Ahead Of The 2025 Budget (2)- Critical Tax Amendments Needed

Dear Hon. Finance Minister (Tax Specialist)

This is a continuation of my previous concerns, this time focusing on key amendments needed in our tax system. Some of these changes aim to simplify the tax law to improve compliance, while others seek to ensure fairness.

Restate GETFUND/NHIL to its old system:

I understand that you plan to revert the changes made in August 2018 to the previous system, and I strongly support this move. Restating the GETFUND/NHHIL to its old system is a great idea. Businesses are not consumers but rather producers, and they should not be burdened with consumption taxes. Instead, they serve as intermediaries or agents, collecting these taxes on behalf of the government. Under the principle of consumption tax, businesses generally are granted input tax credits, ensuring that the tax burden is shifted progressively to the final consumer. However, by splitting VAT into a 12.5% input VAT and a 6% non-deductible VAT, businesses are forced to absorb the 6% as an additional cost. Worse of all, the implementation approach we adopted is such that, these levies are added on at each level of invoicing, creating a cascading effect of the taxes, the longer the supply chain, the heavier the tax burden. This places an unnecessary financial strain on businesses. Restoring the old system will eliminate this inefficiency and promote a more equitable tax regime. Truth be told, the current system only benefits government.

Review of Capital Allowance cost base on road vehicle to GHS 750,000:

Historically, depreciation was recognized as a legitimate business expense in profit computation, calculated using either the straight-line or diminishing balance method. However, these methods led to slow capital expenditure recovery. To address this and encourage investment, Capital Allowances were introduced in the 1952/53 Assessment Year. Currently, businesses can claim capital allowances on depreciable assets, including road vehicles.

For non-commercial road vehicles, a cap has historically been placed on the allowable cost base to prevent excessive tax deductions that could lead to revenue losses. In 2000, this cap was set at GHS 15,000 and later increased to GHS 25,000 in 2004. Today, the limit stands at GHS 75,000. However, in reality, it is nearly impossible to purchase a vehicle at this price in the current market at GHS 75,000.

ATO FORSON — Finance Minister, Ato Forson

I strongly urge an increase in the cap to GHS 750,000. While I acknowledge that an unrestricted allowance could lead to abuse where businesses claim deductions on luxury or high-end vehicles setting an unreasonably low limit distorts fairness in the tax system. Raising the threshold to GHS 750,000 would provide a more realistic tax incentive for business-related, income-generating transport so that companies can invest in necessary vehicles without being unfairly penalized.

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Increase Withholding tax threshold to GHS 20,000 to align with Presumptive tax Rules and standardizing the rates

There is a notable policy inconsistency in the current withholding tax system for supply of goods, service fees and contract payments. As you are aware, withholding tax serves as an essential compliance tool in a tax system like ours, where compliance rates are generally low. Under the existing tax rules, businesses act as agents, withholding a portion of payments made to suppliers of goods and services. The applicable rates are as follows:

Payment for Goods: 3%
Payment for Services: 7.5%
Payment for Works: 5%

The threshold exemption is when the value does not exceed GHS 2,000.

However, the following concerns need to be addressed:

Increasing the Withholding tax threshold to GHS 20,000:

The current threshold of GHS 2,000 is far too low and contradicts provisions in the law on the Second Schedule of Act 896 regarding presumptive taxation. Where an individual does not earn more than GHS 200,000, the person should not be paying tax in excess of 3% of the turnover in accordance with the law. I propose increasing the current GHS 2,000 to GHS 20,000 to align with the presumptive tax rules, which specifies that an individual taxpayer earning GHS 200,000 should be taxed at 3% of the turnover.

Complexity due to varying rates:

The existence of multiple rates creates confusion, particularly for taxpayers with limited tax knowledge. Would it not be more practical to implement a single, uniform rate, as was the case before 2015? A flat rate would simplify compliance and administration. I propose a flat rate of 5% as was the case under Act 592.

Outdated profitability assumptions

Presumably, the current withholding tax rates were based on assumed average profitability across industries:

Businesses supplying goods were assumed to have a 12% profit margin, leading to an effective withholding tax of 3% (12% × 25% corporate tax rate).
The service industry, with an estimated 30% profit margin, resulted in a 7.5% withholding tax.
The construction sector, with an assumed 20% profit margin, led to a 5% withholding tax.

Are these assumptions still valid in today’s economic climate? Should we consider a uniform 5% rate across all sectors to simplify the system and improve compliance?

A revision of these policies will promote fairness, ease compliance challenges, and ensure withholding tax remains an effective tool without creating unnecessary burdens for businesses.

I WILL CONTINUE but for now,

Yours faithfully,

By: Francis Timore Boi Esq

[email protected]

The writer is a Tax Consultant and a member of the Chartered Institute of Taxation Ghana.

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