Challenge of reducing consumer prices in Ghana: The impact of high taxes on businesses

In recent years, Ghana has experienced significant economic growth, attracting both local and international businesses. However, one major challenge that businesses face in the country is the burden of high taxes.

In a recent publication on GhanaWeb, Minister of Trade, Kobina Tahir Hammond, is quoted to have made a clarion call on businesses to reduce prices of commodities by businesses to consumers.

K.T Hammond in the said publication, was reported to have implored members of the chamber of commerce and industry and other business owners to reduce their prices and help make life a little bearable for the consumer.

While businesses strive to provide affordable goods and services to consumers, the high tax rates imposed by the current government make it highly impossible to reduce prices for consumers and where businesses cannot cope with persistent tax increases, the effect of such fiscal measures could be dire for both Industry and government.

Just as the many calls by various key industry players on the need for government to consider to review some of the key fiscal policies on taxes to help reduce the burden on manufacturers which in the long run will help reduce prices on the consumers' end, the Association of Ghana Industries (AGI) has also joined the trail in a petition to address matters on the adoption and passage into law the Excise Tax Amendment Bill.

AGI believes a bill that seeks to amend Act 2014 (Act 878) to further increase and impose excise duty on mineral water, sweetened beverages, and spirits, to generate revenue for the government needs to be reconsidered.

With the high-rise rate of inflation of 54.1% and currency depreciation of 120%, businesses have had to increase product prices about 5 times in the last 12 months to be able to sustain their operations.

This article explores the reasons behind this difficulty and highlights the impact of high taxes on businesses in Ghana.

Tax Burden on Businesses:

The current Ghanaian government relies heavily on taxes to generate revenue for public expenditure, infrastructure development, and social welfare programs. While taxation is essential for economic development, the high tax rates imposed on businesses create a significant burden that hampers their ability to reduce prices for consumers. Businesses are required to pay corporate income tax, value-added tax (VAT), import duties, and various other levies, which significantly increase their operational costs.

Cost of Compliance:

The complexity of Ghana’s tax system and the associated administrative costs further exacerbate the burden on businesses. Compliance with tax regulations requires significant resources, including hiring tax consultants or accountants, maintaining accurate financial records, and dedicating time and effort to comply with reporting requirements. These additional costs reduce the financial capacity of businesses to lower prices for consumers.

Limited Profit Margins:

High tax rates directly impact the profit margins of businesses in Ghana. Profit margins are crucial for business sustainability and growth, as they provide the necessary funds for investment, expansion, and innovation. However, when a substantial portion of the revenue is allocated to taxes, businesses have limited room to reduce prices for consumers without compromising their profitability.

Inflationary Pressure

High taxes contribute to inflationary pressure in the economy. When businesses are burdened with high taxes, they are compelled to pass on the costs to consumers, resulting in higher prices for goods and services. This creates a vicious cycle where businesses struggle to reduce prices due to high taxes, while consumers face the brunt of inflationary pressures, further reducing their purchasing power.

It is sad to note that Ghanaian consumers are made to pay exorbitantly high indirect taxes and levies on many basic goods. According to a press statement released by the Food and Beverages Association of Ghana, consumers pay up to 100% of the cost of some items due to various taxes imposed by the government. The statement provides many examples of shocking price inflation due to taxes.

The statement states that a tin of evaporated milk costs ¢8.5 before taxes, but retails at ¢15.5 after taxes, which is an 82% increase.

High Cost of production

According to the Association of Ghana Industries, the high increase in public utilities namely gas, electricity, and water whereby the percentage increase of water is 172% for the beverages category, 80% for the industrial category, and 65% for electricity. These high rates of public utilities expenses cannot be sustainably borne by the industry and represent a significant deviation from an 8% average increment as announced for water tariffs in the recent tariff review.

I am of the view that as much as I believe strongly that industries do not oppose taxation, it is equally worthwhile for the government to pay heed to the calls for the review of these policies.

In wrapping up, while taxes play a crucial role in funding public expenditure and supporting national development, the high tax rates imposed on businesses in Ghana present a significant challenge to reducing consumer prices. The tax burden, compliance costs, limited profit margins, inflationary pressure, and reduced competitiveness all contribute to the difficulty faced by businesses in offering affordable goods and services to consumers.

To address this issue, it is essential for the government to review and revise tax policies, striking a balance between revenue generation and supporting sustainable business growth, ultimately benefiting both businesses and consumers.