As a Tanzanian on secondment with PwC Ghana in Accra, and working in the area of taxation, it is of particular interest to me to see if there are taxation initiatives in Ghana that might be of interest back home. Common to both countries is a recognition of mutual dependency between Government and the private sector - with the former expected to facilitate an environment to nurture the latter, and the latter to then drive growth and related tax revenues that will help fund development aspirations of the former. This might be aptly summed up in the following well known Ghanaian proverb: “The left hand washes the right and the right washes the left”.
In Ghana, the budget is read in November with changes normally taking effect from January of the following year. Some of the most significant recent changes in Ghana were past at the end of the 2017 in an Amendment Act introducing various tax exemptions and incentives. These included incentives to encourage investment (for instance, exemptions on income from approved unit schemes or mutual funds, as well as approved real estate investment trusts); to encourage small businesses (with incentives targeting young entrepreneurs) and to promote education (including exemptions for privately-owned universities).
As a youngster, my interest and the focus of this article is in relation to tax incentives for young entrepreneurs. But then who is a young entrepreneur for these purposes? What sectors should the entrepreneur be engaged in? What are tax incentives that Ghana is making available to this person? and what are the lessons that Tanzania may learn?
A “young entrepreneur” is defined for these purposes as an entrepreneur who is not more than thirty-five years old and engaged in certain specified businesses (manufacturing, information communication technology, agro processing, energy production, waste processing, tourism and creative arts, horticultural and medicinal plants).
The tax incentives available to such young entrepreneurs include an income tax exemption on their business income for the first five years, following which they can enjoy locational incentives on the tax rates ranging between 5 per cent - 15 per cent. However, these incentives are only available to individuals and sole proprietors, and so not to a company.
Most countries promote investments. I understand that Tanzania is doing whatever it can to encourage and promote individuals to create jobs and so eventually attain the “Tanzania ya Viwanda” (Tanzania of Industries, as made popular by the President of the United Republic of Tanzania, Dr John Pombe Magufuli). Against this background the question arises as to whether there are other lessons that we might take from Ghana. One point I would mention is that some years ago the general corporate income rate was reduced to 25 per cent (subject to exceptions for mining and upstream petroleum business who pay at a rate of 35 per cent); might Tanzania benefit from a standard 25 per cent corporate income tax rate?
In addition, Ghana has location-specific preferential income tax rates (ranging between 5 per cent-20 per cent) geared towards promoting businesses to settle in the areas other than the business capitals. For example, a manufacturing business located in the regional capital of Ghana is taxed at 18.25 per cent and a manufacturing business located elsewhere in Ghana is taxed at 12.5 per cent. Could this or other targeted income tax reliefs (perhaps accelerated write off for capital expenditure [“tax depreciation”]) be an idea to promote investment in particular locations outside Dar es Salaam, for instance Dodoma?
In the event that there is recognition of the need for a separate tax regime for small entrepreneurs I would question the Ghanaian approach of limiting the young entrepreneurs tax reliefs to individuals and not companies. In particular, based on my experience both at home in Tanzania and now in Ghana, I am aware that many existing small entrepreneurs have their businesses registered as companies and to exclude them would seem discriminatory.
Personally, I believe that a well targeted tax incentive regime for young entrepreneurs in Tanzania could help boost growth in the creation of employment opportunities, production, and consequently the generation of more tax revenue. West Africans love proverbs, and let me close with one more (and this time from Nigeria): “It is from a small seed that the giant Iroko tree has its beginning”.