The new taxes slapped on banks and other businesses will further create a challenging economic environment and add additional cost to their operations, auditing giants KPMG has said in its post budget analysis.
A report released by KPMG on the 2021 budget states that even though the newly introduced taxes are intended to bring in revenue to government, it will increase the cost of doing business, as banks for example, are already paying a 5 percent fiscal stability levy, hence, an additional 5 percent financial sector clean-up pre-tax on profit will double that burden.
Again, the auditing firms said, the increase in the National Health Insurance Levy (NHIL) will be an additional cost to businesses as that is a component of the straight levies which are not taken as an input claim. This, it adds, will therefore, increase the base for calculation of VAT. Also, the proposed increase in the VAT Flat Rate from 3 percent to 4 percent will result in other cost increases either to businesses or individuals, the report said.
Commenting on the budget, Senior Partner at KPMG Ghana, Anthony Sarpong, said despite the tax increments, government has to find realistic ways to raise additional revenue and contain spending in order not to throw the fiscal targets off gear.
“Revenue mobilisation is crucial for the achievement of the priorities contained in the 2021 Budget Statement. Government will require realistic ways to raise additional revenue and at the same time contain expenditure levels so as to create the fiscal space to realise these targets and priorities.
Additionally, government would have to continue its efforts in digitising its processes and systems to facilitate and sustain an enabling environment for businesses to thrive and survive in the face of fierce competition by the global community.
It is imperative that the private and public sectors find efficient and collaborative ways to build a stronger and better post pandemic economy,” he said in a statement.
Government, in the 2021 budget statement, provided some justifications for the introduction of taxes against its own mantra of shifting from taxation to production.
For the 5 percent Financial Sector Clean-up Levy on profit-before-tax of banks, government said it wants to use it to help defray outstanding commitments in the sector. This levy is projected to run to 2024 and reviewed thereafter.
With the COVID-19 Health Levy which comprises of increase in the National Health Insurance Levy from 2.5 percent to 3.5 percent; and an increase in the Value Added Tax Flat Rate from 3 percent to 4 percent, government said it will provide the requisite resources for the additional health spending in combating the COVID-19 pandemic.
Then, there is also the Sanitation and Pollution Levy (SPL) of 10 pesewas on the price per litre of petrol/diesel under the Energy Sector Levies Act (ESLA), which government has said will be used to provide the requisite resources for addressing challenges regarding sanitation and pollution.
Furthermore, government is introducing a new Energy Sector Recovery Levy (Delta Fund) of 20 pesewas per litre on petrol/diesel under the Energy Sector Levies Act (ESLA), which is to address the challenges of higher excess capacity payments in the energy sector.
Moreover, government intends to review existing road tolls and align them with current market rates which it says will be used to maintain roads.
Besides the tax increments, government also introduced some reliefs which include permanent tax-exemption of capital gains on listed securities; a waiver of penalty and interest on accumulated tax arrears up to December 2020; 30 percent rebate on the income tax due for companies in hotels and restaurants, education, arts and entertainment, and travel and tours for the second, third and fourth quarters of 2021.
Others include suspension of the quarterly income tax instalment payments for the second, third and fourth quarters of 2021 for small businesses using the income tax stamp system; and the suspension of the quarterly instalment payments of the vehicle income tax for the second, third and fourth quarters of 2021 for Trotros and Taxis.
The proposed measures, KPMG says, will help bring some respite to businesses and grant them additional cash flows arising out of the waivers.
It, however, added that the targeted sub sectors have suffered steep shocks from the pandemic and government should consider working capital support on resumption of normal business.