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

African Independent - - NEWS - MASAHUDU KUNATEH

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

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