Dr Mahamudu Bawumia, Vice President of Ghana and flagbearer of the ruling governing party has made a bold policy statement proposing a complete overhaul of the current tax system if elected president in 2025.
According to the Vice President, the proposed policy aims to streamline the country’s tax system, making it more efficient, transparent, and fair for all taxpayers.
One of the key aspects of the proposed tax policy is the simplification of the tax code.
Bawumia highlighted the need to reduce the tax system’s complexity, making it easier for individuals and businesses to understand and comply with their tax obligations. By simplifying the tax code, the Vice President believes that Ghana can improve tax compliance rates and reduce the burden on taxpayers.
“We are going to start with a clean slate in 2025, and that is why in 2025, we are going to grant a tax amnesty to all businesses and individuals and start afresh. All businesses and individuals will have a tax amnesty, and we will start afresh.”
Some question his sincerity and are very sceptical of Veep’s proposal, pointing to his role as the Chairman of the Economic Management Team over the past seven years.
This researcher explores the tax proposal to determine whether Bawumia’s proposal is doable and applicable.
Bawumia explains
Dr Mahamudu Bawumia has clarified his proposal to grant tax amnesty to businesses and introduce a flat duty rate in cedis if elected president.
He also emphasised that, as part of his transformative policies for the country, he plans to revamp the current tax regime and shift import duties from US dollars to euros.
During a meeting with a group of importers in Accra, Dr Bawumia reiterated his commitment to implementing these policies and offered insights into their operations.
Explaining further, Dr Bawumia highlighted the complexity of the present tax system, which he described as confusing and burdensome for businesses in determining their tax obligations transparently.
“I am proposing a new, simplified, and transparent tax system,” Dr Bawumia stated. “If elected President, I will introduce this new regime in 2025, starting with granting tax amnesty to businesses to provide a fresh start and support for businesses.”
Dr Bawumia also mentioned the issue of import duties being charged in US dollars:
“To address this, I will introduce a flat duty rate on containers, charged in cedis, ensuring predictability and reducing import duties significantly to match or be lower than Togo’s rates,” he explained.
What are tax experts saying?
According to tax expert Fred Awutey, the only thing the government needs to do right now within a tax system is to bridge the tax gap between non-resident employees and resident employees who pay up to 35%.
“The higher you earn, the higher tax you pay. In our tax system, that is what we call graduated, and that is progressive. Progressive taxes are not regressive in nature.
“But as it is, the current income tax we have, apart from the individual income tax rate, which is graduated, is therefore progressive. All other taxes are flat rates. So, if you look at the current income tax act, you’ll notice that there are certain provisions made for a small informal sector that we call modified-based taxation. That allows the taxpayer to pay a 3% flat rate. That section hasn’t been applied or implemented over the years because the government authority has been having some challenges and has not been implementing that tax system. So I think the government has to support that agenda to implement the modified based taxation we have in a system, in the income tax law.”
He added that the human factor should be placed at the heart of its operationalisation.
“We also have to look at some discriminatory practices that we have in it. For example, if you look at the taxation of foreign employees who are non-resident in Ghana, they pay a tax of 25%.”
“Whereas resident individual employees pay a tax up to 35%. That is a little bit discriminatory. So, the government has to try to bridge that gap in order to bring some level of equity within a tax system.”
Mr Awutey added, “Now, when you come to the multinational companies if you look at our tax system, multinational companies pay similar taxes just like we have for the local companies. Then we just have to look at it. How do we make that tax a little bit discriminatory? If you look at Nigeria, they intend to bring some discriminatory taxes, which have been shut down recently.”
How will the tax gap be bridged?
At the just-ended 3i Africa Summit in Accra, MTN Ghana’s Chief Executive Officer (CEO) Stephen Blewett made a profound statement when he highlighted the impact of what he described as high taxes on the mobile industry and consequently urged policymakers to reconsider the levels of taxes in the sector.
He believed that taxes take up about 30 per cent of the revenues in the industry and are a major barrier to critical infrastructure and other investments.
Mr Blewett argued that without appropriate fiscal incentives, the funding needed to modernise and expand digital infrastructure into higher technologies, such as the fifth generation (5G), which made services more affordable and accessible to mobile Internet, would not materialise.
“We must not sacrifice long-term growth for short-term gains,” the MTN CEO added.
Overall, the possibility of Ghana’s Vice President Mahamudu Bawumia’s proposed tax overhaul policy presents both opportunities and challenges for the country. By addressing the complexities and inefficiencies of the current tax system, Ghana has the potential to enhance revenue generation, improve tax compliance, and promote economic growth. However, careful consideration and consultation will be required to ensure the proposed policy is fair, equitable, and beneficial for all stakeholders involved.
Our fellow produced this explainer as part of the requirements of the DUBAWA 2024 Kwame KariKari Fellowship in partnership with Asaase Radio, Ghana.
