Download Highlights of the 2015 Budget

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Budget
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Government of Ghana
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In this issue:
• Economic analysis
• The Economy: 2015 and beyond
• Policy Initiatives for Business Growth
• Tax Initiatives
Contents
Introduction
3
Economic Analysis 2014 Retrospect
Key Performance Targets and Results
Real Sector Performance
Fiscal Sector
Monetory Sector
Public Debt
External Sector
4
5
6
7
8
9
10
11
The Economy 2015 and Beyond 12
Policy Initiatives For Business Growth
15
Tax Initiatives
Tax Management
Direct Taxation
Indirect Taxation
17
18
19
20
Disclaimer
This document has been prepared specifically for corporate clients by
KPMG.
It accordingly focuses on financial , economic and tax benefits as
outlined in the budget statement and hence is not intended to be a
summary of the budget statement in its entirety.
Introduction
The 2015 Budget, themed “Transformational Agenda: Securing the Bright Medium
Term Prospects of the Economy,” aims at maintaining a balance between a
much needed environment that promotes business growth and development by
reining in expenditure, expanding the tax base and strengthening infrastructure.
The budget focuses on strengthening our power and transport infrastructure,
modernising agriculture, expanding access to education, deepening support for
indigenous businesses underpinned by innovative debt management strategies to
cushion the economy and promote growth and development.
This document provides a succinct summary of the interplay between our
economy and the business world, while looking at the Ghanaian economy in 2014
and beyond 2015, the business environment and our tax regime.
3
Economic
Tax Initiatives
Analysis
4
The Economy - 2014 Retrospect
Overview
The budget and economic policy of the Government of Ghana in 2014 with the theme ‘Rising to the
Challenge: Re-aligning the Budget to meet Key National Priorities’ bore the promise to pursue prudent
macroeconomic and financial measures to reduce the growth of public debt and support macroeconomic
stability for accelerated growth and development in the Ghanaian economy. However, the outturn, as at the
review period, indicates that a lot more would have to be done for the realization of this theme before the
year end.
Key performance targets and results
The major economic targets which were set for the year 2014 are shown in the Table 1. These targets clearly
dovetailed into the medium term targets for the period 2014 to 2016 and were intended by the Government
to portray its resolve in committing to the improvement of the macroeconomic fundamentals of the country.
This was also to ensure that both local and international confidence in the future of the Ghanaian economy
was not undermined to maintain a sound business and economic environment. The provisional results
deviate from the expected targets as can be seen from Table 1.
TABLE 1: MACROECONOMIC TARGETS FOR 2014
Indicator
Target – 2014
Medium-Term Targets for 2014 —
2016
Outturn (2014 provisional)
Real GDP growth rate
(excluding oil)
7.4%
Real GDP growth rate
(including oil)
8.0%
End of period inflation
9.5%
An inflation target of 9% with a band
of ±2 percent
16.9% (as of Oct. 2014)
Gross international Reserve
Gross International Reserves
covering not less than three
months of import cover of
goods and service
Gross International Reserves
covering not less than four months
of import of goods and services
3.3 months of import cover
Overall budget deficit
8.5% of GDP
Overall budget deficit equivalent to
8.5% of GDP
9.5% of GDP
6.2%
An average GDP growth rate of at
least 8% per annum
6.9%
Source: GSS & GoG budget,2014
The provisional outturn for 2014 clearly shows that Government’s efforts have fallen short of reaching the set
targets. There was an increased inflationary pressure in 2014 which resulted from high fiscal deficit and pass
through effects of the sharp depreciation of the local currency.
A comparative view of the economy’s performance over the past five years is presented in Table 2:
TABLE 2: GENERAL ECONOMIC PERFOAMNCE FROM 2010-2014
Macro-Economic Factors
2010
2011
2012
2013
2014
GDP at Current Prices (GH¢ billion)
44.5
59.8
75.0
93.9
113.4
Non-Oil GDP current (GH¢ billion)
45.9
56.0
69.3
86.5
104.7
GDP at Current Prices ($ billion)
31.1
39.5
41.5
48.9
38.8
GDP at constant 2006 prices (%)
8
15
7.9
7.6
6.9
GDP at current market prices (%)
25.8
29.9
22.2
16
21
8
9.3
7.9
5.8
6.0
24.7
25.2
25.8
26.4
27
1,328
1,606
1,605
1,850
1,436
Gross Domestic Product (GDP)
Growth Rates
Non-Oil GDP at constant 2006 prices (%)
Population & Income
Population (m)
GDP per Capita (US$)
Source: GSS & GoG budget,2014
5
Header
TheEditorial
Economy
- Key Performance Targets and Results
Gross Domestic Product
Chart 1: Real GDP Growth Rate
Overall, Ghana has witnessed fluctuating trends
in real GDP growth over the past five years. From
8.0% in 2010, it increased to 15.0% in 2011 due to
the commercialization of oil; and dropped marginally
to 7.9% in 2012. Real GDP further dropped by
smaller margins in 2013 and 2014 to 7.6% and 6.9%
respectively. Chart 1 shows real GDP growth rate
from 2010 to 2014.
