From protection to strangulation: How Ghana's import taxes are hurting businesses, endangering the public and costing the government

Ghana's import duties, designed to protect domestic industries and generate government revenue, are increasingly under scrutiny. Mounting evidence suggests these duties are having unintended, detrimental effects on businesses, consumers, and the broader economy. Many analysts believe that the high import duties have become a major obstacle to trade, driving businesses to relocate, reducing port traffic, and leading to higher prices for consumers, unemployment, and lower revenue for the government.

High import duties increase the cost of goods entering Ghana, making it less attractive for businesses to operate within or through the nation's ports. While import duties on various goods range significantly, some exceed 50%, worse if you add all the attendant costs and charges that have unfortunately become fashionable in recent times. This has led many businesses to relocate to countries with more favorable trade terms, reducing the volume of goods processed through Ghanaian ports.

High import duties are making imported goods significantly more expensive in Ghana. For businesses, this has become a major deterrent. Smaller enterprises, in particular, struggle to absorb these costs, leading some to close down operations. Larger companies are increasingly looking to relocate to countries with more favorable import policies. The consequences are visible at Ghana's ports. Cargo volumes are declining as fewer goods are imported. This has a ripple effect, as jobs are lost in port operations, logistics, and related sectors. For example, the high cost of importing machinery and raw materials has discouraged manufacturing and industrial firms from using Ghanaian ports, also leading to a decline in port activity.

The numbers don’t lie. Ghana's imports have declined by 10% over the past year, with a significant drop in cargo volumes at the Tema and Takoradi ports, according to data from the Ghana Ports and Harbours Authority. This decrease in import activity is not an isolated phenomenon but part of a broader trend affecting the entire economy. The Ghana Chamber of Commerce estimates that the number of businesses operating in the country has decreased by 8% in the same period, resulting in significant job losses. This reduction in business operations has a direct correlation with the country's rising unemployment rates, as companies either shut down or move their operations to more favorable environments.

Consumer prices have also been significantly affected, with inflation reaching a three-year high of 23.6% in 2023. This inflationary pressure is largely due to the increased costs of imported goods, which are passed on to consumers. Higher prices for essential items such as food, medical supplies, and everyday consumer goods reduce the purchasing power of Ghanaians, contributing to a lower standard of living and increased economic strain on households. For consumers, high import duties translate to higher prices for a wide range of essential goods.

The recent Excise Duty (Amendment) Act 2023 has further exacerbated this issue. This act imposes a 20% excise duty on fruit juices, 50% on electronic cigarettes and liquids, and a hefty 61% increase on tobacco products. The excise duty rate on wine has also doubled to 45%, and that on spirits has also doubled to 50%. Additionally, manufactured tobacco is now subject to a dual excise duty of 50% plus GH¢280 per kilogram. These increases are not only exorbitant but also regressive, disproportionately affecting low-income consumers who rely on these products.

Take medical supplies, a critical commodity for any nation. High tariffs on these goods can have dire consequences. Ghana imposes import duties and VAT on medical supplies, increasing their cost significantly. During the COVID-19 pandemic, high import duties on essential medical supplies exacerbated shortages and drove up costs for hospitals and patients. This not only burdened the healthcare system but also pushed some medical supply companies to relocate to more tax-friendly regions, further reducing port activity and availability of essential goods.

Food is another essential category heavily impacted by import duties. High tariffs on food imports lead to increased prices for consumers, contributing to food insecurity. For instance, Ghana imposes high tariffs on imported rice, which makes it more expensive for consumers and increases the cost of living. This has a direct impact on low-income families, who struggle to afford basic necessities. Moreover, businesses dealing in food imports often pass these costs onto consumers, leading to inflationary pressures that destabilize the economy.

The tobacco industry provides another stark example. In addition to the hefty increases, importers also have to pay as much as the $15,000 per brand unit per year to the Food and Drugs Authority. While this has existed for years, its effects, combined with other tariff increases, discourage legal imports and fuel the black market, where smuggling becomes rampant. As legitimate businesses suffer, many are forced to shut down or relocate, leading to job losses. The tobacco industry in Ghana employs a significant number of people, and high import duties threaten these jobs, contributing to higher unemployment rates.

It's important to also note that this doesn't help the government but benefits multinational corporations, as the same brands from other markets like Togo and Nigeria cross the borders, leading to a drop in volumes in Ghana while volumes increase in Nigeria and surrounding markets. Besides the government losing revenue, the Ghana Revenue Authority and the Customs Excise and Preventive Service under it, need to invest extra resources to fight the influx. The draconian laws and charges have not achieved the intent of reducing tobacco use, but have instead fueled illicit trade, depriving the government of revenue and posing serious health risks to consumers.

While high import duties may seem like a straightforward way to increase government revenue, the reality is more complex. As businesses scale back operations or relocate, the tax base shrinks. Additionally, reduced economic activity due to the higher cost of doing business can lead to lower overall tax collection. The thriving black market, particularly for tobacco products, further erodes potential government revenue. It is estimated that Ghana loses millions of cedis annually to illicit tobacco trade.

The reduction in port traffic due to high import duties has a domino effect on the economy. Ports are significant employment hubs, and a decrease in port activity leads to job losses not only in logistics but also in related sectors such as transportation, warehousing, and retail. For example, the Port of Tema has seen fluctuations in activity due to varying import duties, affecting local employment and economic stability.

Additionally, high import duties can lead to lower tax revenues for governments. When businesses relocate or smuggling increases, the government loses out on legitimate tax revenue, which can strain public finances and reduce funds available for critical infrastructure and social services.

Ghana's current import duty regime requires urgent reassessment. A more balanced approach is needed, one that considers the needs of domestic industries, consumers, and the overall economic health of the nation. A phased reduction in duties, especially on essential goods, could ease the burden on consumers and businesses. Exempting critical sectors like healthcare and certain food items could improve affordability and access. It is equally important to crack down on the black market, particularly for tobacco, to protect consumers and ensure legitimate businesses can compete.

To revitalise Ghana's trade sector, we must initiate a complete review of the import duty structure to align it with regional and international standards. By reducing these barriers, Ghana can attract businesses, increase trade, and stimulate economic growth. Our goal must be to create an environment where local industries can thrive without excessively burdening consumers and stifling broader economic growth. It's a delicate balance, but one that Ghana must achieve to secure its economic future.

BY Kwame Ofori Appiah (freelance writer on business, economy and trade)

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