General News of Mon, 16 Jul 201849

Economist singles out Free SHS as cause of imminent VAT increase

An economist at Ghana’s premier university has blamed government’s ambitious free secondary school education policy for an imminent increase in the rate of Value Added Tax (VAT).

The Free Senior High School (Free SHS) policy was started in September 2017 under the Nana Addo Dankwa Akufo-Addo’s administration, being a major campaign promise prior to his election as president in 2016.

Under the policy, government grants full subsidies to all eligible Junior High School (JHS) students progressing to the Senior High School level.

Dr Priscilla Twumasi-Baffuor, an economist at the University of Ghana, believes because the financial burden of funding millions of students to attend secondary school for free is huge, managers of the economy are taking the easy way out through major increases in VAT.

Speaking on a special edition of Joy FM’s Super Morning Show ahead of the presentation of Thursday’s Mid Year Budget Review by the Finance Minister, Ken Ofori-Atta, in Parliament, Dr Twumasi-Baffuor, whose specialty is in labour markets, gender, and inequality and development, said the proposed increase in VAT is a telltale sign that government bit more than it can chew with the free SHS policy.

“Government was a bit over ambitious with the free SHS programme and basically, the government is overstretched. If you look at [disbursement of government revenue] after payments of wages and salaries…nothing [is left] for the area of investment. We are just maintaining the status quo,” she submitted on the Super Morning Show, which was held at Amissah-Arthur Seminar room at the Economics Department of the University of Ghana.


She added: “Value Added Taxes are easier to collect so the government will fall on that given the circumstances but the bottom line is that the free SHS was a major campaign message that caught up with a lot of people but a lot of people who are benefitting from it do not need it. They didn’t need it and they don’t need it.

“Why do you give free school fees. Why do you give parents whose children went to [first rate schools]…parents who are paying thousands of dollars for basic education and all of a sudden their children get to the secondary school and it’s free for everybody. [Government] could have done proper targeting, make sure that children who are coming from public schools who did not pay school fees at the basic level continue with free SHS but those who are coming from the private schools could have continued to pay," she reignited the debates preceding the introduction of the policy.

VAT increase hints

There are hints that the Minister of Finance is likely to increase the VAT to 21.5 per cent from the current 17.5 per cent in the Mid-Year Budget Review on Thursday.

A confidante of the President, Gabby Asare Otchere-Darko, ignited suspicions about government's intentions when he made a Facebook asking whether people would support taxes for free education, healthcare, among others.


Joy News’s sources suggest that President Akufo-Addo is not in favour of any proposal to increase VAT and has called a Cabinet meeting to get managers of the economy to rescind the move.

Too many loopholes

On the Super Morning Show, Dr Twumasi-Baffuor said government must focus on streamlining the current tax system to seal huge sources of leakages.

“There are too many loopholes in [the revenue collection] system. There should be some streamlining of the system,” she stressed.

Tax increase must be justifiable


Head of the Economics Department of the University of Ghana, Prof Peter Quartey, suggested that beyond the possible increase in taxes, government must provide a justification for the taxes it has collected previously.

“We have depended on taxation and it is about time we started to move away from that. Yes we have to tax but there are non-tax revenue options that we should explore,” he said.

He said a marginal increase in VAT would be in order, if government would pursue prudent use of the tax revenues.

“We have had this current government in office for almost two years. Now people will start to ask ‘what have you done with the taxes you have collected so far?’ And then if [government] asks for a marginal increase perhaps to fund NHIS [National Health Insurance Scheme] I don’t think it will be difficult for Ghanaians to accept that,” Prof Quartey advised.

Revenue inadequacy


Meanwhile, Ghana is burdened with a severe revenue adequacy. The country’s total revenue stream is consumed by three main budgetary lines: Wages and salaries, interest payments and amortization and statutory payments.

According to official figures, these three along consume about 99.6% of all revenue collected by the state.

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