The government’s decision to saddle businesses with new taxes will only result in more revenues to the national purse but stifle growth and investment in the private sector, an economist and lecturer at the University of Ghana has said.
A slowdown in expansion in the private sector, considered the engine of the economy, will then translate into lower than expected growth in national output, Dr Eric Asibey, an Economics Lecturer at the Economics Department of the university, said in an interview.
With the new Income Tax Act, 2015 (Act 896), which introduced new taxes and increased the rates of existing levies, Dr Asibey said businesses, individuals and investors could feel demotivated to work hard, expand or invest in their operations, the three actions required by the private sector to propel growth to the budget target of 5.4 per cent this year.
“In a situation where business owners think that the tax burden is too high and even if they make profit, about 50 per cent or more of it would be taxed away, they will say that there is no point in expanding, and that can have a depressing effect on growth,” he told the paper on January 7.
His comments, which are shared by many economists and business groupings, come on the back of the new Act that introduced changes to the various tax types, including those on pay as you earn (PAYE), withholding, thin-capitalisation and gift tax.
Postponed taxation
Already, many business associations have kicked against the new Act which has been in place for more than 15 years; describing it as inimical to the progress of their survival and plans of expansions.
One of those institutions is the Ghana Chamber of Mines.
“The truth is, it is not going to be good for us because we are already dealing with falling gold prices and high cost of production. Now, if you add this (the new taxes), then it is going to disadvantage us even more and our members will be wondering if it is still prudent to mine,” the CEO of the Chana Chamber of Mines (GCM), Mr Suleiman Koney, said.
The chamber comprises mining companies in the country and their sub-sector – mining and quarrying – is the biggest sub-sector in industry.
The Association of Ghana Industries (AGI), the umbrella body of manufacturers and related service providers, hold similar views, although it is yet to fully react to the development.
Basing their comments on the reaction of the business community on the new Act, Dr Asibey and a tax expert, Mr Abdallah Ali-Nakyea, said it was obvious that the government was sacrificing growth in the short term for revenue, which it needs to repay previous debts and meet expenditures.
“In reality, the taxes will affect growth but we also need it so we do not continue borrowing and heating the system up,” Mr Ali-Nakyea, who is also the Director of tax consulting firm, WTS, said.
“I have always said that if government wants money and you say they should go and borrow, then you have to know that borrowing is postponed taxation. Because the government cannot raise the revenues domestically, it has to go and borrow, but in future, taxes must go up to repay the loan," he said.
The country's debt burden remains a major source of concern to economic stability, partly forcing the government to seek help from the International Monetary Fund (IMF) through the three-year extended credit facility (ECF).
The debt burden rose by 21 per cent between 2014 (GH¢76.1 billion) and September last year (GH¢92.16 billion), on account of new loans procured to make up for declining revenues.
"If we want to free the economy from debt, then we need to swallow this bitter pill of paying high taxes because it is the only way we can repay the loans and develop our own," the Director of WTS said.
He, however, bemoaned the various leakages in the system and called for prudent measures to help save revenues.
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