Business News of Tue, 11 Sep 20180

Back 5% straight levy with empirical evidence – PEF

CEO of the Private Enterprise Federation (PEF), Nana Osei Bonsu, has said a scientific study must be conducted to ascertain the impact that the implementation of the 5% straight levy will have on the economy before it comes into effect.

Commenting on an appeal made by the Association of Ghana Industries (AGI) to Finance Minister Ken Ofori-Atta to suspend the implementation until the concerns of Industry are factored into the scheme of things, Nana Osei Bonsu told Moro Awudu on Class91.3FM’s Executive Breakfast Show on Tuesday, 11 September 2018 that: “There’s a lot more work to be done”, advising: “Let’s do a lot more study to ascertain the impact of this levy because sometimes we rush to impose [things] only to learn that it’s crippling certain parts of our industry or development or certain activities”.

“So, yes, what they [AGI] are saying is what a majority of our members share; that there must be a lot more exercising and a lot more review, analyses to come up with the empirical data to support or to amend that kind of levy, so, it’s in the right direction, that’s what we’re looking for”.

The AGI has written to the Ministry of Finance asking government to “hold off the implementation of the 5% straight levy in its current state” as announced by Mr Ken Ofori-Atta in July 2018 when he presented the Mid-year budget review.

The Finance Minister on Thursday, 19 July told parliament that there will be intensive conversion of the National Health Insurance Levy (NHIL) of 2.5% and also conversion of the Ghana Education Trust Fund (GETFund) VAT rate of 2.5% to a straight levy.

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“On the under-performance for the first five months of 2018, we will end the year with an estimated deficit of 4.9% of GDP compared to the programmed target of 4.5%, resulting in a fiscal gap of GHS870 million, unless we immediately implement some fiscal measures; intensive tax compliance measures, new revenue measures, intensive conversion of NHIL (2.5%) to a straight levy, conversion of GETFund VAT rate of 2.5% to a straight levy, imposition of luxury vehicle tax of GHS1,000 – GHS2,000 on non-commercial vehicles with capacity of 3.0 litres and above, review of PIT to include an additional band of GHS10,000 and above per month at a rate of 35% and downward adjustment discretionary expenditures,” Mr Ofori-Atta told parliament.

The amendment effectively reduces the VAT from 17.5% to 12.5%, making the disaggregated 5% a straight tax.

The AGI, in its letter, however said implementing the 5% straight levy will have dire consequences on consumer pricing leading to economic hardship.

“We, therefore, write to request your office to hold off implementation to allow for further engagement and fine-tuning,” the letter signed by the AGI’s Chief Executive Officer, Seth Twum-Akwaboah, said, adding: "Most businesses in Ghana have wide distribution channels which typically run from manufacturer/importer – distributor – wholesaler – retailer. The compounding impact of the 5% straight levy cost through the various value chains sampled shows a price inflation to the consumer of 15% – 20%. This will significantly impact the purchasing power of consumers as retail pricing is estimated to go up by 15% – 20%".

The AGI warned that it will be challenging for manufacturers to pass on the 5% cost through their value chains as the level of price inflation will cause volume contraction as consumers purchasing power is impacted.

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“This will create significant operating capital challenges consequently constraining re-investment, capital expenditure and job creation opportunities”, the AGI said, adding that since the implementation of the straight levy regime would mean manufacturers can only claim 12.5% leaving 5% as cost burden which will be passed on through the chain, it will put local manufacturers at a disadvantage as other businesses covered under the 3% VAT Flat Rate Scheme (retailers/traders) will not suffer the unclaimed VAT (5%) under the new straight VAT regime and can, therefore, offer more competitive prices.

“This effectively makes local manufacturers less competitive. The straight levy also places an additional tax burden on already tax compliant local manufacturers and increases already stretched Input cost pressures as the 5% becomes part of their production cost.”

In the AGI’s view, government must suspend implementation of the 5% straight levy “in order to safeguard businesses and livelihoods and also maximise revenue for the Ghana Revenue Authority.”

It proposed a waiver of the 5% straight levy for businesses with extended value chains and requested that the Finance Minister hold “further dialogue on alternative ways of generating the desired revenue without creating the identified inflationary impact through the chain”.

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