General News of Monday, 4 January 2016
Minority spokesperson on finance, Dr Anthony Akoto Osei, has condemned proposals by government to increase taxes, stressing it will discourage investments in the country.
Dr Osei believes revenue collection is inefficient and said strengthening the country’s current systems to boost tax collection should be considered rather than increasing taxes, which, he feels, will be a disincentive for people to invest.
The Member of Parliament for Old Tafo constituency in the Ashanti Region told Joy FM that: “I don’t like general increases in taxes when I know that they are not collecting the most that they can collect. That should be the last option. They should be more efficient in collection rather than increasing”.
As part of the tax increments, government proposed a 1% withholding tax on profits of savings, treasury bills, mutual funds, and other investments.
In Dr Osei’s view, the proposal is bad because “our savings habit is not very good, so, anything that will discourage people from saving would not be best. Most Ghanaians do not have bank accounts and we should encourage people, who decide to invest [to do so]”, he suggested.
Dr Osei also noted that such proposals would have a dire consequence on the investment sector even though the implementation has not taken effect.
“Even though it is not the final tax, it has the tendency to discourage people from investing and I suspect that those, who deal with mutual funds and so on, in that industry, will not be very happy about it,” he added.
Meanwhile, the Ministry of Finance has issued a statement announcing the withdrawal of the 1% withholding tax on investment earnings.
“On the issue of the imposition of a 1% tax on interest earned by individuals, Government has already submitted proposals to Parliament to reverse the position,” the Ministry said in a statement signed by sector Minister Seth Terkper.
If the law were implemented, interests on all investment accounts with banks and financial institutions would have been taxed, beginning Friday January 1, 2016. That meant individuals, who have investment accounts of any sort with banks or financial institutions, would have been affected.
The new law was in accordance with new regulations of the Ghana Revenue Authority (GRA), which require that all banks and financial institutions withhold a 1% tax on interests earned on investment accounts.
All the banks in the country, prior to January 1, started sending notices to their customers to inform them about the implementation of the 1% withholding tax.
The Income Tax Act, 2015 (Act 896), which mandates the banks to withhold the tax, was assented to on 1st September 2015. It replaced the Internal Revenue Act, 2000, (Act 592) and any other laws to the extent that they are inconsistent with the provisions of the Act. It also amends Section 84(3) of the Banking Act, 2004 (Act 673).
Apart from interests earned by individuals on their investments with resident financial institutions, interests earned by individuals on Government of Ghana (GoG) bonds or Mutual Funds would have been affected, too.
Below is the full statement from the Minister Seth Terkper:
IMPLEMENTATION OF THE INCOME TAX ACT, 2015 (ACT 896)
Following the passage of the Income Tax Act, 2015 (Act 896) in September 2015 Government has taken note of the concerns of taxpayers and the general public on some provisions of the Act especially those relating to the withholding of tax on the provision of services and the payment of tax on interests paid to individuals.
The essence of the withholding tax regime on services is to improve tax compliance. It is not a final tax but a payment on account. Therefore the increase in withholding tax on services to 15% is to encourage taxpayers to file their returns, after which they will be entitled to a credit for the amount withheld. Furthermore, the Act allows the Commissioner-General to grant exemptions from withholding tax to compliant taxpayers. The Ministry of Finance has therefore directed the Ghana Revenue Authority to implement these provisions. Proposals have also been submitted to Parliament to review the rate.
On the issue of the imposition of a 1% tax on interest earned by individuals, Government has already submitted proposals to Parliament to reverse the position.
It is important to draw the attention of the general public to the objectives and significant benefits of the Act which are to revise and consolidate the laws relating to income tax after fifteen years of operation of the Internal Revenue Act, 2000 (Act 592). This review included consolidating the general fiscal regime, Minerals and Mining Income Tax, Petroleum Operations Tax, and the taxation of entities such as Public, Mutual, and Non-Profit Causes.
It simplifies the provisions of the legislation and makes it more user-friendly, enhances efficiency and facilitates compliance.
It retains provisions that are peculiar to income tax administration worldwide. (Eg. withholding tax and tax payable by instalment provisions)
It further broadens the tax base and removes the narrow and distorted tax base of the Internal Revenue Act, 2000 (Act 592); rationalises, streamlines and restricts tax concessions; tackles erosion of the tax base, and aligns domestic tax rules with current international tax rules.
The law provides additional benefits for taxpayers as all taxpayers are now allowed to determine and pay taxes based on their own estimates; carry forward losses and take account of losses on the disposal of capital assets. The withholding tax threshold has also been revised from GHS500 to GHS2,000 to take account of inflation and exclude small value transactions from the withholding tax mechanism.
The threshold for taxation of car benefits has also been improved from GHS150 and GHS300 to GHS250 and GHS600 respectively to take account of inflation.
The debt-to-equity ratio has also been revised from 2:1 to 3:1 to allow for additional debt financing and at the same time allow the interest on the debt as an allowable deduction.
HON SETH E.TERKPER