Reduce tax on PPPs to boost infrastructure investments — Govt urged

The 21 per cent taxes levied on total project cost undertaken by private sector players in the country is reducing their appetite for partnering governments to undertake major infrastructure projects, particularly under a Public Private Partnership (PPP) arrangement.

Consequently, players in the industry are calling for a major review of the present tax regime if the call for PPPs to change the narrative is to materialise.

The Chief Executive Officer (CEO) of ERIS Property Ghana, Enoch Entsua-Mensah, emphasised that the tax burden made many projects unviable, especially in the property development sector.

He referenced, for instance, the 21 per cent tax on total project costs and noted that the present situation was a major disincentive to private investors who were willing to undertake major infrastructure projects in key sectors of the economy, including the provision of student hostels to reduce the cost of accommodation facilities at the tertiary level.

Mr Entsua-Mensah raised the concern at the first quarter edition of the Graphic Business/Stanbic Bank Breakfast Meeting last Tuesday in Accra, on the theme: “Public-Private Sector Partnership, Financing Option for Sustainable Development".

The event brought together stakeholders, including private sector players and trade associations, bilateral development trade partners and various chambers of commerce operating in Ghana, to discuss how the government can use PPPs to finance national projects and developments.

Various reports assessing Ghana’s infrastructure deficit estimate that the gap stands at an average of $400 million annually. 

Much as governments have tried to bridge that gap, many bottlenecks, including project overpricing, overburdening taxes on projects, mismanagement and misallocation of financial resources, poor municipal infrastructure management, including lack of funding, lack of capacity, poor planning and oversight, lack of by-laws, grant over dependency and corruption.

Win-win

During the discussions, the challenge of how PPP agreements are designed in favour of the state without considering the value to the private sector players arose strongly.

It was against this background that Mr Entsua-Mensah urged the government to create a more favourable environment for PPPs by rethinking, in particular the current tax regime, by eliminating or reducing taxes to make such projects attractive, affordable and ultimately beneficial to both investors and the government.

Affordable housing for students

“PPPs sometimes are not viable if you consider the tax component, which currently constitutes about 21 per cent of the total cost of the project. If you take that 21 per cent off, it makes most projects viable, especially on the real estate side," he explained. 

Making particular reference to the educational sector, he brought to the fore the determination of the government to make tertiary education more affordable and noted that hostel projects on university campuses would remain expensive without a lot of tax reliefs to make them affordable.

According to him, hostel fees could drop from the current range of between GH₵7,000 and GH₵8,000 to a more affordable rate of between GH₵2,000 to GH₵3,000 only by removing taxes on such capital-intensive projects. 

Consequently, he reiterated that a critical review of the tax regime would encourage private investors to consider these projects, which would eventually serve the government's goal of supporting the education sector.

"If we are offering free education, including Free Senior High School (SHS), it makes sense to create a conducive environment for private sector involvement in infrastructure development, such as student housing, through PPPs," he added.

Pension funds

The purpose of investment in pension funds is to yield safe and fair returns for contributors/beneficiaries, as well as provide a pool of long-term funds for national development. 

According to the National Pensions Regulatory Authority (NPRA), many countries have supported the investment of pension funds through several means such as tax exemptions because of its potential to deepen capital mobilisation of the financial markets and increase the overall investment level in the economy leading to economic development.

Over the years, many experts have also stressed the need for governments to use pension funds to finance long-term capital projects in their quest to bridge the huge infrastructure gap in the country.

Mr Entsua-Mensah explained that pension funds, which often sought returns from long-term investments, could benefit from PPPs, saying: "With cash flow guaranteed, pension funds would be keen to invest in long-term projects such as PPPs”.

These partnerships, he said, offered a stable investment opportunity for pension funds, which were looking for sustainable, long-term returns.

“PPPs under this circumstance would be a good option for us as a country if we would want to develop. It is just a matter of making the environment friendly so that people with financing options would consider PPPs as a long-term option,” Mr Entsua-Mensah said.