Deloitte Ghana suggests potential relief areas for businesses in proposed income tax reforms
Deloitte Ghana, a prominent auditing and accounting firm, has called on policymakers to maintain balance in proposed income tax reforms, warning against overtaxing businesses in the search for revenue.
The firm has emphasized that while the proposed income tax reforms – including an additional personal income tax band, a revision to the upper limit of vehicle benefit for PIT purposes, and a minimum chargeable income system for businesses – are expected to increase tax revenue, they may also increase the tax burden for taxpayers still recovering from the economic downturn.
Against this backdrop, Deloitte Ghana has urged policymakers to ensure that tax policies are tailored to changing economic circumstances, and that taxpayers can see that tax policy makers are taking their evolving circumstances into account.
The firm has noted that balancing the tax burden across different parties would be essential to achieving the government’s 2023 tax revenue targets, citing the lessons learnt from the implementation of the electronic transfer levy and the domestic debt exchange programme.
In particular, Deloitte Ghana has highlighted two areas where policymakers can provide relief to businesses without necessarily damaging government revenue augmentation efforts. Firstly, the firm has called for an upward revision of the capital allowance deduction cap in respect of vehicles (other than commercial vehicles), which currently limits capital allowance deductions for road vehicles other than commercial vehicles to GHS 75,000.
With rising inflation and the depreciation of the Ghanaian cedi, the cost of vehicles has increased significantly. The definition of a commercial vehicle under the third schedule to the Income Tax Act, 2015 (Act 896) covers vehicles designed to carry a load of more than half a ton or more than 13 passengers.
For vehicles that do not exceed either threshold, only GHS 75,000 is recognized for capital allowance purposes, and businesses are unable to claim a deduction for the full cost of these vehicles used to generate income. An upward revision of the capital allowance deduction cap would reassure taxpayers and ensure that revenue targets are met.
Secondly, Deloitte Ghana has called for an increase in the limit on deductions for repair and improvement expenses. Currently, Section 12 of Act 896 limits the deduction of repair and improvement expenses to 5% of the written-down value of the pool to which the asset belongs, and requires capitalization of the excess. While this may be a timing issue, the firm has noted that it has the potential to create a negative cash flow impact for businesses.
Therefore, an upward adjustment of the limit on deductions, between 50% and 70%, or potentially up to 100% of the repair and improvement cost incurred, would provide relief to taxpayers without necessarily damaging government revenue augmentation efforts.
Deloitte Ghana has emphasized the importance of ensuring that the tax policies are implemented in a way that takes account of the current economic climate and its impact on businesses. Policymakers must strike a balance in the proposed income tax reforms to avoid overburdening businesses with excessive taxes, the firm has warned.
By considering reforms to specific areas, such as an upward revision of the capital allowance deduction cap and an increase in the limit on deductions for repair and improvement expenses, policymakers can help alleviate the tax burden on businesses while meeting revenue targets.
