Introduction
As stated in Articles 179 and 180 of the 1992 Constitution of the Republic of Ghana, the Executive is required to present an account of the management of the economy for 2025 and a budget statement for 2026 financial year to the Legislature for approval. Section 21 of the Public Financial Management Act, 2016 (Act 921) outlines the budget preparation, presentation and approval process. Sub-section 3 of section 21 of Act 921 states that, the Minister shall, on behalf of the President, lay before Parliament not later than the 15th of November of each financial year, estimates of the revenues and expenditure of the Government, and the annual budget for the ensuing financial year.
The Budget Statement and Economic Policy of the government for 2026 is expected to be presented by the executive not later than 15th November 2025. The budget statement serves as the Financial Account of the current year, and Financial Policy of the Government of Ghana which directs the financial and economic activities in the country. The government is expected to give an account of revenues generated and expenditures made up to September 2025 financial year and made projections on revenue to be generated for 2026 and estimated expenditure to be incurred for 2026.
Among the projected sources of revenue for the government is taxation. The government will make various policy proposals on taxation in the 2026budget. This article is to provide highlights of some fiscal policy interventions I expect the budget statement to cover for an effective and efficient tax administration. This article provides a critical examination of key aspects of these laws and proposes concrete amendments and repeals to forge a tax system that is not only efficient but also a catalyst for economic development.
1) Provisions in the Income Tax Act, 2015 (Act 896) as amended which requires some amendments
I have identified the following provisions in Act 896 which I believe require some amendment to ensure:
a) Minimum Chargeable Income Rule (MCIR) Section 2A insertedinto Act 896 as amended
Section (1) of the Income Tax (Amendment) Act, 2023 (Act 1094) which inserts section 2A into Act 896 stipulates that, despite section 2, a person may be required to compute and pay tax on a minimum chargeable income of five per cent (5%) of turnover where the person has been declaring losses for the previous five (5) years of assessment. Subsection (1) does not apply to a person within the first five years of commencement of operations, or engaged in farming. The intention of ensuring that all profitable companies contribute is understandable, but its application is punitive.
The Problem
For start-ups companies in capital-intensive sectors, or businesses in a cyclical downturn, the Minimum Chargeable Income Rule (MCIR) is a crippling blow. It seeks to tax inputs, not profits, effectively penalising companies for investing in expansion, research, or weathering economic storms. It undermines the principle of taxing net income and can erode a company’s working capital, potentially stalling its recovery and leading to job losses. Successive budgets emphasised support for SMEs and private sector-led growth. The MICR directly contradicts this objective by stifling the very businesses the government seeks to empower.
Proposed Amendment or Solution
The MCIR should be repealed or significantly amended. A more equitable model would be to allow Minimum Chargeable Income Tax paid to be carried forward and credited against future corporate income tax liabilities for a period of, say, 5 to 7 years. This ensures the government collects revenue from consistently profitable companies that may be using deductions strategically, while providing a lifeline to genuine loss-making enterprises.
b) Withholding Tax Provisions
Act 896 extensively uses withholding tax (WHT) as a prepayment mechanism on employment, business, and investment incomes. While effective for revenue collection, its implementation is an administrative nightmare.
The Problem
The wide application of WHT on goods, services, and contracts creates a significant cash flow burden for businesses, especially those in the distribution chain. The process for claiming credits and refunds for excess WHT is notoriously slow and bureaucratic, tying up crucial capital.
Proposed Amendment or Solution
I propose a raise in the threshold for WHT applicability from a total consolidated annual amount of two thousand Ghana cedis (Ghs2,000) per person to a total consolidated annual amount of ten thousand Ghana cedis (Ghs10,000) per person to reduce the administrative burden on small and medium enterprises.
c) Limitation on capitalisation of Motor Vehicle for Capital Allowance Computation:
Paragraph four of the third schedule of Act 896 places a limitation on the value of a motor vehicle which can be capitalised. It reads that, for the purpose of this schedule, the cost of a road vehicle other than a commercial vehicle, is not recognised to the extent that the cost exceeds seventy-five thousand Cedis (Ghs75,000). Paragraph five further states that, for the purpose of this paragraph, “commercial vehicle” means a road vehicle designed to carry a load of more than half a tonne or more than thirteen passengers; or a vehicle used in a transportation or a vehicle rental business.
In 2015 when Act 896 was been introduced, the rule was meant to curb the practice of businesses investing in expensive and luxurious vehicles which may not directly translate into revenue generation from using capital allowance of the full cost of the vehicle to reduce its chargeable income.
The Problem
My analysis indicates that in 2015, the average cost of a 2013 model of Toyota Corolla was about fifty thousand Ghana cedis (Ghs50,000) where the exchange rate was USD1:GHS3.8 by the end of 2015. Similar, analysis of the cost of 2019-2021 model of Toyota Corolla currently hovers around three hundred thousand Cedis (GHs300,000) with the exchange rate around USD1:GHS12. The economic reality is that, the depreciation of the cedi has resulted in the cost of the Toyota vehicle to increase in about six folds. This has resulted in almost not recognising the capitalisation of the cost of a motor vehicle which is not a commercial vehicle.
