State coffers bleed as millions are lost to unlawful tax exemptions

                                                       

In 2021 and 2022, three Oil Marketing Companies (OMCs), Zen Petroleum, Gaso and Goil, lifted fuel worth millions of cedis at the Takoradi port. It seemed to be business as usual. But behind that was a serious financial breach. The Ghana Revenue Authority (GRA), without Parliamentary approval, illegally waived the taxes the companies were mandated to pay for lifting fuel.

According to the Auditor-General’s report for 2024, Ghana lost GHC234 million as a result of the exemptions granted in 2021 and 2022 alone.

But it is just a small glimpse into a much larger problem.

In the records of the Auditor-General (AG) between 2012 and 2024, the Ghana Revenue Authority (GRA) and the Ministry of Finance granted tax exemptions to companies and individuals either without Parliamentary approval or without any applications for those waivers in the first place. The result? GHC274 million, which could have built roads, improved healthcare, or funded education, has been lost with little to no chance of recovery.

Unapproved exemptions and missing documents

According to the Exemptions (Amendment) Act, 2023, all tax exemptions must follow a process including submitting a formal application to the Minister of Finance, followed by a vetting process and approval by Parliament.

Despite clear legal procedures, multiple instances of non-compliance were uncovered by the Audit Service in their audit of public institutions.

The OMCs in Ghana are among highly profitable businesses in the country with a constant flow of revenue due to high demand for fuel.

Yet, despite this financial muscle, some of these companies were granted tax exemptions that, according to the Auditor-General, were issued without the legally required approvals from Parliament.

In 2012, James Mensah Tchokpa, the Assistant Commissioner of the Customs Division of the GRA at the Tema Oil Refinery, could not provide documents for the tax exemptions granted to ten OMCs who lifted oil from the Tema Oil Refinery. This cost the state GHC2.3 million in uncollected taxes.

The illegitimate exemptions, however, go beyond OMCs. The institution, which is mandated to do all within its legal power to bring revenue to the state, the Ghana Revenue Authority, has itself been supervising and allowing unlawful exemptions without following procedure. In its 2018 report, the Audit Service faulted the GRA for granting GHC10.14 million in tax waivers to two manufacturing companies without the required parliamentary approval.

Red Housing Services, a Tema-based free zones company, received exemptions for duties and taxes on prefabricated housing units it sold to some mining and energy companies. The company received the exemptions in 2018 and 2019, both without approval from Parliament.

Pioneer Food Cannery (Magydom Enterprise), producers of Starkist Tuna and other tuna products, was also exempted from paying duty for importing fishmeal.

The Finance Ministry has also been faulted for granting illegal exemptions. In 2015, the Ministry granted Mawums Company Limited, a construction firm, tax exemption to clear construction equipment valued at over GHC1 million. The exemption was granted on the condition that the amount would later be refunded to the state. However, the company negotiated an installment plan, promising to settle the debt by December 2020. But according to the 2020 audit report, when the deadline came, the company defaulted in paying GHC550,000 out of the total amount.

Between 2016 and 2018, tax exemption records revealed that Goldkey Ghana Limited, a prominent real estate company in Cantonments, Accra, was spared from paying customs duties and taxes amounting to GHC7.4 million for importing construction equipment. The waiver was granted based on approval from the Ghana Investment Promotion Centre (GIPC), an approval that, under the Exemptions Act, should only have been granted by Parliament. Goldkey, known for its high-end residential, commercial, and mixed-use developments in Accra, caters largely to Ghana’s elite and expatriate market. In 2022, it secured a US$35.9  million contract from the Bank of Ghana to construct its new head office, a deal awarded during a steep depreciation of the cedi against the dollar. When the Audit Service requested for proof of parliamentary approval, the company could not provide any.

The real estate company’s case, however, was far from isolated. In 2019, T-Point Logistics Company, a logistics and warehouse management company cleared goods worth over GHC3 million in waived duties. The company could not also provide documents to prove that the waiver was approved by Parliament.