15.0
16.0
14.0
12.0
%
10.0
8.0
7.9
7.6
2012
2013*
6.9
8.0
6.0
4.0
Total value of GDP (at current prices) stood at
GH¢113.41 billion in 2014 after growing at an average
rate of 26% over the last five years.
2.0
0.0
2010
2011
2014**
GDP per capita
Chart 2: Per capita GDP (US$)
US$
The country’s GDP per capita has increased year-onyear from US$1,262 in 2010 to US$1,850 in 2013. 2014
recorded a 22% fall to US$1,436 as shown in Chart
2. The review period recorded a compound annual
growth rate of 3%.
Over the same period, the country’s population is
estimated to have marginally increased at a CAGR of
2% and is currently estimated to be 27 million people.
2,000.0
1,800.0
1,600.0
1,400.0
1,200.0
1,000.0
800.0
600.0
400.0
200.0
0.0
1,849.9
1,565.9
1,605.4
1,436.4
1,262.4
2010
2011
2012
2013*
2014**
Real sector performance
The outturn of the real sector GDP growth for 2014 is
shown in Table 3.
Chart 3: Structure of the Economy - 2014
Agriculture
21%
The results are generally better than that of the
previous year with the exception of the outturn for the
Industry sector.
Sectoral contribution to GDP is still dominated by
the Services sector which constitutes 50% of GDP, a
marginal decline of 1% from the 2013 figure of 51%.
Services
50%
The Agriculture sector contributed 21% in 2014,
declining by 1% from the 2013 figure of 22%. Chart 4
shows the sectoral growth from 2010 to 2014.
Economic
Sectors
2013 Outturn
2014 Provisional
Outturn
Services
9.6%
4.6%
Industry
7.3%
4.6%
Agriculture
5.2%
5.3%
%
Chart 4: Sectoral Growth Rate 2010 - 2014
TABLE 3: REAL SECTOR GROWTH RATES
Source: GSS & GoG budget,2014
Industry
29%
45
40
35
30
25
20
15
10
5
0
2010
2011
Agriculture
6
Source: GSS & GoG budget,2014
2012
Industry
2013*: Revised
2013*
2014**
Services
2014**: Provisional
Services sector
The Services sector contributed about GH¢56.7 billion to
GDP (at current prices) in 2014. This shows a growth of
4.6% over that of 2013 which is, however, less than the
growth of 9.6% recorded in 2013.This growth was largely
driven on the heels of the financial and insurance subsector which singularly contributed over 20.7% to the
sector’s performance. This is shown in Chart 5.
-
Real Sector Performance
Chart 5: Services Sector Growth Rate
30
20
%
The Economy
10
0
2010
2011
2012
Agricultural sector
Financial and Insurance
The Agriculture sector grew at 5.3% in 2014, a marginal
increase over 2013’s figure of 5.2%.
Transport and Storage
Chart 6 below gives the pattern of growth for each subsector over the past five years.
2014**
Public Administration & Defence; Social Security
Education
Chart 6: Agricultural Sector Growth Rate
20
15
10
%
The growth in Agriculture was driven by forestry and
logging sub-sector, which increased significantly to
16.5% in 2014 from 0.04% in 2013 and the fishing subsector, which increased by 22% from its 2013 growth
rate of 5.8% to 7.1% in 2014.
