New taxes to make inflation fight harder – Prof. John Gatsi

The Dean of the University of Cape Coast (UCC) Business School, Professor John Gatsi, has expressed doubts about government’s ability to bring down inflation by more than 2,000 basis points by end of the year, given the recent passage of new tax measures which he believes will make the task even more challenging.

The Bank of Ghana (BoG) Governor, Dr. Ernest Addison, following the most recent Monetary Policy Committee (MPC) meeting’s conclusion, announced that the bank is projecting a drop in inflation from 52.8 percent to 29 percent by end of the year. This prediction was cited as one of the reasons for the 150 bps increase in the benchmark rate.

However, Professor Gatsi has questioned the achievability of such a reduction in headline inflation, which he considers overly ambitious – arguing that the new revenue measures will make it even more difficult.

“That was already very hard to achieve, to get inflation down by more than 20 percentage points within one fiscal year; it is a challenging task and the policies which have been put in place do not support that goal. These new taxes, when they are implemented, will have a pass-through effect over a period of time to reflect in prices – and these are some of the reasons we were already having high inflation. They have not been properly addressed,” he explained.

Prof. Gatsi noted that expenditure rationalisation remains the most prudent way to address the ongoing economic crisis, which has been cited as the reason for introducing the new handles.

“It is not rocket-science; when our finances are strained, we cut down our expenses – and it applies to individuals, households, businesses and also government. We know that there are areas where expenditure can be rationalised; and if we do not want to squeeze the life out of the private sector, this is where our focus should be,” he added.

Industry

In a related development, the Association of Ghana Industries (AGI) has expressed disappointment over the recent passage of the Excise Duty, Growth and Sustainability Levy, and Income Amendment bills by parliament.

In a statement signed by its Chief Executive Officer (CEO) Seth Twum-Akwaboah, the Association said the approval of these bills will have dire consequences for industry, which is already facing a harsh business climate. He also criticised government for not consulting stakeholders before implementing these fiscal policies.

“Coming on the heels of an already harsh business climate, the passage of these bills poses very dire consequences for industry. We continue to experience a tax regime that does not motivate local production and formal business operations. We denounce the lack of stakeholder consultation on such fiscal policies which have a negative impact on businesses,” said Seth Twum-Akwaboah.

The CEO of AGI also highlighted the various challenges that local industries are currently facing. He cited the high inflation rate, VAT increase, water tariff increment, electricity tariff increment, the policy rate hike and levies on imported raw materials. He added that local industries are already struggling to absorb these costs, and the recent taxes will only compound their problems.

The Association of Ghana Industries (AGI) has called for an immediate reversal of the 172 percent hike in water tariff for beverage producers.

“Electricity tariffs shot up significantly on two occasions, totalling a whopping 56.5 percent within a period of fewer than six months. How can our beverage sector absorb a water tariff increment of over 300 percent in a single tariff review, and now excise duties are slapped on locally-produced beverages,” the AGI CEO fumed.

He further emphasised that government’s ambitious revenue projections largely rely on the performance of industry. However, with the recent taxes he said he foresees a contraction in manufacturing and other related business activities. This, he said, could lead to businesses cutting down on expenditure and production levels to stay within budget, which could ultimately impact the government’s revenue targets.

“We call on the government to engage AGI on measures that incentivise our local industries, so as to forestall the negative consequences of these policies. To this end, we welcome the opportunity to dialogue with government on how to save jobs and the strategic options to explore in cushioning our local industries,” said Mr. Twum-Akwaboah.

The AGI CEO urged government to prioritise fiscal prudence and engage stakeholders in future fiscal policy decisions. He emphasised the need for government to sustain agriculture and the industrial sector, which he believes hold the key to job creation in the country.

He also assured AGI members that the Association will continue engaging government to bring positive changes in subsequent national budget statements.