, the longer the availability chain, the heavier the tax burden. This locations an pointless monetary pressure on companies. Restoring the previous system will get rid of this inefficiency and promote a extra equitable tax regime. Reality be informed, the present system solely advantages authorities.
- Evaluation of Capital Allowance value base on highway car to GHS 750,000:
Traditionally, depreciation was acknowledged as a reputable enterprise expense in revenue computation, calculated utilizing both the straight-line or diminishing steadiness methodology. Nonetheless, these strategies led to sluggish capital expenditure restoration. To handle this and encourage funding, Capital Allowances had been launched within the 1952/53 Evaluation Yr. At present, companies can declare capital allowances on depreciable belongings, together with highway autos.
For non-commercial highway autos, a cap has traditionally been positioned on the allowable value base to stop extreme tax deductions that might result in income losses. In 2000, this cover was set at GHS 15,000 and later elevated to GHS 25,000 in 2004. Right now, the restrict stands at GHS 75,000. Nonetheless, in actuality, it’s almost inconceivable to buy a car at this value within the present market at GHS 75,000.
I strongly urge a rise within the cap to GHS 750,000. Whereas I acknowledge that an unrestricted allowance might result in abuse the place companies declare deductions on luxurious or high-end autos setting an unreasonably low restrict distorts equity within the tax system. Elevating the edge to GHS 750,000 would offer a extra real looking tax incentive for business-related, income-generating transport in order that corporations can spend money on vital autos with out being unfairly penalized.
- Improve Withholding tax threshold to GHS 20,000 to align with Presumptive tax Guidelines and standardizing the charges
There’s a notable coverage inconsistency within the present withholding tax system for provide of products, service charges and contract funds. As you’re conscious, withholding tax serves as a necessary compliance device in a tax system like ours, the place compliance charges are typically low. Underneath the prevailing tax guidelines, companies act as brokers, withholding a portion of funds made to suppliers of products and providers. The relevant charges are as follows:
- Fee for Items: 3%
- Fee for Companies: 7.5%
- Fee for Works: 5%
The brink exemption is when the worth doesn’t exceed GHS 2,000.
Nonetheless, the next considerations must be addressed:
- Rising the Withholding tax threshold to GHS 20,000:
The present threshold of GHS 2,000 is way too low and contradicts provisions within the legislation on the Second Schedule of Act 896 concerning presumptive taxation. The place a person doesn’t earn greater than GHS 200,000, the particular person shouldn’t be paying tax in extra of three% of the turnover in accordance with the legislation. I suggest rising the present GHS 2,000 to GHS 20,000 to align with the presumptive tax guidelines, which specifies that a person taxpayer incomes GHS 200,000 ought to be taxed at 3% of the turnover.
- Complexity resulting from various charges:
The existence of a number of charges creates confusion, notably for taxpayers with restricted tax data. Wouldn’t it not be extra sensible to implement a single, uniform price, as was the case earlier than 2015? A flat price would simplify compliance and administration. I suggest a flat price of 5% as was the case beneath Act 592.
- Outdated profitability assumptions
Presumably, the present withholding tax charges had been primarily based on assumed common profitability throughout industries:
- Companies supplying items had been assumed to have a 12% revenue margin, resulting in an efficient withholding tax of three% (12% × 25% company tax price).
- The service trade, with an estimated 30% revenue margin, resulted in a 7.5% withholding tax.
- The development sector, with an assumed 20% revenue margin, led to a 5% withholding tax.
Are these assumptions nonetheless legitimate in right now’s financial local weather? Ought to we think about a uniform 5% price throughout all sectors to simplify the system and enhance compliance?
A revision of those insurance policies will promote equity, ease compliance challenges, and guarantee withholding tax stays an efficient device with out creating pointless burdens for companies.
I WILL CONTINUE however for now,
Yours faithfully,
By: Francis Timore Boi Esq
The author is a Tax Advisor and a member of the Chartered Institute of Taxation Ghana.
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