2013*
5
0
-5
-10
Industry sector
-15
2010
2011
2012
2013*
Crops & Cocoa
Livestock
Forestry and Logging
Fishing
2014**
Chart 7: Industry Sector Growth Rate
250
200
150
100
50
0
TABLE 4: Industry Sector Growth Rate
2010
2011
2012
2013*
2014**
18.8
206.5
16.4
12.8
6.9
7.6
12.3
17.0
-0.8
21.6
2.0
11.1
18.0
0.5
16.1
18.2
-8.0
6.7
5.3
2.9
2.2
-1.4
0.1
2.5
17.2
16.4
8.6
12.8
Mining and
Quarrying
O/w crude oil
Manufacturing
Electricity
Water and
Sewerage
Construction
-20
%
The Industry sector recorded a growth of 4.6%in 2014,
compared to 7.3% in 2013. The 2014 performance of
the Industry sector was mainly on account of a 18.2%
growth in petroleum activities, as well as a 12.8% growth
in construction sub-sector, up from 8.6% in 2013. The
manufacturing sub-sector, however, posted a negative
growth of 8%, down from 0.5% in 2013. This was
caused by a combination of increased cost of imported
raw materials due to depreciation of the local curency,
the influx of cheap imported goods which competes
unfavorably with locally manufactured products and the
incessant power crisis which was experienced during the
year. This power crisis was reflected by the 58% decline
in electricity growth for the year. Table 4 gives a summary
of the growth rates and the growth pattern is shown in
chart 7.
-50
2010
2011
Mining and Quarrying
Manufacturing
Water and Sewerage
2012
2013*
2014**
O/w crude oil
Electricity
Construction
Source: GoG budget,2014
7
The Economy - Fiscal sector
Fiscal Performance
The fiscal policies focused on:
• Improving revenue mobilization (an effort being led
by the Ghana Revenue Authority (GRA) under its ongoing Revenue Modernization Program.
• Realigning key budget items and enhancing the
efficiency of public expenditures (e.g. through
the ongoing Public Financial Management (PFM)
reforms, including GIFMIS)
• Reviewing capital expenditures and the strategy for
financing them (in collaboration with Bank of Ghana)
• Focusing on the completion of pipeline projects to
reduce medium term fiscal risks
• Refinancing and extension of tenure of debt.
and rationalization, enhancing efficiency of public
expenditure, as well as reviewing the financing methods
and implementation of new debt management reforms.
In this regard, the 2014 Budget targeted a reduction in
the fiscal deficit from 10.1% GDP in 2013 to 8.5% of
GDP in 2014. However, due to both domestic and global
economic developments, the deficit target for 2014 was
revised to 7.1% of GDP in the mid-year review.
Fiscal Deficit (on cash basis), was GH¢6,768.30 million
(5.9% of GDP) at the end of September 2014, against a
3rd quarter target of GH¢7,363.8 million (6.4% of GDP),
and an annual revised target of GH¢10,128.10 million
(8.8% of GDP) for 2014.
Net Domestic Financing of the deficit amounted to
GH¢2,012.20 million (29.73%), against a target of
GH¢2,672.80 million (37.30%) for September 2014.
Foreign Financing of the deficit was GH¢4,756.1 million
For the 2014 fiscal year, total revenue and grants
(70.27%), against a target of GH¢4,690.9 million
fell below budget by 5.7% and likewise the outturn
(63.70%).
for expenditure was 1.9% lower than target. Total
expenditure was much lower than outturn over the same
period in 2013 by 6.6%. This resulted in an overall fiscal
deficit equivalent to 7.9%. Table 5 gives details of the
fiscal performance for 2014.
Table 5:Fiscal performance 2014
Description
Total Revenue and
Grants
Total Expenditure and
Arrears Clearance
Overall Fiscal Balance
o/w Domestic
Financing
2014 Revised
Budget
Estimate
(Million GH¢)
Percentage
Change over
Revised
2014
Budget
Projected
Estimate
Outturn
(Million GH¢)
(%)
26,230.30
24,739.20
-5.7
36,358.30
35,669.20
-1.9
-10,128.00
-10,930.00
7.9
4,191.80
5,737.50
36.9
Revenue and Expenditure
The first nine months of the year indicate that both
revenue and expenditure were below their respective
targets for the period. However, the shortfall in revenue
was lower than the shortfall in expenditure, and this
resulted in a fiscal deficit of 5.9% of GDP (cash basis),
against a target of 6.4%. As a result the projected
shortfall in revenue for 2014 year end is estimated at
9.5% of GDP.
Fiscal Deficit
The key objective of fiscal policy as outlined in the 2014
Budget aimed at ensuring fiscal prudence and debt
sustainability by improving revenue mobilization
8
The Economy - Monetary sector
Efforts in this sector were aimed at achieving the
target inflation and as such monetary policy was
programed to complement Government’s efforts at
fiscal consolidation and ensuring macroeconomic
stability.
Broad Money Supply (M2+) grew at 33.6% year-onyear in September 2014, compared with a growth of
17.4% in September 2013.
