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18.11.2013 General News

Confusion In Parliament Over 2.5% VAT Increment

By Ghanaian Chronicle
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Stephen Odoi-Larbi
Parliament on Friday adjusted the Value Added Tax (VAT) from 12.5% to 15%, amidst strong protest from the minority members who described the manner of the passage as a 'day of shame for Ghana,' and in the process boycotted the rest of the proceedings.

With the 2.5% increment (20% in real terms), coupled with the 2.5% National Health Insurance Scheme levy, the overall VAT rate now stands at 17.5%.

The increment follows the passage of the Value Added Tax (TAX) Bill 2013, by the legislature, with majority voice votes sealing the deal.

The minority, who felt ambushed by their colleagues on the majority side, described the tax increment as 'robbing Peter to pay Paul', referring to the reduction in electricity tariff by 25% by the government, after initially increasing it to 78.9%, to buttress their claim.

A fortnight ago, the government, faced with threats of massive protests from various labour groups in the country for increasing water and electricity tariffs, reduced the later by 25%.

The House was greeted with chaos when a deputy Minister of Finance, Cassiel Ato Baah Forson, proposed a last minute amendment of Clause 3 of the VAT Bill, 2013, which resulted in the increment from 12.5% to 15%.

Clause 3 of the bill, prior to its amendment read: 'Except as otherwise provided in this Act, the rate of the tax is 12.5% and calculated on the value of the taxable supply of goods and services or on value of the import.'

The bill, which had gone through the first, second and consideration stages, following its introduction to the House in July, 2013, was ready to go through the third reading and pronounced passed, when Chairman of the Finance Committee, James Klutse Avedzi, called for it to go through a second consideration stage, and thereby, paving the way for the deputy Finance Minister to propose the amendment for the increase in the rate.

The object of the bill was to revise and consolidate the law relating to Value Added Tax and to provide for related matters.

Amendment
Mr. Forson, in proposing the amendment said: 'Mr. Speaker, I wish to move an amendment to impose an additional 2.5% increase in the VAT. Since the VAT is a broad-based tax, we will be able to raise an amount of GH¢745 million.

This additional revenue will not be devoted to consumption but will go to support the capital development portion of the budget in the year 2014.

Subsequently, from the year 2015 onwards, the whole amount will be put into an infrastructural development fund, from which only investment projects will be funded. Mr. Speaker, I beg to move.'

Before moving the amendment, Mr. Forson had told the House that the country was now a middle-income State and, therefore, the availability of concessionary loans, aids and grants were considerably reduced.

He said the cost of borrowing was also higher in the world market and, therefore, stressed the need for the country to strike a balance between external borrowing and internal resource mobilization.

'It is, therefore, the period to rely on local resource mobilization,' he noted, adding 'The Value Added Tax is a mechanism that will enable us raise these resources.'

The bill, he said, would have basic food, aquatic products, animals, transport, health and educational materials exempted.

First Deputy Speaker, Ebo Barton-Odro, who presided over the proceedings of the House, listening to the deputy Finance Minister put the question as to those who were in favour for and against the amendment for the voice vote.

With majority votes outdoing the minority, Mr. Barton-Odro ruled for the amendment to become part of the bill.

Procedural error
But the minority, not content with the hasty manner in which the amendment was carried out, raised the question of procedural error, arguing that the amendment was moved without somebody seconding it.

But the Majority Leader and Minister of Government Business, Dr. Benjamin Kunbour, in a sharp rebuttal, said there was no need for a motion to be seconded during the consideration stage of a bill.

At this point, the House was sharply divided, with both sides shouting and pointing their hands at each other.

Having failed to arrive at a common ground, the minority, lead by its leader, Osei Kyei-Mensah Bonsu, walked out of the chamber, resulting in the boycott of the rest of proceedings. But notwithstanding their action, the majority went ahead to pass the bill.

A day of shame
Moments after the walk out, Mr. Kyei-Mensah-Bonsu told journalists at a press conference that the increase in the VAT rate was 'a day of shame for Ghana', noting that there was nothing in the bill which suggested government's intention to increase the threshold of the VAT.

Buttressing his argument with Article 106(2) of the Constitution, Mr. Kyei-Mensah-Bonsu said the bill should have indicated to the House the policy underpinning the 2.5% VAT increment and what it was that the current regime was not doing which the bill wanted to achieve.

'If there are any defects, let's know. Unfortunately, somebody just gets up to introduce to us that the threshold should go up by 2.5%. Now it goes up to 15% from 12.5%. This is dangerous for us as a country,' he noted.

He said, what the majority and the Finance Minister sought to do was to spring the VAT increment on the minority as a surprise, but what they failed to tell the country was what the government intend doing to plug the loopholes, since 'there is massive corruption in the system.'

The Minority Leader, who is also the MP for Suame, described the conduct of Mr. Barton-Odro as 'most reprehensible.'

Majority Leader's stake
However, the Majority Leader, Dr. Kunbour, in explaining the intent of the bill, also told journalists that the country was among the lowest VAT rated countries in the world, hence the upward adjustment to rake in more revenue to finance various infrastructural projects.

He cited neighbouring Burkina Faso, Burundi, Cameroun, Central Africa Republic, Egypt, Gabon and Morocco among countries in the African continent charging 18%, 18%, 19.25%, 19%, 25%, 18% and 20% VAT rates respectively.

He said the country should have increased the VAT rate in 2011, but the government lacked the political will to do that and said now was the time to 'bite the bullet', before the presentation of the 2014 budget.

He described the action of the majority as a smart move and argued that 'in politics, one has to be smart to capitalize on any given opportunity.' Turning the heat on the minority, he said their action was most unfortunate since they did not use the proper channel to stage a walk out.

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