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12.09.2005 Feature Article

Time for Tax-smart Economy

Time for Tax-smart Economy
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It is apparent that the economic growth of a country is greatly dependent upon a rational/positive tax system. Economically developed countries depend on rational tax systems to maintain their economies. Under a rational tax system, a country may encourage the importation of goods that are not readily produced domestically by imposing lower tax/duties on such goods when they are imported into the country. Contrary, a country imposes stiff/high tax on imported goods that can be or that are readily produced domestically

Unfortunately in Ghana, successive governments have turned themselves into nothing but irrational tax-collection agencies, thereby ignoring tax rationality. Presently, the tax system is very irrational.

Before Kuffour's government came into power some six years ago, it projected itself as private-sector friendly but its tax gorilla is devouring Ghanaian entrepreneurship. In 2003, Ghana's Hoteliers Association complained about the irrational high tax imposed by the government. The Association noted that hotel rates, and other services provided by hotels were very high due to the irrational nature of the tax system. The government did not heed their cry. Today, it is true that comparing “banku with banku,” hotel rates in Ghana are higher than rates in the United States. This should never be the case since Ghanaians do not earn as much as Americans do.

Another industry threatened by the irrational high tax system is the printing industry. In the Daily Graphic issue of Tuesday August 3, 2004 the Ghana Printers and Paper Converters Association cried out, “High import tariffs on printing materials are killing the local industry.” The printing materials in question are not produced in Ghana so there is the need for lower taxes, however the government imposes higher taxes. A government that taxes the printing industry to the point of suffocation is not a serious government as far as economic development is concerned.

In August 2005, the Pharmacy Business Executive Association, an association of people in the pharmaceutical industry, called on the government to consider removing taxes and other levies on all drugs to be prescribed under the National Health Insurance Scheme. Imported drugs attract 10 per cent duty, 12.5 per cent VAT, and 2.5 per cent NHIS. This would be rational if the drugs could be produced or are produced domestically. However, that is not the case! Why the government imposes such high taxes on drugs is beyond my understanding.

Again in August 28 this year, speaking in his capacity as the National Vice-chairman of the Ghana National Tailors and Dressmakers Association, Reverend Akwanda decried the government for a 400 per cent tax increase recently imposed on dressmakers and tailors. Tailors and dressmakers compete against importers of used clothes, and it seems the government is on the side of the importers

Meanwhile, despite the fact that Ghana produces enough rice, there is free flow of rice importation into the country due to low tax on imported rice. In various ways, Ghanaian rice producers have been urging the government to discourage the importation of rice by imposing higher taxes. However, so far their cries have fallen on deaf ears.

Poultry producers had to drag the government to court in an effort to compel the latter to implement its own Act 641 of imposing 40 per cent tariffs on imported poultry. The Ghana National Association of Poultry Farmers won the court case but the government on March 18, 2005 rushed to parliament to have Act 641 repealed. The government reduced the tariff to 20%, thus overruling the court. In the court case, this is what the counsel for the government said, “They [local poultry farmers] have a hidden agenda. Their real reason for bringing this action is that if the 40 per cent increase is implemented it will make imported poultry products more expensive so that they will enjoy the unhindered advantage of capturing the local poultry market or gain monopoly over the local market to maximize profit. This kind of attitude cannot be in the public interest.” This is obviously a government against the private sector

Ghana was sufficient in textiles but our textile manufacturing companies had to close down due to cheap importation of textiles from China, and other such countries. Again, there is low tax on imported textiles giving them competitive edge over locally produced textiles. This is another area that the government had to impose high taxes but it did not

Now, if you have ever imported a vehicle into the country you have surely tasted the bitter tax-pill of the Kuffour government. In the summer of 2005, I imported a 7-seater Dodge Caravan into Ghana. I bought this vehicle, engine capacity of 3.0 liters, for $3,200. Shipping cost me $1,200. This is a total of $4,400. That is, Cedis 39,160,000 (rate: $1 to C8,900). In Ghana, I had to pay customs duty totaling $3,108. Let's forget the shipping costs. Now, a vehicle that costs an American $3,000 costs a Ghanaian buyer at least $7,508 (purchase price + Ghanaian duty) due to an irrational tax system.

It is obvious that where the government needs to impose high taxes on foreign goods to protect local entrepreneurs it does not do so, where it has to impose lower taxes to encourage certain imports to improve upon the economy it does not do so. Dr. Kwaku Obosu-Mensah Assistant Professor of Sociology Lorain County Community College, USA Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

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