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Budget 2015: Good decision on two tax items but…

 by Franklin Cudjoe

IMANI’s full review of the 2015 budget will soon be published. However, it is important to give credit to the government on two important matters IMANI raised before the reading of the 2015 budget.

IMANI said on November 10, 2014 thus “. 225% Excise Tax on Tobacco.
The Ministry of Finance has given its approval for a further imposition of 50% of excise tax on the retail price of tobacco product taking the total excise tax on tobacco to 225% in Ghana. The 225% tax being contemplated exceeds the ECOWAS regulated 100% limit on the Cost, Insurance and Freight (CIF) value. IMANI highlighted last year that the UK government lost close to £2billion after bringing in stricter laws to curb the uptake of cigarettes. However, if taxes on tobacco become too restrictive on industry, it will lead to a growing underground economy for tobacco products that may be counterfeits. A 225% tax on tobacco in Ghana will expose the country to illicit trade in tobacco products seeing as the excise rates in its neighbouring countries such Togo, Burkina Faso and Cote D’Ivoire are within the UEMOA limit of 45% and are much lower than Ghana’s. It will defeat all our public health campaigns as one cannot guarantee the contents of illicit tobacco. Tobacco industries play a major role in African economies as far as their tax contributions are concerned and thus their inputs in these discussions must be encouraged. Currently, the tobacco industry in Ghana generates a gross turnover of about GH
371 million per annum to Government revenue. And this is case when cigarettes are not manufactured locally, but imported. If tobacco were an illegal product such horrendous taxes will be understood but Ghanaian laws have not banned tobacco.

[dropshadowbox align=”center” effect=”lifted-both” width=”500px” height=”” background_color=”#3cb0f8″ border_width=”1″ border_color=”#dddddd” ]A 225% tax on tobacco in Ghana will expose the country to illicit trade in tobacco products[/dropshadowbox]

Reaction: The Government reacted by keeping the tax at 175%. Still high but commendable.

IMANI said “2. Imposition of a 20% tax on imported mobile devices

The imposition of a 20% tax on imported mobile devices has shot up the prices of these devices. Given that mobile phone penetration has a direct relationship with economic development, this 20% tax imposition is harmful to the country’s development. Estimates show that whereas voice communication is near saturation, data penetration is at a mere 15%. As such, telcos will be shifting more towards data penetration as a means of boosting revenue. And for that smart phones are necessary. It should be clear, for any forward thinking government to realize that, this tax will hamper the growth opportunity and data penetration potential estimated to increase by a multiple of 6.3 between 2013 and 2018. The removal of the 20% tax will enhance affordability of the smart phones, facilitating its penetration and consequent economic development and poverty alleviation gains associated with it.”

[dropshadowbox align=”center” effect=”lifted-both” width=”500px” height=”” background_color=”#4fa5db” border_width=”1″ border_color=”#dddddd” rounded_corners=”false” ]The imposition of a 20% tax on imported mobile devices has shot up the prices of these devices.[/dropshadowbox]

I was to meet with Minister for Communications Dr Edward Omane Boamah to discuss this matter but I see he and the government took a very good decision to REMOVE THE TAX completely.

However, IMANI did predict right that the “The Finance Minister will be asking for an extension of the stabilisation fund (passed ostensibly to prevent shocks to the economy). Government through the budget 2015 has extended the stabilisation fund of 5% to 2017.

However, the stabilisation fund would have exceeded the 12 months duration it was. There is clause that could add additional 6 months only when it can be demonstrated that there has been fiscal responsibility by the government. I doubt there has been much of fiscal prudence to warrant extended taxes on businesses that are already suffocating.

In spite of these obvious wise decisions, the raft of taxes on real estate, financial services, key utilities such as petroleum products and the extension of the stabilisation fund among others may significantly affect the outcomes of these events.  The real test will be in making prudent use of these additional resources even if the idea behind the hike is to reduce the humongous debts which have now passed sustainable levels.  The words of Marco Rubio matter here “We don’t need new taxes. We need new taxpayers, people that are gainfully employed, making money and paying into the tax system. And then we need a government that has the discipline to take that additional revenue and use it to pay down the debt and never grow it again.”

It is still important for the government to declare a moratorium on all the current projects. The government should list all the projects they are currently funding and submit them to a “Value for Money” review; value for money audits shouldn’t take more than 3 months to be completed. It must also conduct an immediate compilation of all fiscal responsibility related rules in existing legislation; and ask GOG to comply with them in order to control borrowing and expenditure.

IMANI will soon publish a complete review of the 2015 budget statement.


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