Government, industry on warpath over new Ghana tax
Industry has warned that thousands of jobs could be lost and profits cut as a result of the new system
AMASS culling of jobs and a legal standoff between the Ghanaian government and the private sector as well as the opposition is looming over a contentious tax scheme the administration has implemented to address loopholes in revenue collection.
Earlier in July, West Africa’s second-biggest economy put in place the 3% value added tax (VAT) Flat Rate Scheme (VFRS).
While the government of President Nana Akufo-Addo, inaugurated in January, is adamant the system would enhance the cost of doing business and plug gaps in the collection of some taxes from businesses, especially those in the wholesale space, opposition and the industry are incensed.
The opposition National Democratic Congress (NDC) legislator, Clement Apaak, has instituted court action against the attorney-general, Gloria Akuffo, challenging the legality of the 3% VAT flat rate charged on importers of taxable supplies.
The Builsa South Member of Parliament argued under sections of the 2017 VAT Act, wholesalers and retailers of taxable goods are placed on the VFRS and are therefore statutorily disqualified from deducting the input from their sale of taxable supplies.
The said legislation, Apaak argued, purports to implement sections of the Act by seeking to extend the coverage of the VFRS to importers of taxable supplies who either sold their goods to retailers or directly to consumers.
He argued that in implementing VFRS, Akuffo stated that although importers had been placed on the VFRS and were thus subject to the charge of VAT/ National Health Insurance Levy (NHIL) at 3%, they would continue paying the VAT/NHIL at importation at the standard rate of 17,5%.
Illegal Apaak considers this illegal. “The purported act of subjecting importers to both the VFRS and the standard rate is unlawful as there is a justifiable legal basis for it in the 2017 VAT Act,” he argued.
“Since the AG seeks to impose both the VFRS and the standard rate of VAT on importers of taxable goods, she cannot at the same time disqualify such importers from deducting their input tax, a right available to all other persons subject to the payment of the standard rate of VAT.”
Apaak is therefore seeking an order for the refund to all affected taxpayers.
Industry has warned thousands of jobs could be lost as a result of the new tax system.
Companies which are bearing the brunt of the tax said the consumable tax was affecting their profit margins hence their resolve to reduce their workforce, in a country where the unemployment rate is put at 48%.
Simon Madjie, the executive secretary of the American Chamber of Commerce (Ghana), said the flat rate affected profit generation.
“If businesses think that the new tax rate will affect their profit significantly, then they look at ways to remain profitable and it involves cutting jobs,” said Madjie.
The chamber has companies employing over 3 000 workers.
The Association of Ghana Industries (AGI), the Importers and Exporters’ Association, the Food and Beverage Manufacturers’ Association of Ghana, and the Ghana Automobile Distributors’ Association also hinted they were planning to lay off close to 5 000 workers if the government does not yield to demands regarding the scrapping of the tax.
“So, we hope that government sits down and looks at the businesses’ concerns, especially manufacturers in this situation,” an executive member of the AGI stated.
Samuel Aggrey, general secretary of the Food and Beverage Association, said businesses could be forced to increase prices of their products to help them break even.
“This is because we appreciate the impact on our operations.
“The rising input cost has forced us to pass it on to wholesalers and the final consumer,” Aggrey said.
He conceded the increases could impact on an economy the president has said was in “bad shape.”
Aggrey said because of the compounding impact of the tax, simulations of various value chains showed price inflation leaping from 6% to 15%.
Impact “This will significantly impact the purchasing power of consumers and the general public as costs of goods are estimated to go up,” said Aggrey.
“The decreased purchasing power will affect the survival of small retail shops as they will no longer be competitive as their products will be too expensive. Big retail shops will go into direct import and sell at cheaper prices, thereby taking the small retail shops out of business.”
Also, he said, manufacturers and retailers would resort to direct imports and direct distribution, thereby bypassing the distribution value chain which will lead to unemployment.
An economist, Opoku Mensah, said the 3% tax would have a cascading effect on the value chain.
“At every level of the value chain, 3% VAT will be applied thereby increasing working capital pressure.”
The government, however, holds a different view.
Deputy Finance Minister, Kweku Kwarteng, said VFRS is aimed at addressing the loopholes in the collection of some taxes from businesses, especially wholesalers.
He rejected assertions that it would increase the cost of doing business in the country.
“Several scenarios we considered revealed that, in some situations, the tax obligations of some firms will reduce,” Kwarteng said.
The now-ruling New Patriotic Party during its campaign last year and in the 2017 Budget pledged to “simplify” the VAT regime by replacing the 17,5% Input-Output Tax with a 3% flat rate.
There was as earlier delay in the introduction of the tax, which government said was to engage broadly with stakeholders.
According to the Ghana Revenue Authority (GRA) , while the Output Tax was charged on value added, the new flat rate is charged on turnover. The new approach, GRA assured, is not anticipated to increase prices or the cost of doing businesses.
“It is rather aimed at simplifying the process for VAT compliance and reduces tax avoidance,” a spokesperson said. – CAJ News