VAT GOES UP!!! - BY 2.5%
With effect from Sunday 1st August 2004, VAT rate will go up from 12½% to 15%. This means that the prices of all goods and services affected by VAT will have their VAT component increasing by 20%.
This was announced by the Minister of Information, Nana Akomea, at the Press Launch of what he and his NPP Government call the "National Health Insurance Levy" but which is in reality a 2½% increase in VAT.
The NPP Government has been under pressure from the IMF/World Bank to increase the VAT rate ever since it came into power in January 2001. However, because of its strident opposition to the VAT when in opposition, it has been very difficult for the Party-in-Government to bite the bullet and increase the VAT rate.
NPP Against VAT
It will be recalled that in 1995, the NPP opposed the VAT. They opposed especially the then 17½% VAT rate. J. A. Kufuor, J. H. Mensah, K. K. Apraku, Yaw Osafo-Maafo and almost all the NPP managers of the economy today were most vehement in their opposition to the VAT.
They converted themselves into a pressure group, the 'Alliance for Change' (AFC), and organized countrywide street demonstrations. In Accra, the demonstrations were massive. They were violent. Four people died.
That did not deter the NPP and their acolytes. They took the street demonstrations to all the regional capitals.
The NDC, as a caring and listening Government, backed down. It withdrew the VAT. It repealed the VAT Act, 1994, Act 486.
It went back to the drawing board, repackaged the VAT, reduced the rate to 10%, reduced the threshold to ¢200 million, and reintroduced it in 1998 under Act 546 after three years of intensive public education.
The NPP opposed all these.
In 1999, the NDC needed to increase the VAT rate. The NPP opposed it.
The NDC decided to establish the GETFund and apply the 2½% VAT rate increase to the GETFund. The NPP still opposed it. Their MPs walked out of Parliament and refused to vote for the GETFund and for the VAT rate increase.
Enter the NPP Government in 2001.
The NPP does an about-turn
In its very second year in government, in the 2002 Budget, they tried to smuggle a 2½% increase in the VAT rate from 12½% to 15% in a most surreptitious and non-transparent manner. They introduced a new budget line in the 2002 Budget called "Other Revenue Measures" and assigned to it a revenue target of ¢454.8 billion.
This was immediately analysed by NDC gurus to mean a 2½% increase in the VAT rate.
The NPP Government was unable to implement it, so in Appendix 3 to the 2003 Budget, the 2002 Provisional Outturn for that revenue item was 0.0 (Appendix 3, Page 155, Line 19, Column 3 of 2003 Budget).
The IMF insists on VAT
Under pressure from the IMF still following the abortive US$1 billion IFC loan fiasco, President Kufuor wrote to the IMF Managing Director that he was then willing, ready and able to increase the VAT rate.
IMF Deputy Managing Director Anne Kruger replied the President as follows:
"--we greatly appreciate your clear statement that the envisaged VAT increase will be part of the 2003 budget package" (Page 3,, paragraph 2, bullet point 6 of IMF Managing Director Anne Kruger's letter to President Kufuor dated November 14, 2002).
President Kufuor's government dutifully inserted an increased VAT rate in the 2003 Budget, but in a most surreptitious and non-transparent manner, almost like a "thief in the night", as if the NPP Government was afraid of what it was doing.
At paragraph 531, page 113 of the 2003 Budget Statement, it was stated that:
"A contribution to the health insurance premium of 2.5 per cent on expenditures and transactions is proposed to provide part of the funding necessary to establish this [Health Insurance] Scheme".
But the NPP/IMF conspiracy to deceive the people of Ghana had been sown earlier and had been exposed in an IMF "Back to Office" Report authored by Mr. Hugh Bredenkamp after an IMF Mission had held discussions with the NPP Government in Accra.
In the covering Memorandum to the Managing Director and the Deputy Managing Director of the IMF dated December 18, 2002, Mr. A. Bio-Tchane had stated in summary that the Ghanaian authorities had promised that:
"The Budget would incorporate a five percentage point increase in the VAT rate, albeit "rebranded" to make it politically more palatable--".
In Mr. Bredenkamp's own report itself, he put it a slightly differently as follows:
"The budget would include an increase in the VAT of five percentage points, but would re-label the measure to limit political opposition. This repackaging, the precise form of which remains to be specified, will entail a one-month delay in implementation to allow for a "public education campaign".
The promised VAT increase has now been achieved in two phases. Last year's astronomical and unprecedented 100% increase in petroleum prices raised the equivalent of what would have been raised by a 2½% increase in VAT. The National Health Insurance Levy will raise the additional 2½%, thus achieving the 5% VAT increase, which is a conditionality for the HIPC completion point. That was why it was possible for the IMF to announce in Washington DC that the country had reached the HIPC completion point two days after Nana Akomea had announced that the VAT increase was to be effective from Sunday 1st August 2004.
Apart from the problems of morality caused by the NPP's historical opposition to VAT and the criminal conspiracy between the IMF and the NPP Government to deceive the people of Ghana by "rebranding" and "re-labelling" VAT as a Health Insurance Levy in order to "make it politically palatable" and in order to "limit political opposition", there are several other matters of serious moment that Nana Akomea's Press Conference failed to address.
"Levy" for how long?
The NPP Government has signed another covenant with the IMF under which the VAT increase will be used as a Health Insurance Levy for only six months. After that period, when what they call the "seed money" would have been accumulated, the 2½% VAT increase will become part of the general revenue available to Government.
Effective Date of Scheme
Nana Akomea simply states that "when the scheme becomes effective, an insured patient would not have to pay directly from his or her pocket for health service at the time of use".
Thus, even though he states the date on which the levy becomes payable, that is Sunday 1st August 2004, he does not state the date on which the Scheme becomes effective. It is therefore possible that the scheme will become effective on the same date that the levy becomes payable. It is also possible that for one day, three months, six months, or even one year after the levy has become payable, the scheme would not have become effective and the cash and carry system will still be in effect.
That is why we of the 'Ghana Palaver' have chosen to believe that the Scheme will become effective on the same day as the levy becomes payable, that is, Sunday 1st August 2004 (see our "Front Page Comment").
Nana Akomea was also silent on the types of diseases that will be covered by the Scheme, referred to as the "Minimum Benefits" under the Scheme. These are also supposed to be spelt out in an L.I. to be issued by the Minister of Health. But though Nana Akomea mentioned L.I. 1793 as having been placed before Parliament to mature after 21 days, he did not indicate when the L.I. was placed before Parliament and neither did he mention the minimum benefits nor the effective date of the Scheme.
Clearly, the NPP Government's major interest is in the revenue that is to accrue from the levy and in being seen to have fulfilled the IMF conditionality, not the health care of the people affected by the Scheme.
Under the existing VAT law, the tax is not payable on electricity. However, in mentioning the range of goods and services that will not attract the 2½% increased VAT, Nana Akomea included "electricity (up to the prescribed minimum consumption) - whatever that means.
Translation - Beyond the "prescribed minimum consumption", electricity will now attract VAT. What we are not sure of is whether it will attract VAT at 15% or at 2½%.