When tax incentives robs the education budget --who suffers?

Estimate—Ghana loses about $1.2 billion through tax incentives and tax holidays incentives each year and this is stated as a conservative estimate, according to ActionAid-Ghana.

Fact—that amount is more than a thousand times the entire budget allocation for the free Senior High School (SHS) programme this year and almost three times more than the entire budget for education in the 2017 budget. 

According to experts, the country’s trade policy and development agenda have over the years been dictated by the desire to attract Foreign Direct Investment (FDI) and to increase export earnings. Tax incentives have ,therefore, been a major strategic tool to achieve these goals.

However, this strategy defers the payment of corporate taxes. It gives companies, mostly multinationals time limits typically between five to 15 years from the start of their operations in Ghana where they are exempted from paying taxes. 

 

Trade offs
In the view of experts on taxation and economy, such incentives gives special exemptions to companies to recover investment costs before coming into tax payment position.

 The policy, apart from presumably helping the country stay in competition for FDIs, is aimed at incubating new companies into maturity, as well as helping in job creation. 

In other instances, some companies benefit from waivers on imported items because they are executing projects in Ghana but the critics of this system say it is discretionary and highly abused because of lack of inadequate parliamentary oversight. 

However, according to a report titled ‘The West African Giveaway: Use and Abuse of Corporate Tax Incentives in ECOWAS’ and authored jointly by ActionAid International and Tax Justice Network-Africa, those tax freebies cost the Ghanaian economy around $2.27 billion every year.

It also observed that “despite years of granting generous incentives to investors, the objectives of increased job creation and employment have not been realised in most ECOWAS countries. Foreign direct investment to West Africa has increased but not in the sectors that create the most jobs such as manufacturing. Neither is such investment the result of corporate tax incentives but rather the existence of natural resources, namely oil and gas.”

 

What tax holiday cash fit?
It is not only the unemployment that those incentives fail to fix; it also takes its toll on financing education which is seen as the gateway to escaping poverty.

ActionAid-Ghana in a 2017 reported titled ‘Tax, Education Privatisation and the Right to Education’ which analysed tax incentives and education financing in Ghana stated that just 20 per cent ($ 240 million) of $ 1.2 billion of those tax giveaways when invested in the education in Ghana could dramatically transform education.

It listed eight challenges of the educational sector that could be addressed with $240 million, including 657,334 extra places would be available for Ghanaian children; 92,308 teachers could be employed,  6 million children would be fed/year;  42.8 million textbooks could be provided; 42.6 million uniforms could be provided; 13,796 extra classrooms could be built; 192,000 classrooms could be furnished; 72.6 million children could be provided with water, sanitation and health facilities.

That is just 20 per cent and if that entire amount is available to the educational purse annually, the government could comfortably afford to pay for the free Senior High School (SHS) policy without the financial sweat and headache the present administration is enduring.

 

Funding gap 
It is this lack of funds that compelled the government to bail out on second and third year SHS day students that were enjoying the progressively free education introduced by the Mahama administration in September 2015.

 The policy started with day students and for the first term, 320,488 students were covered. They were made up of 111,212 first-years, 109,731 second-year and 99,753 third-year students. However, the current budget is silent on whether the Akufo-Addo administration would continue to cover the cost of students in the system.

In March this year, the Ghana National Education Campaign Coalition (GNECC) warned that the government’s budget for the SHS education in the 2017/2018 academic year was inadequate to even cater for a term’s expenditure.

Using the estimated enrolment figures for senior high schools and the Technical and Vocational Education Training (TVET) of 432,780 and 16,119, respectively, the coalition estimated that it would cost the public purse a little over GH¢1.6 billion in the first year against the GH¢400,000 budget by the government.

With the deep gap  in state financing of education in Ghana and other developing countries, experts suggest that the perception of deteriorating quality of public education has encouraged the increase in private schools. 

At the basic school level, public or government schools tend to be regarded with suspicion by ordinary Ghanaians who question the quality of their teaching, especially as Basic Education Certificate Examination (BECE) results from these schools are less than impressive.

However, beneath the veneer of this bad results lay deep-seated challenges including poorly-funded interventions including the Capitation Grant—government funds released to public basic schools to cover their running—the School Feeding Programme, the Free Compulsory and Universal Basic Education (FCUBE) Programme, high infrastructural deficit, inadequate textbooks, poor supervision and poor teacher attitude to teaching and learning.

In the face of their financial difficulties, most public school authorities are forced to push the extra cost of running their schools to parents in the form of fees, including Parent Teacher Association (PTA) levies, examination and extra-classes fees among other hidden costs.

 

Free but unrealisable
While the 1992 Constitution guarantees every Ghanaian child the right to free and quality education, the reality is that there are many constraints.  As the headmistress of the Adentan Community School in Accra puts it, “Free education is good because every child has the right to be in school but major constraints include infrastructure.

She, however, said the school had to turn away some children because it had exceeded its enrolment figures of 45 pupils by taking 60 pupils per class. 

Other schools have from 70 to 90. This affects class discipline and control and ultimately academic performance,” she said. 

With lack of public confidence and performance deficit at the heart of public basic -school education, most parents prefer turning to the private schools whether the high end ones which charges dollars or low-cost ones which are available in rural areas and slums— where even public schools tend not to be available. 

Similar structures exist at the secondary level. But there is tough competition for places in public SHSs which are far better regarded than their basic school counterparts but again, children from expensive private basic school snatch the spots in most of the top public senior high schools, leaving children from poor homes with deprived public SHSs and private ones which tend to be expensive.

According to the ActionAid-Ghana report, the existence of private schools had “helped to ease pressure on the public basic schools. However, on the negative side, private schools have entrenched inequity in education provision.

“ It is only parents who can afford the high fees that are able to send their children to the relatively high quality private basic schools,” it said. 

With that in mind, some stakeholders including the Tax Justice Coalition and the GNECC argue that it is time to cut down on those tax rebates because they are not living up to the purpose behind the incentives. 

 

Unwarranted & abused
According to them, while the tax the tax incentives were not necessary bad, they were subject to abuse by successive governments and in some cases, unwarranted since the sectors they were given in were attractive and profitable.

“Some of the reliefs are not warranted. For instance,when the Merdian Port services wanted to invest about $1.5 billion and we were giving them about $852 million as tax relief. We can’t say it is totally wrong because they would do corporate social responsibilities.

However, when the then Minority complained about it, they were able to scale it down and got back about $50 million. It means it was possible to reduce it further, the National Coordinator of the Tax Justice Coalition, Mr Bernard Anaba, said.

For her part, the GNECC National Coordinator, Ms Veronica Dzeagu observed that the tax incentives were starving public education of the needed funds to train the country’s manpower, adding that its current state, the incentives were in the interest of foreign companies that repatriated their profits to their countries at the expense of the Ghanaian child who needed quality and affordable education.

 “Our interest is into more funding into public education and the preference is for that financing to come from domestic sources which is taxes because they are more predictable compared to aid. The cost to the public is very minimal.

“Increasingly, the government is pushing its responsibility to the private sector.  There is a rapid growth in private sector involvement in education and the government is just sitting back relying on that meanwhile, majority of the students in our schools are from poor backgrounds,” he added