Tax Analyst and Fiscal Policy expert at PricewaterhouseCoopers (PwC) Abeku Gyan-Quansah is bemoaning the failure on the part of the government to effectively utilize some sections of Ghana’s Tax Exemptions Act 2022 to the advantage of the state.
The partner at PwC says the provisions in the heart of the law that allow the state to take a stake in a business if it demands more than normal exemptions have just become a white elephant in the books.
As part of efforts to curb excessive tax exemptions which were draining the country a significant amount of tax revenues, Parliament saw the need to pass the Exemptions Act in 2022. The law was drafted and implemented out of public backlash that many private businesses were hiding behind tax exemptions to avoid paying taxes since they were being handed out freely.
Politically exposed persons, their cronies, and allies took advantage to drain state resources without proper justification and accountability. The Exemptions Act 2022 was then introduced to curb these excesses.
At the heart of this law is a key provision that if a company sought a tax exemption beyond what was generally available, the government had the right to take an equity stake in that business.
The logic was simple and is that if a company claims it is undertaking an initiative crucial to national development and requires special tax relief, then the state should have a vested interest in its success. Over time, when the company no longer requires exemptions, the government could recover its investment.
This provision in the law, Abeku Gyan-Quansah says is a very laudable and excellent initiative which can help the state reap the real benefits of the tax exemption. But sadly, the tax expert says his checks indicate that since the law was passed, this right of the state has been exercised just once.
“Based on my checks from parliament since 2022, my understanding is that we’ve done it once,” Gyan-Quansah expressed his disappointment at a public forum on Wednesday that was discussing the latest World Bank report on Ghana Public Finance Review.
In his view, the provision in the law is a very excellent opportunity to ensure businesses do not enjoy tax exemptions without direct benefit to the state.
This loophole not only weakens Ghana’s fiscal position but also raises questions aboutthe fairness of the tax system. Per his analysis, why should some companies operate tax-free in the name of tax exemptions while the average Ghanaian struggles with high taxes and rising costs of living?
He is therefore suggesting that if the government believes the equity stake clause is unworkable, then it must justify its removal. If not, then it must immediately begin implementing it.
“I thought that was an excellent provision in our law. If we think it’s a bad law, let’s remove it and then do something else,” he suggested.
To aggressively implement or scrap the provision, only posterity and the fiscal policy direction of the new government will tell.
