2022 Budget Cages The Poor Than Rich

We understand that when the public finances deteriorate to certain historic levels, off course the signal from the international capital markets (e.g Eurobonds) looks negative such as junk ratings, high premiums, coupons etc. The recent downgrade of Ghana’s Creditworthiness (highly to default) on the world capital market has putting the Gov’t in a desperate position to raise monies/funds domestically through taxation. However, some of the tax target components (MoMo & foreign remittances tax) is extremely inappropriate since these are the main sources of survival for the ordinary Ghanaian so it’s like letting- the -rich of the hook and caging the poor. It is advisable government unleased innovative tax regimes and focus on extraction sectors than soft-spots like MoMo.

The Foreign remittances (inward = transfers to Ghana) helps both the Gov’t and the ordinary Ghanaian, and even helps the government the most in terms of poverty reduction, balance of payment, foreign exchange etc. Gov’t uses the Foreign remittances (inward) to stimulate the foreign exchange and subsequently improves foreign reserves and rates.

To the ordinary, Foreign remittances primarily helps to alleviate extreme poverty through “consumption smoothing “thus, the little (€10-€100) abroad transfer to families at home enables them to put food on the table, settle debts and sometimes as capital, so any taxation that affects these sources of income of the masses would effect on poverty levels.

Let’s look at empirical and literature perspective on impacts of remittances, the work of (Adams and Page 2005:1646) concluded that remittances ‘reduce the level, depth, and severity of poverty’ of receivers and their communities. Ratha (2005) found that remittance flows lowered the proportion of people living in absolute poverty in Uganda, Bangladesh and Ghana by 11, 6 and 5 per cent, respectively.

Also, Gupta et al. (2007) find that a 10 per cent increase in a country’s remittances-to-GDP ratio corresponds with a fall in the percentage of people living on less than $US1 a day of just more than 1 per cent. The World Bank (2003), the OECD’s Financial Action Task Force (2005) and Spatafora (2005) also find reductions in absolute poverty among remittance receivers.

For example, if I am sending €15 euros equivalent to Ghs100 to my mom with tax cost (1.75%) and she receiving at tax cost (1.75%) without even considering the intrinsic value LOST through current inflation rate (11%) and even the actual transaction charge of the sending agent

, let’s say ( western Union, WU). Now, the current transaction fee of western Union on €15 Euros to Ghana is €1.90 euros. Let’s calculate how much my mom will receive out of the €15 Euros. Total Cost = Evans tax cost + mom tax cost + WU fee = (€0.2625 + €0.2625) + (

€1.90 ) = €2.425i . Thefore, all things being equal, mom will receive €12.575 (€15-€2.425) with our equivalent cost of GHS16.829 (€2.425*6.94) as provisional in a sense that government has not finalized engagements with the Telcoms, and that the proposed 1.75% Momo and remittance tax is Government-to- Telcoms. Now that, the telcoms will go to their drawing board to factor-in risks, benchmarks and other factors to come up with telecoms-to-consumers charges

and benchmarks. Hence, the probability the actual net tax Ghanaians will pay with Telcoms would be higher with lower benchmark (than government proposed) and vice versa.

The big question is, how does Ghana tax regimes alleviate absolute poverty especially the 2022 taxes considering the huge gap income inequality between the poor and the rich? because Ghana is cited in empirical studies as country where remittance flow reduces absolute poverty by 5% ( Ratha ,2005).

Given the above I think one doesn’t need deep constitutional, finance, economics knowledge and power -muscle to understand that some of the tax components in the 2022 budget will hard- hit the poor than rich whilst the rich would be cushioned in amount of their wealth and amount to transact in real time (due to disparity of income levels).

It is my prayer that our tax regimes will be poor-friendly and extraction sector focused going forward.

God bless Ghana

Evans DARKO, Researcher, CREM Lab, France.