Gov't Policy On Car Importation That Seemingly Makes No Sense

Wed, 9 May 2007 Source: Agyepong, Benjamin Opoku

Believe it or not, I have had many occasions to discuss the government’s policy on vehicle importation with a number of people including some at the Ministry of Finance and Economic Planning (MOFEP) and some imminent politicians as well as Tax experts. My worry have centered on the decade old question of “what in the world do we pay higher duties for newer models of the same car than we do for older models?” when all reasonable people do conclude that, the newer models are better for the economy in terms of spare parts cost, fuel consumption and road safety. I have sought rational explanation to this seemingly uneconomical, environmentally unfriendly and socially unsafe policy to no avail.

By every measure, in Ghana today, an importer of 2006 Toyota Corolla will pay more in duty than an importer of a 1998 Toyota Corolla of the same engine capacity. Almost in all other countries that impose duty on vehicle importation, the opposite is the case. Maybe the reasoning in Ghana is different from what pertains in most of those countries. However, my own experiences tell me that newer cars consume less fuel and more as the car ages. Newer cars cost less for replacement parts compared to older cars that require frequent parts replacement. On the environment too, newer cars discharge less Carbon Dioxide into the environment than the older cars that produce a trail of Carbon Dioxide behind them when they pass by. Go to Accra and Kumasi to witness what I am saying. The whole environment is smoky due primarily to older car fumes.

Given these simple facts, why would any nation encourage the importation of older cars through taxation as Ghana has been doing for years now? Economics 101 will tell you that Taxes are meant to correct imbalances in the structure of the economy as well as raise revenue for the central government. In Ghana’s case, the present import duty is raking in revenue for the government, but is it correcting any structural imbalance in the economy or worsening it? The answer is your own guess.

I know of many Ghanaians who go to Auto auctions in New York and its surrounding states to buy autos for shipment to Ghana, when they go, they all look for 8-10 year old cars because those cars attract less import duty than newer cars. Isn’t this absurd looking at the amount of money spent on spare parts, and on fuel importation? Is my Ghana a forward looking nation or a backward one? The knowledge that Ghanaians have attempted to import newer cars through Togo should have been enough clue for government that their policy is a failure, but instead of adopting more pragmatic tax policy on vehicle importation, the government has sought to arrest and impound such vehicles imported through Togo.

What I would do different about Car import duties if I were tasked to do so

I would make vehicle duties progressive and environmentally friendly by implementing a tax policy like this for instance:

1. All vehicles irrespective of make, with engine capacity not exceeding 1800cc and 0-1 year old to attract a basic duty of 14 million Cedis. 2. Any additional year will attract 1 million Cedis 3. Any additional 100cc Capacity also attract 1 Million Cedis.

With this policy, if anyone imports a 5- year old vehicle with 2000cc, the individual would pay 14 million Cedis basic plus 4 million for the extra 4 years, plus 2 million for the extra capacity bringing the total to 20 million Cedis. If one chooses to import 8-year old car with the same capacity, then that person would pay 14 million basic, plus 7 million for age of car plus 2 million for extra capacity bringing the total to 23 million Cedis.

The benefits of such a policy would be enormous. Newer Cars would be cheaper to import and older cars expensive to import. The policy would extort more money from gas guzzling cars enough to deter their importation. We would save on Crude oil importation as well as spare parts importation and possibly reduce mechanically caused accidents on our roads. Importers can readily assess the duty they would have to pay prior to the importation of their vehicle and pay it in advance as compared to the present system where they have to wait for the arrival of the vehicle to be inspected and valued by the sole judgment of a custom officer (a situation that accounts for the corruption at the ports and backlog of cars at the car parks). Importers would also strive hard to buy durable cars instead of buying cheap cars that are presently valued less for purposes of import duty. If I know that by buying a Mercedes of 2500cc, I would pay the same duty as buying a Hyundai of 2500cc; I would look for extra money to buy the Mercedes instead of the Hyundai. In the end we would have a tax policy that is more transparent, comprehensible and difficult to cheat and by such a policy we would all be winners.

Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

Columnist: Agyepong, Benjamin Opoku