Credit to the Private Sector
The pace of expansion in credit to the private sector
grew by 26.6% in September 2014 compared with
13.1% in September 2013 in real terms.
Interest Rates
The Bank of Ghana‘s monetary policy rate was maintained
at 19% in September 2014 and reviewed to 21.0% in
November 2014.
Interest rates generally trended upwards on the money
market between December 2013 and September 2014.
This is not expected to change as the year draws to a close
even though the rising rate of inflation could overturn this
expectation.
The rate on the 91 day T-Bill increased to 25.5% from 19.2%
and that of the 182 day T-Bill increased to 26.4% from
18.7%.
Exchange Rate
Inflation
Headline inflation rose to a record high of 16.9% as
at October 2014, averaging 15.14% for the review
period. This significantly exceeded the year’s target
of 9.5%, thus falling outside the single digit target
which has been the Government’s longstanding
aspiration to achieve price stability and accelerated
economic growth.
The rise in inflation pressures in 2014 reflected the
sharp depreciation of the local currency as well as
the pass through effects of fuel and utility price
adjustments. Chart 8 shows monthly inflation trend
for 2014.
%
Chart 8: Monthly Inflation
18
16
14
12
10
8
6
4
2
0
13.8 14
14.5
14.7
14.8
15
15.3
15.9
16.5
16.9
The cedi weakened in the first eight months of the year in
the face of demand pressures from official sources, largely
for oil imports, amid inadequate foreign exchange supply on
the market.
The cedi, however, strengthened in September, recovering
about 19.0% of its value.
On the Inter-Bank Market, the cedi, over the nine month
period of 2014, depreciated by 31.19% against the US dollar,
compared to a depreciation of 4.12% recorded during the
corresponding period in 2013. The cedi also depreciated
by 29.32% and 23.63% against the pound sterling and
the euro, respectively, in the review period. This may be
compared with the depreciation of 16.73% and 20.05%
against the pound sterling and the euro, respectively, at
the end of 2013. The depreciation rates in the Forex Bureau
Market were slightly higher than in the trends in the InterBank Market. Table 6 shows the rate of depreciation of the
cedi against the major currencies.
TABLE 6: DEPRECIATION RATE OF THE CEDI
Currency
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Sept. 2013
Sept. 2014
US Dollars
4.12%
31.19%
Pound Sterling
16.73%
29.32%
Euro
20.05%
23.63%
Source: GoG budget,2014
Source: GoG budget,2014
Government expects that inflation will end the year
around the upper bound of the inflation target of
9%±2%, due mainly to the utility and fuel price
adjustments that have taken place in the course of
the year. But the trend as depicted above shows that
the Government must do more to reverse this trend.
9
The Economy - Public Debt
Debt Management
Public Debt Stock
Ghana’s public debt stock as a percentage of GDP has
been rising over the years. It increased from 36.3%in
2009 to 48.0% in 2012 and further to 55.5% in 2013.
As at end September 2014, the debt stock stood at
60.8%, largely on account of an increase in external
net disbursements for infrastructure projects and net
domestic issuance and the depreciation of the cedi.
The stock of public debt (including Government
guaranteed debt) stood at GH¢ 69,705.9 million
(60.8% of GDP) at the end of September 2014
compared with GH¢52,125.91 million at the end of
December, 2013 (55.5% of GDP).
Loans contracted were used to finance major
infrastructure projects such as the following:
• Ghana National Gas Processing Plant to help solve
the energy crisis
External debt amounted to GH¢40,644.15 million
(35.47% of GDP) at end-September 2014 and
domestic debt totaled GH¢29,041.75 million (25.33%
of GDP) at the end of September 2014.Chart 9 shows
the trend in public debt over the last five years.
Chart 9: Trend in Public Debt
• Expansion of the Kpong Water Pumping Station
• Kwame Nkrumah Interchange
• Sofoline Interchange in Kumasi
• Tetteh-Quarshie – Madina road project
GH¢ mn
• University of Ghana Teaching Hospital
80000
70000
60000
50000
40000
30000
20000
10000
0
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
Debt to GDP Ratio
• Refurbishment and Expansion of the Ridge
Hospital
0.0%
2010
2011
2012
2013
Sep-14
• Achimota-Ofankor road project
• Construction of Affordable Housing Units by OAS
Construction
• Kumasi Central Market
• Kasoa Interchange
• 200 Buses for the Metro Mass Transit
• 295 Scania Buses for the Rapid Transport System
• Parliament House – Job 600 Offices and
reconfiguration of Parliament
• Long term domestic bond proceeds.