Proposed Amendment or Solution
I propose that, in order to still manage the abuse of businesses investing in high end luxurious vehicles which may not necessarily results in revenue increase, the rule on limitation of the cost of motor vehicle other than a commercial vehicle allowable for capitalisation should still be maintained but the threshold should be increased from seventy-five thousand cedis (Ghs75,000) to five hundred thousand Ghana cedis (Ghs500,000) to reflect the current economic realities.
d) Insertion of subsection 4 to section 25 of Act 896 by Income Tax Amendment Act, 2023 (Act 1094)
Section 25 (6) and (7) which were introduces by the amendment Act 1094 reads as follows:
(6) An unrealised foreign exchange loss shall not be allowed as a deduction.
(7) A foreign exchange loss arising from a transaction between two resident persons shall not be allowed as a deduction, “.
The Problem
Unlike before the promulgation of Act 1094, the provisions in section 25 of Act 896 were working perfectly. The passage of Act 1094 introduced some additional rules to guide the taxation of foreign currency and financial instruments. Whilst subsection 6 above limits the deduction of an unrealised foreign exchange loss without mentioning of how to treat an unrealised foreign exchange gain, this lacuna has created misunderstanding and uncertainty in the interpretation and treatment of unrealised foreign exchange gains.
The second problem is the challenge which the application of subsection 7 possess to resident financial institutions. Financial institutions are by law authorised to deal with its customers both residents and non-residents in both local and foreign currencies for the execution of several transactions. Subsection 7 puts resident Banks and financial institutions in a difficult situation when they transact with resident persons in foreign currencies and incurs foreign exchange losses.
Proposed Amendment or Solution
It is my proposal that subsection 6 should be amended to read ‘’An unrealised foreign exchange loss or gain shall not be allowed as a deduction or addition for the purpose of determining the chargeable income of a person’’ in alignment with equity and just principles in taxation. I further propose that subsection 7 should be amended to exempt resident Financial Institutions from the limitation because financial institutions are being heavily impacted by no faults of theirs. Subsection 7 can be amended to read, ‘’with the exception of a resident financial institution, a foreign exchange loss arising from a transaction between two resident persons shall not be allowed as a deduction’’.
e) Rates of Individual Income Tax in the First Schedule to Act 896
From my casting of the personal income tax bands, it was observed that from the first to the sixth band which must sum to six hundred thousand cedis (Ghs600,000), was in excess by five thousand cedis (Ghs5,000).This arithmetical inaccuracy has to be resolved to ensure that the bands are aligned.
f) Promulgation of a Legislative Instrument (L.I) by the Minister to operationalise the Independent Tax Appeals Board (ITAB)
The amendment of section 44 of Act 915 by the substitution of section 1 of Act 1029 which has introduced the Independent Tax Appeals Board (ITAB) as set out by the insertion of the fourth schedule of Act 915 as amended.
The Board has been inaugurated with a secretariat assigned to it but yet to commence full operations.
I expect the Minister to pass a Legislative Instrument (L.I) or any rules which will guide the modalities to be adopted for the operations of the Board.
g) VAT Reforms
As part of the comprehensive Value Added Tax (VAT) reforms expected to happen this year, the following touchpoints are expected to be impacted in the new VAT bill to be presented to Parliament as part of the budget reading:
The reforms should address the distortions and cascading effects inherent in the current VAT structure.
Under the reforms, at the minimum, the following are expected:
i. The 1% COVID-19 Levy will be abolished;
ii. The effective VAT rate will be reduced from 21.9% for households and businesses;
iii. Reversing the decoupling of 2.5% GETFund and 2.5% NHIL from the VAT to cure the punitive cascading effect;
iv. VAT flat rates will be removed and a unified VAT rate will be implemented;
v. The VAT registration threshold will be increased to exempt small and micro businesses;
vi. Compliance will be improved through public education, awareness and the introduction of fiscal electronic devices.
vii. The VAT on motor vehicle insurance policy will be abolished;
viii. Continues implementation of the electronic VAT invoicing project to rope in more taxpayers onto the programme.
2) Conclusions
In conclusion, I am positive that with the government’s commitment in improving tax administration and enhancing the fiscal regime to ensure transparent, effective and efficient tax regime which will enhance tax revenue generation and promote investment, some of the trouble spots in the various tax laws which I have outlined above, when given the needed consideration by policy makers will go a long way to improve the tax administration and voluntary compliance in our country.
Recommendations
I recommend policy makers to have a look at the proposals I have enumerated above and some other amendments which may be appropriate and incorporate them in the budget statement to ensure an improved tax environment for all stakeholders.
This article is my personal and professional opinion as a tax practitioner in the discharge of my duties as a GHANAIAN CITIZEN who seeks the success of Ghana, and it is not a representation of the opinion of any institution.
Ibrahim Asare (CA, MCITG, ADTP, BCom, and HND)
ibasare@gmail.com; ibrahim@ibasare.com; @ib_asare; 0244 423 960
(The author is a Chartered Tax Practitioner- a Member of ICAG and a Member of the Chartered Institute of Taxation Ghana).
