Ahead Of 2019 Budget: Taxes On Local Products Should Be Scrapped

Nana Osei Bonsu, PEF President

The Private Enterprises Federation (PEF) Ghana has called on government not to either impose Value Added Tax (VAT) on locally produced goods or reduce it to at most 50% of the current rate.

This, according to PEF, would help strengthen the competitiveness of locally manufactured goods, including local furniture and footwear.

PEF said it would enhance the competitiveness of locally produced goods in terms of pricing as against foreign products, which are produced with tax incentives and low-cost funding from their respective governments.

PEF made the suggestion recently when it made inputs into the 2019 Budget Statement and Economic Policy of Government.

Tier tax system
PEF stated that its initial review of the Income Tax Act 2015 (ACT 896) (ITA) revealed that there were some provisions in the tax law, which impacted negatively on the operations of businesses, especially Micro, Small and Medium-scale Enterprises (MSMEs).

“Currently, the provisions of the ITA are generic and applicable equally to all businesses, regardless of size, capitalization, turnover and ability or inability to pay, disregarding the impact on infant industries and domestic indigenous MSMEs.

It said as a consequence, most of such domestic MSMEs fail to formalize their operations through incorporation as registered businesses in order to avoid payment of their share of taxes, thereby reducing the amount of tax revenues that accrue to government.

“The Federation is proposing a tiered system of taxation that will reduce the tax burden and cushion the hardships faced by domestic MSMEs in the country and make them more profitable, competitive and sustainable by keeping a fair share of their profits.

“This will ensure that businesses in different financial categories are made to pay taxes commensurate with their financial capabilities which will create an aura of voluntary tax compliance, lower the cost of tax administration and foster an expanded tax net which will in turn boost government tax revenues.”

Amendment of VAT Act 2013 (Act 870)
Citing the mid-year review of the 2018 Budget Statement and Economic Policy, it said although the VAT rate was reduced from 17.5% to 12.5%, government imposed 2.5% GETFund Levy and 2.5% National Health Insurance Levy on businesses which were approved by Parliament.

“These policies were introduced to reduce the burden on consumers; however it has a negative impact on VAT registered businesses. The way it is structured now, businesses cannot pass on the new levy which previously was passed through to consumers. It therefore reduces the opportunity for businesses to keep additional slice of their internally generated funds for operations and sustainability. Government continues to receive the same quantum of revenue by this restructuring, however it raises additional tax burden on businesses.

“The erstwhile VAT regime allowed VAT registered companies qualified to claim any VAT on imports and exports to reclaim their entire VAT payments through the input-output arrangements. However, the recent amendment reduced the reclaimable portion of the VAT impost from 17.5% to 12.5% with the conversion of GETFund and NHIL components from indirect tax to straight levies. These fiscal measures have culminated in a 5% increase in cost of production for companies which cannot be passed on to consumers.”

PEF revealed that the additional cost came on the back of a challenging business environment especially for mining companies that had undermined the competitiveness, as well as their continuous operations; especially the mining support companies involved in the supply of goods and services who were yet to recover from the impact of the 3% flat VAT that was recently introduced.

“We call for a review and reversal of this policy to abate its negative impact on the profitability and sustainability of these businesses in Ghana.”