External Debt
Domestic Debt
Public Debt
Gross Public Debt/GDP
Utilization of the 2013 Annual Budget Funding
Amount (ABFA)
Out of the total ABFA amount of GH¢888.6 million
received at the end of September 2014, GH¢270.51
million (30.44%) was disbursed to two of the four
priority areas as follows:
• GH¢260.66 million (96.36%) to Road and other
Infrastructure
• GH¢9.85million (3.64%) to Agriculture
Modernization.
The other two priority areas, Capacity Building and
Amortization of Loans for Oil and Gas infrastructure,
did not receive any amount.
Chart 10 summarizes the priority areas.
Chart 10: ABFA Spending on Four Priority Areas
Amortization of
Loans for Oil
and Gas
infrastructure
0%
Capacity
Building
0%
Agriculture
Modernization
4%
Road and other
Infrastructure
96%
10
Source: GoG budget,2014
The Economy - External Sector
Trade Balance
The provisional trade balance for the period January to September 2014 showed a deficit of US$681.3 million,
compared with a deficit of US$3,848.3 million at the end of 2013. The improvement in trade balance was on
account of 18.0% reduction in imports.
Trade balance is estimated to improve further to a deficit of US$1,312.87 million compared with the projection of
US$2,670.7 million due to an increase in exports on the back of higher cocoa prices.
Exports
The value of merchandise export for the period was provisionally estimated at US$10,067.8 million, indicating
a decrease of 2.8% compared to the corresponding period in 2013 (end of September 2013). The decline in the
price of gold on the international market accounted for the shortfall in export earnings.
Crude oil exports was estimated at US$2,925.7 million, down by 1.7%, compared with the corresponding period
in 2013. The marginal decrease in value was due to a decrease in volume exported from 27.6 million barrels in
2013 to 27.3 million barrels in 2014. Also, the average realized price of crude oil decreased by 0.6% to settle at
US$107.3 per barrel.
Gold exports amounted to US$3,369.3 million, compared to US$3,708.9 million during the same period in 2013.
This change was largely influenced by the fall in gold price. The average realized price declined by 12.1% to
US$1,286.5 per fine ounce, while the volume of gold exported increased by 3.4% to 2.6 million fine ounces.
Earnings from cocoa beans and products exported totaled US$1,921.7 million in 2014, representing an increase
of 11.4% compared with the outturn of 2013. Earnings from cocoa beans amounted to US$1,388.6 million, up by
11.8% of the outturn of 2013.
Imports
Total value of merchandise imports amounted to US$10,749.1 million, down by 17.8%, compared with values at
the end of September 2013. The decline in imports was attributed to the decline in non-oil imports which was
affected by the depreciation of the cedi against the major trading currencies.
Total value of oil imports (including gas) amounted to US$2,668.4 million, compared with US$2,610.3 million
for the same period last year. The total non-oil merchandise imports was provisionally estimated at US$8,080.7
million, a decline of 22.8% compared with the outturn of US$10,461.3 million for the same period in 2013. The
decrease was on account of a slowdown in all the broad economic categories of imports.
Gross International Reserves
The decline in the price of gold on the international market accounted for the shortfall in export earnings. The
decline in imports was attributed to a decline in non-oil imports which was affected by the depreciation of the
cedi against the major trading currencies.
The country’s gross international reserves increased by US$46.9 million from US$5.6 billion at the end of
December 2013 to US$5.7 billion at the end of September 2014. This was sufficient to provide 3.3 months of
imports cover compared to 2.9 and 3.1 months of imports cover at end-September and end-December 2013
respectively.
11
The Economy:
Taxand
Initiatives
2015
Beyond
12
The Economy - 2015 and Beyond
The macroeconomic targets for 2015 and those to be
pursued over the medium term (i.e. 2015 – 2017) are
geared towards achieving the Ghana Shared Growth
Agenda (GSGDA II) of becoming “A stable, united,
inclusive and prosperous country with opportunities
for all”, of which socio-economic transformation is
key.
The table below gives a summary of the key targets
for 2015 and for the medium term.
TABLE 8: Macro Economic Targets
Macroeconomic targets for the
medium term (2015 – 2017)
Macroeconomic targets
for 2015
An average real GDP
(including oil) growth rate of
at least 6.8%
Overall real GDP
(including oil) growth
of 3.9%
An average non-oil real GDP
growth rate of at least 4.4%;
Non-oil real GDP
growth of 2.7%
An inflation target of 8%
with a band of ±2%;
An end year inflation
target of 11.5%.
