Given that Ghana’s capital expenditure is about 1.7 percent of GDP, it could have been financed by the country’s tax expenditure for the eight-year period between 2012 to 2020 if a robust tax exemption regime had been in place.


Whereas the country’s percentage tax expenditure keeps going up, the percentage capital expenditure in the budget keeps declining. The Tax Exemption Bill 2019 which is expected to harmonize tax exemptions and incentives regime in the country and make it more efficient for more revenue to accrue to the state, did not see the light of day before the expiration of the 7th Parliament. However, it is yet to be reintroduced in the current 8th Parliament.

Experts say that the continuous rise in tax exemptions impacts negatively on how much the government mobilizes as revenue to the state for capital expenditure. It is estimated that Ghana loses over GHC 5 billion every year in tax exemptions. Meanwhile, it is also estimated that the country needs to spend US$ 7.3 billion to bridge an urgent economic infrastructure gap.

Capital expenditure is the money spent by the government on the development of machinery, equipment, building, health facilities, education, etc. It also includes the expenditure incurred on acquiring fixed assets like land and investment by the government that gives profits or dividend in the future.

Tax expenditures on the other hand describe revenue losses attributable to provisions of national tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.

According to a Senior Law Lecturer at the University of Ghana School of Law and a Tax Consultant, Dr. Abdallah Ali-Nakyea of Ali-Nakyea & Associates, the potential revenue loss in 2010 was 391.9 million Ghana Cedis. It increased to 4662.36 million Ghana Cedis in 2018.

“So, you can see the jump in 8 years. The percentage tax expenditure has risen from 1.4 percent of GDP to 1.8 percent of GDP from 2012 to 2020. So, it gives you an indication that if for capital expenditure we need about 1.7 of GDP, it tells you that what we are losing by way of tax expenditure can fix our infrastructure challenge,” he said in an interview withparliamentnews360.com.

The tax consultant observed that the best way to get a sense of the significance required in dealing with this issue is “when we look at what it can do, then it tells us what we are losing.

“So, that is how you evaluate tax expenditures. As in economics, you look at the alternative foregone, 1.8 percent of GDP and look at what is the percentage of GDP in capital expenditure and you will appreciate that if you are to turn this tide, you can solve the challenge.”

Source: Parliamentnews360.com