GH¢3 billion petroleum downstream losses make new taxes non-starter

The economy loses over GH¢3billion in revenue every year from official and unofficial trade in petroleum products.

A breakdown of the amount shows that official trade – products that come into the country through approved channels but cannot be traced – is GH¢1.5billion a year, according to a report by the Chamber of Bulk Oil Distributors (CBOD); while an estimated GH¢180-GH¢200million in revenue is lost every month from products smuggled or brought into the country through unapproved routes.

Put in context, the composite petroleum downstream industry loss of over GH¢3billion a year is twice the amount, GH¢1.5 billion, that government expects to realise from the newly introduced taxes on petroleum products.

The new taxes, apart from beng unnecessary and an extra burden on Ghanaians, according to Civil Society Organisations (CSOs) – Africa Centre for Energy Policy (ACEP), Institute for Energy Security (IES) and Chamber of Petroleum Consumer (COPEC) – could promote the intricate and already lucrative illegal fuel market.

Currently, taxes on petroleum represent 40 percent of the pump prices; which means that for every litre sold for GH¢6, GH¢2.4 goes into paying taxes; or for GH¢10 worth or fuel purchased, GH¢4 is tax.

Meanwhile, with smuggled products the traders evade the 40 percent tax and yet sell at the market price – a situation the CSOs believe could entice compliant players into the illegal trade space if the new taxes are maintained.

“If I can bring in a product and evade the 40 percent tax and still sell at the market price, then it means I am making over GH¢2 from a litre. I, therefore, believe the new taxes will also increase the margins for illegally traded products, thereby making them more lucrative,” says ACEP’s Executive Director, Benjamin Boakye.

Per his assertion, for every GH¢60,000 litres smuggled into the country, the state loses over GH¢12,000 in revenue to this criminal trade.

For Nana Amoasi VII, Executive Director-IES, the significant losses from smuggling, diversion and tax evasion means increasing existing taxes and margins to make up for part of the losses is a lazy approach to the issues.

“A more sustainable way is to block the leakages. The state is clothed with the responsibility to deal with recalcitrant players in the downstream sector through its security and revenue collection apparatus. Taxing more to cover the ineffectiveness of government’s mechanism means promoting same,” the traditional leader and energy expert lamented.

Meanwhile, COPEC’s Executive Secretary, Duncan Amoah, described the new taxes as highly avoidable and unwarranted, considering the huge revenue that ends up in some people’s pockets through illegal fuel trade. “We could simply have channelled our energies to ways of blocking the revenue leakages to the state, and the country would have realised more than the combined revenue expectation from the new taxes introduced,” he said.

Corroborating IES and ACEP, Mr. Amoah added: “We are also making it more lucrative for the fuel-smuggling cartels, as many more of the law-abiding ones will find an even greater incentive to join the bad ones evading taxes”.