An overall budget deficit of
3.5% by 2017
Overall budget
deficit equivalent to
6.5% of GDP
Gross International Reserves
which will cover not less
than 4 months of imports of
goods and services by 2017
Gross international
reserves of not less
than 3 months of
import cover of
goods and services.
In achieving a GDP growth of 6.8% in the medium
term and 3.9% in 2015, the government intends
capitalizing on the nation’s natural resource
endowments and enhancing agricultural potential
and the human resource. Table 7 shows the medium
term real GDP projections from 2015 – 2017.
TABLE 7: Medium Term Real GDP Growth Projections (2015 - 2017)
Medium Term Real GDP Growth Projections (2015-2017) 2015
2016
2017
Average
2.9
3.7
4.3
3.6
Industry
5.2
11.3
17.6
11.4
Service
3.9
6.4
7.7
6.0
Overall GDP (excl Oil)
2.7
4.9
5.5
4.4
Overall GDP (incl Oil)
3.7
6.9
9.6
6.8
Item
Agriculture
Percent
Source: GoG budget,2014
Pursuant to the various policies and incentives to
support the Industry sector, it is expected to be the
lead sector with an average growth rate of 11.4%,
which is a 1.8 percentage point increase over that
of 2014. The continuous growth in the petroleum
sector, as well as the proposed production of gas, is
expected to be the key growth driver in the Industry
sector. The Industry sector is also expected to utilize
various incentives to be able to expand and reduce
the rate of unemployment in the medium term.
The Services sector, which is the second highest
growing sector, will see financial intermediation,
information and communication, transport and the
storage subsectors driving growth.
The Agriculture sector will see a couple of
government interventions such as fertilizer and seed
subsidy programs as well as increase in the number
of agriculture mechanization service centers. This
sector looks very promising in the long term.
Source: GoG budget,2014
TABLE 9: Expenditure Outlook for 2015
Description
Amount
(GH₵
million)
Total Expenditure and Arrears
Clearance
41,222.0
Total Expenditure
39,152.6
Compensation of Employees
12,312.9
Use of goods and Services
1,970.0
Interest Payments
Including oil
Excluding Oil
Percent of
Total
Expenditure Amount
Percent and Arrears (GH₵
of GDP Clearance million)
Percent of
Total
Expenditure
Percent and Arrears
of GDP Clearance
38,050.2
30.9
29
95.0 36,303.0
29.5
95.4
9.1
29.9
12,312.9
10
32.4
1.5
4.8
1,233.8
1
3.2
9,577.2
7.1
23.2
9,557.2
7.8
25.1
50.0
0
0.1
50.0
0
0.1
Grants to Other Government Units
7,408.6
5.5
18.0
6,710.9
5.5
17.6
Capital Expenditure
6,956.8
5.2
16.9
5,561.2
4.5
14.6
877.1
0.6
2.1
877.1
0.7
2.3
2,069.5
1.5
5.0
1,747.2
1.4
4.6
Subsidies
Others
Arrears Clearance and Tax Refunds
30.5
100.0
100.0
Source: GoG budget,2014
Expenditure Outlook
The expenditure projections indicates the
Government will spend a major percentage (around
23%) of the projected revenue on borrowing
cost. Government has apportioned about 84% of
expenditure to be used to service domestic debts,
which is a good step. However, government must
evaluate its options with regards to raising funds, in
order to manage soaring interest payments.
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The Economy - 2015 and Beyond
Employee compensation forms a large part of the
projected expenditure. With the construction of more
senior high schools, Government must come up
with proactive measures to avoid excessive pressure
on national funds, which may result in additional
borrowing.
Government proposes to commit about 16% of its
total spending to address the infrastructural deficit
in the country. The government hopes to raise about
65% of funds for this project externally.
Government has also reaffirmed its expenditure
rationalization measures, including the net freeze
policy on employment, full implementation of the
Electronic Salary Payment Voucher (ESPV) system
and strict implementation of existing adjustment
mechanisms for utility tariffs and fuel prices. These, if
taken seriously, will go a long way to reduce leakages
and wastage.
Public Financial Management Reforms
To increase efficiency and enhance the nation’s
public financial management system, Government
proposes to engage in programs that will help
achieve these objectives.
These include the following:
• The budget execution process will be reviewed
to develop a streamlined and revised budget
execution process.
• The government also intends undertaking a
capacity needs assessment of all MDAs in
an effort that is ultimately aimed at ensuring
efficient and effective fiscal management and
budgetary control.
