CONSOLIDATED PRIVATE SECTOR INPUTS INTO MINISTRY OF FINANCE’S PRE-BUDGET TAX CONSULTATIVE MEETING
Ø Review of Capital Gains tax
The government is requested to review the capital gains tax as the current regime is not suitable for acquisitions, consolidations and mergers to strengthen our local businesses. Currently, the residual or redundant assets that are created as a result of consolidation to reduce costs and create efficiency in a business merger etc are taxed as capital gains which carry a higher tax rate. To create home grown pillars in the economy and empower them to adequately compete at least within the local market to reduce the current incidence of virtual dependency on foreign imports and domination, the capital gains tax on mergers, acquisitions and consolidations should be thoroughly reviewed for better treatment for local businesses to become competitive. Furthermore, the incoming FDIs are also assigned VAT waivers on their imports which should also be made available to the domestic private sector.
Ø VAT on locally produced goods
To strengthen the competitiveness of the locally manufactured goods including furniture from local wood supply and foot wear, VAT on locally produced goods should be removed or reduced to at most 50% of the current rate to catalyst the competitiveness of locally produced goods against the foreign products which were produced with tax incentives from their respective governments.
Ø Tax waivers, Exemptions and Tax Holidays
For better tracking and monitoring of tax waivers, exemptions, tax holidays and other incentives to prospective investors and to ascertain the quantum of tax revenues that are lost to government as a result of the uncoordinated nature of the recommend or exemptions granted; all applications for waivers, exemptions and tax holidays regardless of the sector of industry should be consolidated under the Ghana Investment Promotion Centre (GIPC) with the additional mandate to GIPC to monitor and report abuses and expiration of the respective incentives granted. Licensing agencies like the Bank of Ghana for the financial sector, Minerals Commission for the extractive industry, Petroleum Commission for oil and gas, Ghana Free zone Board and all others should maintain their authority to grant the requisite licenses but should not have the authority to continue to grant tax waivers and exemptions. As it is now, there are various tax exemptions, waivers and tax holidays that may have expired but continue to be applied by the grantees.
Reduction Of Withholding Tax
The recently increased withholding tax from 5% to 15% should be scaled back to the 5% in view of its choking impact of domestic private sector transactions.
GOG Borrowing Limited to Capital Markets
To increase the domestic private sector access to finance, we request that Government of Ghana limits all its borrowings to the capital markets and not invade the resources of the local banks and financial institutions which crowd out the private sector.
TAX EXEMPT COMPANIES
Ø Re-Investment of Company Profits
To impact positively and accelerate economic development, companies who have been granted tax exemptions and other tax holidays either directly or as a free zones operator should be required to re-invest a percentage of their net income in the local economy before repatriating their profits home; companies with an annual turnover of GHC 25 million or more should be required to reinvest 30% of their net income for at least 7 years.
Similarly, companies with annual turnover in excess of GHC 100 million should re-invest 25% of their net income in the same scenario as above for at least 7 years.
The returns on these net income re-investments should be tax exempt.
For diversification, 70% of the above mentioned reinvestment should go to sectors unrelated to the operations of the investing company; only 30% of the quantum can be reinvested in their own sector.
These investments should not be invested in government securities or debt instruments.
Ø Tax on Unutilized Agricultural Lands
One of the biggest challenges that farmers face is the difficulty in acquiring land for agricultural purposes.
Ø Lands acquired by investors for agricultural production but have not been utilized for this purpose or commenced operations within a specified period of 3-5 years must attract levies and taxes to the holder of the land lease.
SERVICE SECTOR (TELECOMS)
Removal of Surcharge on International Inbound Traffic
The telecoms industry would like government to remove the 0.6US cent surcharge on international incoming calls. This will reduce substantially the arbitrage to discourage the incentive for Simboxing, which is currently shifting traffic from the legitimate gateway for which mobile operators will pay taxes to Government.
An Ad Valorem Tax model will make up for the losses envisaged. It is therefore proposed that a 32% ad valorem tax be charged on revenues from international traffic. This is expected to increase government revenues from international calls from the current level of $42 million to $58 million as against a $24 million loss of potential revenue by 2019 if the current regime is maintained.
Tax Exemptions on mobile devices, internet modems and routers
Government in its 2015 budget statement announced a tax exemption on mobile phones but this tax removal is yet to be implemented. The telecoms sector would like government to proceed with the implementation, which will grow smart phone penetration to increase productivity, boost internet usage and tax revenues as well as supporting Government’s own policy objectives of bridging the digital divide.
The telecom sector would also like the government to reconsider the tax on SIM cards also known as the “Cassette Tax”. The tax basically categorizes SIM cards as data storage devices thus attract a 20 percent tax on the CIF value. SIM Cards are not data storage devices and cannot be used as such.
