Parliament on 31 March 2023 passed the Growth and Sustainability Levy Bill, 2022 (the Bill). The Bill, which shall come into force following presidential assent and publication in the Gazette, seeks to introduce a new levy, the Growth and Sustainability Levy (the Levy) to replace the National Fiscal Stabilisation Levy (the NFSL). In the Budget Statement and Economic Policy for the 2023 fiscal year presented to Parliament (the 2023 Budget), the Minister of Finance noted as follows:
“… in the spirit of burden-sharing the National Fiscal Stabilisation Levy (NFSL) will be converted into a Growth and Sustainability Levy (GSL) to cover all entities. Category A entities comprising those currently paying the NFSL and six additional sectors will have a rate of five percent on Profit-Before-Tax. Category B comprising all other entities (with the exception of the extractive sector) will have a rate of two and a half percent. Category C comprising entities operating in the extractive sector will contribute up to one percent of production to the Levy.”
According to the memorandum to the Bill, the Levy is intended to raise additional revenue for national development and social protection while cushioning the Ghanaian economy from the shocks resulting from the COVID-19 pandemic and the Russian-Ukraine war. The Levy is expected to generate significant revenue to government estimated at:
Year
Estimated revenue (GHS)
2023
2,216,389,230
2024
2,618,839,138
2025
3,008,160,199
2026
3,447,498,047
Key provisions of the Bill
As stated in the 2023 Budget, the Levy will be imposed on the following entities:
- entities presently subject to the NFSL in addition to bulk oil distributors, oil marketing companies, communication tower operators, upstream petroleum service companies, entities registered by the Securities and Exchange Commission and electronic money issuers (together Category A Entities);
- companies engaged in extraction of natural resources i.e., minerals and petroleum (together Category B Entities); and
- all other entities not being a Category A or Category B Entities (Category C Entities).
For Category A and Category C Entities, the rate of the Levy will be 5% and 2.5% of profit before tax, respectively. For Category B entities, on the other hand, the Levy will be imposed at a rate of 1% on gross production. The Levy will not apply to individuals.
Like its predecessor, the NFSL, the Levy is intended to apply to the specified entities irrespective of any agreements, or applicable tax laws relating to a tax holiday or exemption. The Levy is not an allowable deduction for the purpose of ascertaining the chargeable income of a person under the Income Tax Act. This implies that the Levy cannot be expensed for purposes of assessing an entity’s income tax payable for a given year. The Levy is payable in the 2023, 2024 and 2025 years of assessment.
Entities subject to the Levy are required to self-assess the Levy payable for any relevant year of assessment and pay the Levy on a quarterly basis. A return in respect of the Levy must be filed in the form, and at the place and time to prescribed by the Ghana Revenue Authority. Last but not least, the Bill repeals the National Fiscal Stabilization Levy Act, 2013, (Act 862) (as amended) (the NFSL Act), being the law which imposes the NFSL.
Comments & conclusions
The Bill, like the NFSL Act, evidently intends to override any previous legislation and contractual agreements regarding tax holidays or tax exemptions. This is especially concerning because in addition to the entities previously liable to pay the NFSL i.e., the Category A Entities, upstream petroleum and mining companies are now subject to pay the Levy. Some mining and petroleum companies have agreements with the State which confer on them stabilized legal and fiscal regimes. Enforcing the Levy against these entities would, therefore, amount to a unilateral variation by the State of these agreements and could expose the State to numerous international arbitrations for breach of contract.
The Ghana Upstream Petroleum Chamber has in a recent press statement noted that the Bill risks the collapse of indigenous oil service companies and could trigger disinvestment by international oil companies. The Chamber added that
“(t)his new tax disregards the importance of the preservation of contract sanctity to the promotion of new investment. Unpredictability of the fiscal terms of our petroleum agreements will disincentivize new oil and gas investment at a time when financial institutions are curtailing investment in fossil fuels.”
The wide scope of the Bill means that businesses in several sectors of the economy will be affected. As the Levy is not deductible for income tax purposes, businesses would have to absorb the increased cost of doing business whilst being forced to cut down on labour or other production inputs in an attempt to mitigate the increased cost of doing business. Such measures by businesses on a widescale could be counterproductive to government’s efforts to turnaround the country’s recent economic misfortunes.
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