On Labour Day, May 1, new taxes came into effect in Ghana. Historically, Labour Day emerged from the struggle of workers for basic rights, such as an eight-hour workday. This is the same day that the Government of Ghana used to usher in tax hikes that represent austerity for the majority of the employed and unemployed population.  Life is hard already; it is about to get harder.

Life is hard for many because of growing inequality. According to a 2019 Oxfam study, The West African Inequality Crisis, Ghana is the second most unequal country in the West African region, which is the most unequal region in all of Africa. The report states:  “In Ghana, West Africa’s second biggest economy, one of the richest men earns more in a month than one of the poorest women could earn in 1,000 years.” The same report adds: “The wealthiest 10% of Ghanaians now account for 32% of the country’s total consumption. This is more than the consumption of the bottom 60% of the population combined, while the very poorest 10% of Ghanaians consume only 2%.”

The very poorest 10% of Ghanaians consume only 2%”but they are unlikely to benefit from an exemption on capital gain taxes. However, the government’s 2021 budget proposes permanent tax exemptions on capital gains on listed securities. 

What exactly are capital gains? Imagine this: your “godfather” owns a business, real estate, and stock or some other financial instrument. If your “godfather” sells the real estate at a profit, then the profit is capital gain realized. It is a type of income. Now, the Ministry of Finance wants to permanently stop taxing capital gains.

Why should capital gains be exempted from taxes?  When the average employee earns an income, he/she pays taxes.  Even citizens who are not formally employed pay taxes. For example, a young woman hawking in the street pays taxes via one of the most regressive tax mechanisms --VAT.  In short, labour is consistently taxed whether it is formalized or not.  Why is it appropriate to tax work, but not tax income earned without actual work?

During the budget reading, the Ministry of Finance (MoF) told the country that Ghana needs to increase revenue mobilization. This was the basis for MoF’s proposed range of “new” taxes.  Because the country needs to mobilize domestic resources, the MoF admonished the majority to tighten our belts and squeezed us with new taxes.  Yet, for those who own shares in the various companies in the Ghanaian capital markets, the GoG offered to make permanent tax exemption on capital gains.

Are you going to benefit from these permanent tax cuts on capital gains? Unless you have shares in some of the Ghana Stock Exchange listed companies such as: AngloGold Ashanti Limited, Access Bank Ghana, Ecobank, MTN Ghana, SIC Insurance Company Ltd, and Tullow OIL PLC, you are not going to benefit. Those who own shares in these companies are the ones who will smile at their bank statements. These tax cuts are meant to benefit them and the companies they own shares in. 

Permanent tax cuts on capital gains are bad for Ghana.  It will rob the country of an opportunity for revenue mobilization. It is also likely to contribute to deepening inequality and undermining the creation of a more fair and just society. 

In the current context, Ghana needs an increase in capital gain taxes and for it to be taxed as it accrues; also necessary is an effective property tax regime, so the rich pay their fair share. Ghana needs to increase corporate taxes on multi-national corporations and curb excessive tax incentives given to investors. This will help strengthen domestic resource mobilization and may also reduce inequality. Instead of this we are told of a freeze on the salaries of elected officials.

Three questions could be asked: how much revenue will Ghana lose from enacting permanent tax exemptions on capital gains on listed securities?  How much revenue will Ghana save by freezing the salaries of elected officials? How much revenue would have been realized if there were no tax cuts on capital gains and there was a freeze on the salaries of elected officials?

Cutting capital gain taxes penalizes working people who work to earn their incomes. Fairness and economic justice requires that we bring back capital gain taxes now.

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Chaka Uzondu (Ph.D.) is a Policy Analyst. His writes about topics such as: agroecology, food sovereignty, health, housing, political economy/ecology and water, sanitation, and hygiene (WASH),