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‘Review Free Zones Tax Concessions’
 
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09-Nov-2017  
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Dr John Kwakye
 
 
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Government has been asked to consider a major review of concessions granted by the Free Zones Act to enable the operators in the zone contribute to enhancing government revenue.

The move has become necessary because not much taxes are paid by companies operating from the free zones even though these form part of the country’s GDP.

The Institute of Fiscal Studies (IFS), which made the suggestion, said the displacement of the tax bases for such companies was seriously eroding the country’s tax/GDP ratio.

“Tax exemptions and concessions granted to operators in the country’s free zones also work to undermine effective revenue mobilization,” it noted.

According to the Free Zone Act, 1995 (Act 504), a free zone enterprise shall have the right to produce any type of goods and services for export, except goods that are environmentally hazardous.

Free zone operators and enterprises granted licences under the Act are exempt from the payment of income tax on profits for the first 10 years from the date of commencement of operation, and the income tax rate after 10 years shall not exceed a maximum of 8 percent, while companies operating outside the free zone pay between 25 and 30 percent.

Also, free-trade zone shareholders are exempt from the payment of withholding taxes on dividends arising out of their investments.

State-owned enterprises

The IFS said state-owned enterprises (SOEs)’ contribution to government revenue was very low, as many of them do not declare dividends annually.

SOEs are legal entities established by the government to undertake commercial activities on its behalf.

As at 2012, government owned 33 SoEs and their assets and liabilities were estimated at GH₵32.9 billion and GH₵16.6 billion respectively.

It said although these enterprises did not directly depend on the national budget to finance their operations, those in the energy and utility sectors got affected by government subsidy policies, adding that the profitable ones, such as COCOBOD, paid dividends annually to support the national budget. Dividends, interest and profits from SoEs contributed GH₵561 million, about 12 percent of the total non-tax revenue of the government in 2013.

Cause of low dividend payments

IFS attributed the low dividend payments by SoEs to political interference in their operations, weak management and poor supervision.

“There is also no robust and transparent framework for assessing the management of SoEs, causing many of them to underperform. The budgets of many SoEs are not disclosed, making it difficult to assess their financial performances annually.

“Many SoEs do not share their budgets with the public or the relevant government institutions. They usually prepare their budgets for the information of only their boards. Management of these SOEs are not publicly held accountable for their performance and budgets,” it stated.
 
 
 
Source: Daily Guide
 
 

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