The Minister of Finance, Ken Ofori Atta presented the 2023 Budget and Economic Policy Statement before Parliament on 24th November 2022. The budget, named as the “NKABOM Budget” literally translated as “United Budget” highlights the macroeconomic and fiscal policies aimed at factory setting the economy and restoring macroeconomic stability.
According to the budget, the goal will be achieved through the enhancement of revenues, expansion of local production, and investment in social intervention programs.
The government is putting in place key mobilization measures, notable among them is the increase of Value Added Tax (VAT) rate by 2.5% on goods and services. E-Levy is expected to be reduced to 1% of the transaction value, however, the daily threshold of GH100.00 will be removed.
Whilst these measures will improve revenue mobilization for the Government, they could increase the cost of doing business inadvertently, thereby raising inflation figures.
If the proposed 2.5% VAT increment is approved, it is going to hurt cashflows of businesses. This is because businesses need to seek extra cash to make input purchases like raw materials. The 2.5% VAT increment will also translate into high prices of goods and services which has to be borne by the final consumer.
Historically, the Government has introduced different taxes and levies in an effort to improve domestic revenue mobilization for its various development agendas. Customs taxes introduced over the years include Ecowas Levy, African Union Levy, Excise Environmental Tax, Special Import levy (SIL), EXIM Levy, Special Petroleum Tax (SPT), Road Levy, Energy Debt Recovery Levy Recovery Levy (EDRL), Energy Fund Levy, Import VAT, Import NHIL, Import GETFL, Destination Inspection Fee, and ICUMs charge.
In 2021, the government introduced the Financial Sector Recovery Levy and COVID-19 Health Recovery Levy. The Financial Sector Recovery Levy was introduced to raise revenue to support the financial sector reforms and for other matters. The rate of the Levy is 5%, applied on the profit before tax of a bank with the exception of rural and community banks. COVID-19 Health Recovery Levy was introduced as one of the post-COVID-19 economic recovery policy.
The rate of the Levy is 1% on the supply of goods and services made in the country other than exempt goods or services; and import of goods and services other than exempt imports.
In addition, The Energy Sector Recovery Levy was reviewed through the passage of Energy Sector Levy (Amendment) Act, 2021 (Act 1064). The rate of the Energy Sector Recovery Levy is 20 pesewas per litre on Petrol and Diesel and 18 pesewas per kilogram on Liquified Petroleum Gas. There is also a Sanitation and Pollution Levy of 10 pesewas per litre on Petrol and Diesel at the pump.
In 2022, the Government revised the VAT Flat Rate scheme by moving retailers whose annual turnover is GHS 500,000 and above to the VAT Standard Rate Scheme. Affected retailers bemoaned of high prices of their goods compared to their counterparts who are still under the VAT flat Rate Scheme.
Price Stabilization and Recovery Levy was also reviewed with the following rates: Petrol GHp 16 per litre; Diesel GHp 14 per litre; and LPG GHp 14 per litre.
These and many more other taxes including the tourism levy, fees and charges of regulatory institutions of the government, would continuously slow business transition and take others out of business. This is equally making doing business in Ghana difficult and frustrating. With a freeze on public sector employment until the IMF deal ends in 2025, the private sector would need more freedom and transparent environment to do business and create jobs.
The introduction of the new and irritative taxes would also not allow the private sector to employ new and maintain talents. This would increase the already existing high unemployment in the country.
Maxwell Nketia is a chartered Accountant and Business Development Analysts at ILAPI. His research interest are tax policies and Workplace Accounting for Business Transition