15 Mar Reviving the economy: Budget 2021 introduces new taxes, revises existing ones upward
NHIS, VAT flat rate up by 1% each
New sanitation and pollution levy
Fuel prices to go up by 5.7%
Banks slapped with 5% extra income tax
Road tolls revised
New gaming policy introduced
Government has introduced some new taxes and revised existing ones upward to generate more revenue to take care of high expenditure, including the Agenda 111, arising out of impacts from the coronavirus pandemic on the economy, the 2021 budget statement has revealed.
The budget statement which was for the first time presented in Parliament last Friday by someone other than a substantive finance minister – the Minister of Parliamentary Affairs, Osei Kyei Mensah Bonsu – revealed that government has decided to introduce a new tax dubbed the ‘COVID-19 Health Levy’ which will see a one percentage point increase in the National Health Insurance Levy and a one percentage point increase in the VAT Flat Rate to support expenditures related to COVID-19.
In addition to this, government said it is proposing a Sanitation and Pollution Levy (SPL) of 10 pesewas on the price per litre of petrol/diesel under the Energy Sector Levies Act (ESLA); and a further Energy Sector Recovery Levy of 20 pesewas per litre on petrol/diesel under the ESLA as a means of finding additional resources to cover the excess capacity charges that have resulted from the Power Purchase Agreements (PPAs).
The implementation of these two proposed levies for sanitation and pollution as well as to pay for excess capacity charges, according to the budget statement, will result in a 5.7 percent increase in petroleum prices at the pump. What this essentially means is that prices of goods and services are likely to go up, as the effect of the increment will be to affect transport fares which will directly be passed on to consumers.
Besides these taxes, government has further slapped a financial sector clean-up levy of 5 percent on profit-before-tax of banks to help defray outstanding commitments stemming from the financial sector clean-up. The levy, the budget states, will be reviewed in 2024.
That’s not all: the budget statement further added there will be a review of existing road tolls which will be aligned with current market rates as part of the framework for promoting burden-sharing as the country seeks to transform the road and infrastructure sector in a COVID era.
Another area that government seeks to tap into for revenue is the gaming industry, as it is estimated that the economy loses over GH¢300million annually in revenue due to leakages in the sector. The gaming industry is fast gaining ground in the country with the influx of online betting and automation.
COVID-19 support initiatives
Despite the newly introduced levies and revision of existing ones, the budget further introduced initiatives to cushion effects of the pandemic on individuals and businesses. These include tax rebates of 30 percent on the income tax due for companies in hotels and restaurants, education, arts and entertainment, and travel and tours for the rest of the year.
Other initiatives also include the suspension of quarterly income tax instalment payments for the rest of the year for small businesses using the income tax stamp system; and suspension of quarterly instalment payments of the vehicle income tax for the third and fourth quarters of 2021 for public transport and taxis as part of measures to reduce the cost of transportation.
The other initiative is an extension of the waiver of interest as an incentive for early payment of accumulated tax arrears.
Overall, government’s total revenue and grants for 2021 is projected to rise to GH¢72.4billion, equivalent to 16.7 percent of GDP – up from an outturn of GH¢55.1billion GDP recorded in 2020. Of this, domestic revenue is estimated at GH¢70.9billion.
Of the total domestic revenue, non-oil tax revenue will constitute about 74 percent and amount to GH¢53.6billion, equivalent to 12.4 percent of GDP; reflecting the impact of expected improvements in tax compliance and reforms in revenue administration.