Re-introduction of Tax incentives for hotel establishments
The hotel industry for some time enjoyed graduated tax incentives; known as LI 1817, on setting up hotels in the country. This spurred an increase in investment in hotels by local investors. However, the 2011 National Budget Statement and Economic Policy withdrew this incentive as a result of the new tourism law which came into effect and left the application of this incentive on discretionary basis to the GRA. The tourism industry believes that the tax incentives should be re-introduced to be applied uniformly as it will boost investment in the tourism sector leading eventually to increase in hotel establishments, reduction in hotel pricing and increased patronage for job creation in the industry.
Even though the 2015 Budget and Economic Statement modified the VAT refund account from 5 percent of VAT revenue to up to 5 percent of GRA collection also the 2015 VAT Amendment Act established the GRA General Refund Account (requiring 4% of total revenue collected to be set aside for refunds), the arrears owed mining companies by the government still lingers. This outturn is unhealthy for private enterprises since they are deprived the opportunity to deploy their bona fide funds to their best use and are not compensated for the loss in the real value of the debt engendered by upward movement of the price level. We recommend the government should expedite the passage of the Revenue Administration Bill which would allow mining companies to offset their outstanding VAT liabilities against other statutory tax obligations.
Government should resume the review of the mining list in accordance with section 29 (a) of the Minerals & Mining Act (2006), Act 703 which states that “The holder of a mineral right may be granted the following: Exemption from payment of customs import duty in respect of plant, machinery, equipment and accessories imported specifically and exclusively for the mineral operations”
The mining industry has over the years collaborated with the respective regulatory agencies to craft the Mining List. We recommend that owing to technological changes, which affect inputs of the mining industry, the Government in collaboration with the mining industry should review the Mining list regularly to reflect current trends as indicated in the preamble to the Mining List which states that the List will be reviewed annually. We specifically request that a meeting be convened to review the 2012 Mining List as soon as possible
FINALIZE INVESTRO AGREEMENT WITH MINING COMPANIES
Despite being eligible, some mining companies are yet to secure their investment agreement, such as the stability agreement, from the government. This situation tends to create uncertainty and redirects investments to jurisdictions where such guarantees are available. We therefore urge the authorities to complete the work on the subject as quickly as possible because this would mitigate the risk of unplanned fiscal and other changes and facilitate robust long term planning for the mining industry. With competition for mining investment increasing within the West Africa sub region (i.e. Ivory Coast and Burkina Faso) it is important that this matter is given urgent attention).
INCENTIVES FOR EXPLORATION COMPANIES
The relevance of exploration in ensuring a pipeline of future viable projects cannot be over-emphasized. Naturally, this would ensure that the country continues to benefit from its mineral endowment at all times. It would therefore be apposite to put in place an incentive scheme that will attract the required investments. As a first step, the government should consider exempting Exploration Companies from payment of VAT on Drilling and Laboratory Services.
REVIEW OF SPECIAL PETROLEUM TAX
A). Relative to the generic consumer, the mining industry pays a premium for the consumption of diesel. The resulting windfall is used in subsidizing social fuel such as premix. In addition to this a 17.5% tax on petroleum products is in place under the Special Petroleum Tax (SPT) Act, 2014 (Act 879). This widened the price differential for the product between the mine and generic consumer from 12 percent to 19 percent. Given the high volume of diesel consumed by the industry, the impost hiked the operating cost of mining companies deeply and instantaneously. In addition, the deficit in supply of electricity has compelled most companies to rely on diesel-propelled generators to augment their load demands, further exacerbating the cost pressure on the industry. The Chamber therefore suggests that the government should relieve the mining sector from the payment of the SPT, not only on account of its significant contribution to the growth of the Ghanaian economy but also due to the premium it pays on diesel.
B). The Oil Marketing Companies would like the government to reconsider its position on the requirement of the Bank guarantee especially in respect of the Special Petroleum Tax (SPT). We recommend that the bank guarantee should be completely waived. We also recommend that the TIME for the submission and payments of taxes and levies be extended from 21 days to 30 days
A MINERALS REVENUE MANAGEMENT LAW
A) Given the importance of mining revenue to the economy and the finite nature of the resource, it will stand the nation in good stead if mineral revenues were utilized judiciously. To address this, we request that government should enact a Minerals Revenue Management law, analogous to the Petroleum Revenue Management Act that will provide more transparency in the utilization of mineral revenues.
B) Revise the current rate of royalty from 5% to using a sliding scale mechanism linked to profitability for royalties above 3%. This would create a win-win situation both for Government as well as for the industry. In the event that prices go up, the Government would continue to benefit and vice versa