14
Policy
Tax
Initiatives
Initiatives
for Business
Growth
15
Policy Initiatives
Introduction
The policy initiatives of 2015 budget address five
strategic areas which will seek to help champion the
nation’s transformational agenda. These initiatives
are Tax Policy, Structural Measures, Debt/Equity
Management Strategy, Economic Diversification and
Education (Progressively free SHS and community day
SHS Agenda).
Tax Policy Initiatives
The Government proposes a tax policy that seeks to
bring a balance in order not to overburden any aspect
of the tax paying population. Government intends to
review the sliding scale excise duty policy, which was
developed to incentivize local brewery companies,by
introducing appropriate guidelines and make
recommendations, where necessary, to ensure greater
efficiency. Government’s move of increasing excise
duty on tobacco is a commendable step in mitigating
health risk and improving life expectancy. The extension
of the requirement for the Tax Identification Number
(TIN) to other sectors and the reduction in scope of tax
exemptions and special permits will help increase tax
revenues.
The proposal to remove VAT on locally produced
pharmaceuticals and related raw materials will help
strengthen firms in the pharmaceutical industry by
boosting revenue to aid expansion of their operations.
There are also proposals to remove import duty and
VAT on inputs for production of machetes and the
production of exercise books and textbooks.
Structural Measures
In light of its transformational drive, the budget
addresses the issue of public sector accounting
and financial responsibility by proposing to realign
expenditure under the statutory funds which were
catered for under the consolidated fund.
There is a proposal to introduce pre-budget statement
to Parliament which will provide a framework and
parameters which will inform the budget and also give
an overview of Government policy going forward. This
will help businesses plan ahead to mitigate economic
shocks.
Sovereign Wealth Funds
The establishment of a Sovereign Wealth Fund (SWF),
for attracting financing for energy and non-energy
infrastructure, is on the agenda for the coming year.
Consultations with Nigeria and Angola, operators of
SWFs in Africa, the Global Infrastructure Fund of the
World Bank and the Africa 50 of the AfDB are planned
for 2015. Success with the establishment of SWF
would be positive as it would stabilize government
revenues and safeguard the nation’s investments.
Ghana EXIM Bank
Ghana Export Import Bank is to be created with the
goal of transforming the economy from being import
16
led to export oriented. Partly financed by EDAIF funds,
the bank will take advantage of various international trade
policies such as AGOA and EPA, with the aim of promoting
made-in-Ghana goods and services. Ghana EXIM Bank
will be a vehicle for the consolidation of the current export
finance activities of EDAIF, Eximguaranty Company and the
Export Finance Company. The establishment of Ghana EXIM
Bank is a step in the right direction as it not only aims to
rectify balance of trade imbalances, it would also empower
the local population and promote entrepreneurship in the
country.
Debt/Equity Management Strategy
Government proposes to operationalize the sinking fund to
ensure timely redemption of sovereign bonds and other debt
instruments. This step will help increase the confidence of
international investors. The issuance of 7-10 year domestic
bonds may provide excellent opportunities for investment
banks and fund managers and may also see the nation
issuing more bonds as an alternative to other more costly
fund sourcing arrangements internationally. The renewed
commitment to escrow and on-lending arrangements and
moves to allow MMDAs issue municipal bonds are good
strategic steps that will help reduce the over reliance on the
consolidated fund and also enable the efficient management
of the national debt portfolio.
Economic Diversification
In addressing the balance of trade deficit phenomenon,
there are proposals to subscribe to an IMF program that will
provide technical assistance and balance of payment support
for the next 3 years. This will help create confidence in the
Government’s fiscal discipline and stabilize the economy.
Government also proposes to support the Agriculture sector
to reduce import of food products.
US MCC Compact II
Furthermore, Government’s proposal to commission
gas processing facilities is a much anticipated move
by businesses. To boost the energy sector and satisfy
the country’s growing energy needs, 2015 sees the
implementation of the US MCC Compact II Agreement, a
US$400million agreement with the USA under the Power
Africa Program aimed at developing the energy sector
across the continent. These steps will gradually eliminate
the nation’s dependence on Nigeria for the supply of gas and
also save businesses from astronomical operational cost
and high risk of folding up due to the energy crisis.
Education
Government has also reechoed its commitment to making
SHS education free by proposing to gradually absorb GESapproved examination fees, library, entertainment, SRC,
science development, sports, culture and internet fees.
This will have an overall impact of improving the literacy rate
since enrolment in schools will be expected to increase.
Government also plans to expand the school feeding
program to reach more beneficiaries and this is expected to
provide employment opportunities.
