Business News of 2014-07-22

Local beverage manufacturers battle unfair taxes

An entrepreneur is calling on government to extend the same excise tax discount given to multinational breweries for sourcing 50% of raw materials locally to local beverage manufacturers who do same.

The failure of government to extend this tax incentive to local beverage manufacturers is said to be affecting them negatively as it makes local beverage manufacturers uncompetitive.

Government, in its bid to encourage local production for imports substitution to help ameliorate the foreign exchange problems, as well as promote employment and manufacturing, offered tax incentives to beer breweries.

Managing Director of Caltech Ventures Limited, Chris Quarshie told The Finder that for multinational beer breweries that provide proof of over 50% of local raw materials in their product, the excise tax is reduced from 30% to 10% on ex-factory price.

But this is not the situation with local beverage manufacturers who also use local raw materials for their products.

For example, local beverage manufacturer, Kasapreko Company Limited has initiated a strategic programme to source raw materials locally, which will subsequently create 1,500 jobs.

In line with this objective, the company has invested $7.5 million into Caltech Ventures Limited, a cassava plantation in the Volta Region, which is the main source from which raw materials such as ethanol, starch-based adhesive and food-based liquefied Carbonated Dioxide (CO2) will be extracted.

Kasapreko imports 25 million litres of ethanol per year at a cost of GH?63 million, and the company hopes to obtain 50% of its ethanol needs from the joint venture with Caltech.

The quantity of ethanol, starch-based adhesive, CO2, and electricity generated would all be tripled, with ethanol increasing from three million litres a year to 9 million litres a year within four years.

Mr Quarshie wants this same excise tax incentive to be extended to local beverage manufacturers, such as Kasapreko, who can also show evidence of providing 50% of local raw materials in their products.

He opined that extending the excise tax incentive to local beverage manufacturers has the potential to increase cassava production and create employment in rural areas to halt rural-urban drift.

According to him, it would also help build capacity to save the country the over GH?100m spent on the importation of about 60 million litres of ethanol a year.

Guinness Ghana Breweries, a subsidiary of UK-based Diageo, produced Ghana’s first cassava beer, Ruut Extra Premium, in December 2012, and in March of 2013 Accra Brewery Limited, a subsidiary of SABMiller, launched its cassava-based Eagle brand.

Ghana’s consumption stands at five litres per person per year, much lower than the African average of 10 litres per person per year.

SABMiller, the world’s second-largest brewing company, initially invested in Ghana in 1997 and has since expanded its operations to four bottling plants distributing 10 brands.

Diageo, the world’s largest brewery, began producing locally in 2004 through the joint venture with Guinness Ghana Breweries.

While producing locally, breweries have traditionally imported hops and barley, paying government excise taxes on raw materials.

In 2010, the government increased the duty from 25% to 50%, forcing firms to raise the price of beer.

Consumption dropped below five litres per person per year and has only recently returned to pre-2010 levels.

Both SABMiller and Diageo’s cassava beers are priced at less than their mainstream offerings and aimed at the lower end of the market.

This lower price is partly achieved by negotiating better tax rates with governments for using locally-sourced inputs.

The majority of alcohol consumed in Africa is still in the form of home brews or illicit liquor – products on which governments find it difficult to collect any tax.

By bringing more customers into the formal beer market, government tax revenues are therefore increased. Although cassava roots can be processed into a variety of products – including cassava flour, starch, and ethanol and glucose syrup – the crop has not been a great commercial success in Africa.

Despite the abundance of cassava in many African countries, sourcing the required inputs from thousands of small-scale farmers remains a challenge.

Source: The Finder Newspaper
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