Article: Bawumia’s new tax system

Tax is a compulsory contribution to a country’s revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions. The primary purpose of taxes is to fund government spending and public expenditures and to regulate and reduce negative externalities.

Ghana currently employs the progressive tax system it inherited since independence. This type of tax system involves a tax rate that increases or progresses as taxable income rises. Most people however do not understand it, and it is extremely cumbersome, and subject to much abuse, making it less beneficial for the country. This is one of the main reasons Dr Bawumia seeks to change our tax system and implement the Estonian tax model.

According to the Tax Competitiveness Indexes for 2023, the Estonian tax system is transparent, straightforward, and currently the best in the world. It has maintained this position for the past ten years with an overall score of 100.0, followed by Latvia in second place with a score of 88.5.

The driving force behind this positive achievement is that there is no corporate income tax on reinvested and retained profits, meaning that Estonia’s corporate income tax system allows businesses to reinvest their revenues tax-free and expand their operations considerably faster without incurring additional costs.

Individual income is taxed at a flat rate of 20%, which will increase to 22% on 1 January 2025. There are also no taxes on distributed dividends that have already been taxed with corporate income tax. Taxes on property are based solely on the value of land, not real property or capital. It has a territorial tax structure that exempts 100% of foreign earnings made by domestic corporations from domestic taxation, with rare exceptions.

Dr Bawumia will also introduce a tax amnesty for a period to wipe out tax obligations for individuals and cooperative bodies, giving them a fresh start in business. This will help Ghana move to a flat-rate tax system, which is based on a single tax rate on incomes, products, and services.

Due to exchange rate fluctuations and higher duties, importers have been struggling at the ports to clear their containers. Dr Bawumia will address this issue by introducing a flat rate tax in cedis on import duties and ensuring that the duties in our ports will either be equivalent to or lower than those in our neighbouring country, Togo. This will ease importers’ struggles, encourage them to use our ports, and prevent the use of unapproved routes for goods.

Dr Bawumia’s proposal to adopt Estonia’s tax model aims to simplify our tax system and stimulate economic growth. Combined with the introduction of a tax amnesty to provide businesses with a fresh start and the implementation of a flat-rate cedi tax at our ports, this initiative will transform Ghana and usher in a new era of opportunities.

Neil Owusu

The writer is a member of the national communications team of the NPP