Penalty and interest waivers granted without application

While some companies were granted exemptions without approval, others received penalty and interest waivers without applying for them at all.

 Under the Penalty and Interest Waiver (Amendment) Act, 2021 (Act 1081), anyone seeking a waiver must submit a written application, and such relief is granted to those who have either paid their principal tax debt or made adequate arrangements to do so. But the 2023 Auditor-General’s report revealed that the then Commissioner-General of the GRA, Ammissahdai Owusu-Amoah, bypassed these requirements. He approved waivers worth GHC7.65 million for 49 companies and individuals, none of whom had applied for the exemptions in the first place.

In that same year, 2023, three companies, African Beach Hotel, IMPA Marine & Offshore (a logistics company) and YOU 84 Enterprise Limited (a supermarket), all based in Takoradi in the Western Region received waivers on penalties and interest for taxes they still owed. The GRA explained that these companies had either rescheduled their debts or made “satisfactory arrangements” to repay them. Yet, the taxes they owed remained unpaid at the time the waivers were granted.

Each year, audit reports paint a dark picture of massive revenue leakages and urge strict enforcement of laws. However, the unlawful granting of tax exemptions has continued. The tax exemption system, originally intended to attract investment, has become riddled with abuse.

After years of pressure from civil society, Parliament passed the Exemptions Act in 2022. But almost immediately after the passage of the law, the cracks began to show. That same year, Parliament approved a US$4 million tax waiver under the government’s flagship One District, One Factory (1D1F) programme, not for a manufacturing company, but for 4-Mac Limited, a company building a hotel in the Airport Residential Area in Accra. The 1D1F initiative was designed to boost industrialisation, not finance luxury accommodation. Meanwhile some manufacturing companies under the same initiative had not received the waivers they were promised. To make matters worse, 4-Mac was not among the Ministry of Trade and Industry’s official list of 1D1F beneficiaries.

If the passage of Act 1083 was meant to mark a new era of accountability, 2024 proved otherwise. The year saw the most blatant disregard for the law and tax exemption breaches reached their highest levels, accounting for 85 percent of all unlawful exemptions granted in more than 10 years. The exemptions granted to only three OMCs in 2024, totaling GHC234 million, exceeded the combined value of exemptions granted in 2019, when ten companies received unlawful exemptions.

Lesley Mensah, an economist at the Institute of Fiscal Studies says it is “deeply problematic” that the Ghana Revenue Authority granted exemptions without parliamentary approval and to people who did not even apply for them.”

“The Exemptions Act is comprehensive. If breaches are occurring, it suggests weak implementation,” he told The Fourth Estate.                                                  

The Act, Mr. Mensah explained, contains safeguards meant to narrow the room for abuse including a requirement to publish reports on exemptions granted, beneficiaries, and the justification for the exemptions. Failure to follow these requirements undermines the law, he says. “An unlawful exemption is an unlawful denial of revenue to the state and is a sanctionable offence. If it’s possible to disallow them and surcharge offenders, the Auditor-General should do so. If not, the [Audit Service Act] should be amended to make that possible.”

Mr. Fredrick Lokko, Assistant Director of Audit at the Audit Service, agrees that enforcement is the missing link. While the Auditor-General’s reports consistently flag these breaches and recommend recovery of funds, he said, institutions have often failed to act. “Enforcement of the Auditor-General’s recommendations and directives of the Public Accounts Committee is still weak,” Mr. Lokko says.

This story was produced with support from the Media Foundation for West Africa through the Thomson Reuters Foundation global project aimed at strengthening free, fair and informed societies. Any financial assistance or support provided to the journalist has no editorial influence. The content of this article belongs solely to the author and is not endorsed by or associated with the Thomson Reuters Foundation, Thomson Reuters,  Reuters, or any other affiliates.