TaxInitiatives
Initiatives
Tax
17
Tax Initiatives - Tax Management
In this section, we have highlighted the key tax
initiatives that would be of interest to the business
community, including prospective investors.
These have been set out under the following
headings:
• Tax Management
• Direct Taxation
• Indirect Taxation.
Tax Management
The following tax management measures have been
proposed in the 2015 Budget:
• The Ghana Revenue Authority (GRA) intends
to use taxpayer and third-party data to match
taxpayers’ declaration in order to ascertain
their compliance levels and also enhance its
monitoring processes. The GRA will interface
directly with the GIFMIS infrastructure to enable
it acquire data in real time for this exercise.
18
• To encourage the use of local raw materials
as substitutes to imported raw materials, the
government intends to review the sliding scale
on excise duty on beer and malt to ensure greater
efficiency and compliance by the beneficiaries. In
the process, the GRA will introduce appropriate
guidelines and make recommendations for
improvement. This is to provide an incentive for
brewery companies to use local raw materials as
substitutes for their imported raw materials.
• Importers of goods will be required to provide
their Tax Identification Numbers (TIN) and
domestic tax offices as part of customs
procedures for the clearing of goods at the
various ports in Ghana.
• The requirement of TIN will be extended to other
sectors to facilitate the identification of eligible
taxpayers. To ensure that the status of people
on the Taxpayer Register is accurate, they will be
required to validate their data every two years
in conjunction with the National Identification
Authority (NIA).
Tax Initiatives - Direct Taxation
Corporate Income Taxation/National Fiscal Stabilization Levy
• The National Fiscal Stabilization Levy of 5% on profit before tax on selected companies has been
extended to 2017. This was initially scheduled to end by 31 December 2014.
• The maximum corporate income tax on Free Zones operators after the first 10 years of their tax
holiday will be increased from 8% to 15%.
• Tax exemptions granted in loan agreements will also be reviewed to reduce the scope of exemption
granted and the use of special permit will be reduced. The terms of draft agreements must refer to
the application of tax treaties, where necessary.
Others
• The withholding tax on Directors’ remuneration will be increased from 10% to 20%.
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Tax Initiatives - Indirect Taxation
VAT on Financial Services (fee based) and Real Estates
VAT on fee based financial services and real estates will be implemented in 2015. This law became
operational with the passage of the VAT Act 2013, (Act 870) but was deferred. VAT on sale of real
estates by real estate developers will, however, be at a flat rate of 5%.
In view of the flat rate proposed to be levied on the real estate sector, it is not clear from the policy
statement whether the real estate developers will have the opportunity to claim back Input VAT. This
fiscal policy needs future clarification in its implementation.
Financial Services VAT
Financial Services has been earmarked as one of the key drivers in the services sector. In light of
Government’s move to reduce the nation’s fiscal deficit by improving tax policies among others,
Government has proposed to impose VAT on fee-based financial services.
Abolishing of VAT Relief Purchase Order
In 2015, Government will abolish the use of the VAT Relief Purchase Order (VRPO) in granting of
relief. The refund system will be strengthened to pay refunds when the request is duly vetted.
Upfront exemptions will be replaced by a Tax Credit System (TCS) for entities benefiting from
exemptions. Under TCS, exempted entities will pay all import duties and taxes in full and apply for a
Tax Credit Note (TCN) which will be used to offset future tax liabilities.
Removal of VAT on Pharmaceutical Products
Government, in 2015, proposes to remove VAT on specified locally produced pharmaceuticals and
some of the raw materials used for the production of these pharmaceuticals. The exemption policy
will be based on a selected list of essential medicines not manufactured in Ghana and approved by
the Minister of Health.
Removal of VAT on Inputs
Government will also remove import duty and VAT on inputs for the production of machetes and
also the production of exercise books and textbooks. This will benefit both farmers and the printing
industry.
Removal of VAT on Smartphones
Import duties on smartphones will be removed.
Special Import Levy
There is a proposal to extend the special import levy of 1-2% to end in 2017.
Special Tax on Petroleum Products
Tax at 17.5% has been imposed on petrol, liquefied petroleum gas, natural petroleum gas and
kerosene. This is required to be a VAT and will therefore operate on the input-output system. Thus
persons who are registered for VAT can claim this tax as an input VAT. This has already been passed
into law and became effective on 20 November 2014.
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Emmanuel Asiedu
Partner - Tax
E: [email protected]
Daniel Adoteye
Partner - Advisory
E: [email protected]
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