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Fri, Jan

Minister of Finance, Ken Ofori-Atta

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However, it is clear that the litany of tax cuts above are also denying government the needed revenue to deliver the goods for the commons. Leading to a deficit of revenue inflows to the tune of 1.5 billion thereabouts.
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The argument that the new taxes; i.e. intensive conversion of NHIL (2.5%) And GETFund VAT rate of 2.5%to straight levies, would be automatically passed directly by industry to consumers is one which disconnects with reality, when it comes to management practice in the business world.


The fact is that producers do not glory in price hikes, since it is actually inimical to their business. As such, not every little cost, which doesn't necessarily increase the marginal cost of production is automatically piled onto product or service prices. The simple reason being, you reduce your output volume by unnecessarily increasing prices. Then again, if the competition absorbs such cost, while you just pile it up, you will be on the losing side.

I believe the rational businessman will look at the new flat rates just passed within the context of the earlier concessions granted by government. These new rates should not in any way drastically erode the benefits that businesses may enjoy as a result of the following litany of tax cuts by the government:

1. Reduction of the corporate tax rate from 25% to 20%
2. Removal of import duties on raw materials and machinery for production within the context of the ECOWAS Common External Tariff (CET) Protocol
3. Abolishing the Special Import Levy
4. Abolishing the 17.5% VAT on imported medicines not produced in the country
5. Abolishing the 17.5% VAT on Financial Services
6. Abolishing the 5% VAT on Real Estate sales
7. Abolishing the 17.5% VAT on domestic airline tickets
8. Reduction of VAT for micro and small enterprises from the current 17.5% to the 3% Flat Rate VAT
9. Introduction of tax credits and other incentives for businesses that hire young graduates from tertiary institutions, and
10. Review of withholding taxes imposed on various sectors that have constrained the liquidity of many businesses.

If all the above tax cuts are in place and effective, I don't see the reason why any producer or service provider will jump to increase prices simply because there's been some claw back on the above tax incentives. (Holding all other production costs constant)

However, it is clear that the litany of tax cuts above are also denying government the needed revenue to deliver the goods for the commons. Leading to a deficit of revenue inflows to the tune of 1.5 billion thereabouts. As such, I believe the motive for these new taxes (which by the way can be said to be incident on producers) is that they help revert some of the revenue lost to government.

At the same time, they're not directly incident on consumers, as the case would have been if the taxes were increased as VAT. So undoubtedly, there's been tax increases, but it has been structured in a manner so as to enable it to be accommodated within the earlier pockets of relief created for industry; such that it doesn't impact the ordinary man as harshly (if even at all) as a VAT increment would have.

Again, those who earn fatter wages are being asked to trim off a little bit of the fat, to support government in providing the goods for all. I like this tax for one simple reason; the seeming "I don't care" attitude of the Ghanaian middle class. They seem to be comfortable and nonchalant about how our national revenues are used or misused. I believe when they continue to feel the pinch of paying more than everyone else, they'll be awakened to the activism that will put government on its toes; towards some level of fiscal discipline.

As for the lifestyle taxes, it’s my view that they are long overdue. My position is that governments must progressively affect behaviour, by discouraging frivolous spending; and the revenues creamed off from those who do not put good money to productive use re-channeled to relieving social inequalities by alleviating the plights of the poor and marginalized, all other things being equal.

My thoughts!

 

 

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