Proposed Taxes: Is The Government Asking for Too Much?
The COVID-19 pandemic has had significant impact on the global economy, Ghana inclusive. The Ghanaian economy which had been on a strong growth trajectory in the last three years suffered its first technical recession in 2020, with the economy contracting for two consecutive quarters.
With things stabilizing now, governments all over the world have started putting in place the building blocks for a quick economic turnaround.
However, with the COVID-19 pandemic ballooning government’s expenditure in the face of reduced revenues, the government has been caught in a tight fiscal corner.
With the country’s debt reaching an alarming rate, prompting caution from the IMF and the World Bank, the government was left with no other option than to resort to the introduction of new taxes to finance its expenditure for 2021 and beyond.
Currently, government’s resources have been overstretched with debt to GDP ratio hovering around 76.1% as of December 2020.
Considering its direction, the government placed a 1% increase in the National Health Insurance Levy, and a 1% increase in the VAT Flat rate. There was also the Sanitation and Pollution Levy (SPL) of 10 pesewas on the price per litre of petrol/diesel under the Energy Sector Levies Act (ESLA). Likewise, banks were also expected to pay a financial sector clean-up levy of 5% on their profit-before-tax effective June 30, 2021. The government upon presentation of its proposition to Parliament gained approval and as such has these taxes backed by ‘Acts’.
However, there has been a public outcry on the introduction of these new taxes. A section of the public describes the move as completely unacceptable since individuals and businesses were still reeling under the effects of the pandemic and as such the government was insensitive to the plight of people and above all, asking too much from its citizens.
Contrary to this opinion, the former Member of Parliament (MP) for New Juaben South, Hon. Dr. Mark Assibey-Yeboah has backed the government’s decision to impose these new taxes. According to him, these taxes are intended to support vulnerable households. He explained that the poor and the vulnerable (women, children and disabled) were the hardest hit by the pandemic. He further indicated that majority of the people who have lost their incomes and livelihoods are the poor and are also the ones exposed to the health risks of the coronavirus. Therefore, “all of these are targeted at the poor. When all this happens, it is the poor that are going to benefit because they suffered the most. So, if anybody is going to criticize the government, they should look at how the government’s efforts are helping the poor”
GOVERNMENT NOT BEING INSENSITIVE
Dr. Assibey-Yeboah also disagreed with opinions suggesting the government was being insensitive to the needs of the citizens. Conversely, he indicated that the government was very sensitive in coming up with the various taxes because people have suffered income losses. He then averred that “the tax rate needs to be considerate”.
The former MP, in addition, revealed to The Vaultz Magazine that the aim of the new taxes “is not a revenue motive but to address peculiar concerns”.
More worrying, Dr. Assibey Yeboah indicated that some people couldn’t afford face masks and as such wear one face mask “forever and ever”. This, he underscored, are the reasons the government needs these taxes to support the vulnerable in society.
VARIOUS INTERVENTIONS FROM GOV’T
The government during the outbreak of the pandemic last year rolled out series of interventions. These interventions included provision of meals for 2020 BECE candidates, sharing of free meals in affected lockdown areas, provision of free water and free electricity, financial support to MSMEs etc.
This, the former MP applauded the government for its initiatives towards minimizing the impacts of the pandemic on businesses and households. He then noted that despite all these, the government didn’t tax anybody in 2020, however, the new taxes are only intended to protect lives and livelihoods. “The government has done a lot!”, he exclaimed.
Expatiating his stance, Dr. Assibey Yeboah further provided vivid justifications for his support on government’s decision to impose these taxes.
With regards to the 1% VAT Health Levy (COVID-19 Health Levy), Dr. Assibey Yeboah explained that it will be very useful because it will help the government to procure, distribute and administer vaccines. He then noted that the government cannot bear the cost of vaccinating the 31 million Ghanaians all alone.
“So, such a tax is a good tax. Because, if I’m safe and my neighbor is not safe, then the virus is not contained. It beholds every Ghanaian to get a vaccine. So, taxing for the procurement, distribution, and administration of the vaccines cannot be seen as a normal tax. If there is no COVID-19, would there be a COVID-19 Health Levy? No”.
Speaking on Sanitation and Pollution Levy (SPL), he noted that sanitation is a major challenge in the country. He indicated that there are lots of heaps of refuse on the streets of our cities especially in Accra. This, according to him, requires drastic measures to arrest the situation. He pointed out that this requires the establishment of a state-of-the-art treatment plant and new landfill sites in our major cities. This, according to him, requires a lot of money for which the government’s new levy becomes more relevant.
“All of us know of the sanitation situation in the country. When you drive around town, you will see heaps of refuse all around. The tracks cannot even go to the landfill sites that we have in Accra. We need to find new landfill sites. We need to construct well-managed landfill sites and sustainable state-of-the-art treatment plants. This requires money. The government is saying that for our own sake, why don’t we impose 10 pesewas on petrol and diesel so that we can improve sanitation and prevent pollution”
FINANCIAL SECTOR CLEAN-UP LEVY
On Financial Sector Clean-Up Levy, Dr. Mark Assibey-Yeboah asserted that if anyone or institution should complain about the financial sector clean-up levy, it shouldn’t be the banks. According to him, the banks are the beneficiaries of the strong financial sector that we have now. He stated that the government has spent about GH¢21 billion to save the financial sector. According to him, the Financial Sector Clean-Up Levy is a targeted tax that only beneficiaries of the Sector Clean-Up will have to pay.
“Who are the direct beneficiaries of the strong financial sector? It’s the banks. Check the dailies and see the profits they are making. They made tremendous profits in 2020. So in the face of the pandemic, whilst other businesses are struggling, banks are making profits”.
Meanwhile, some bank managers hold a contrary opinion and think that the sector is already burdened with so much taxes and it’s as if the government is targeting them. However, Hon. Assibey-Yeboah vehemently refuted this allegation, saying “all of them have made huge profits”. He explained that the government was the first to think of the banks and intervene when the sector was in crisis. According to him, the government has sustained some of the banks through its interventions to meet their capitalization. He cited the ADB, Prudential, UMB, and OMNIBSIC as some examples.
“A strong sector is good for them and is good for the country. The act of insensitivity does not arise at all. In 2021, the government is going to spend GH¢4.5billion COVID-19 related expenditure. All these we are talking about are bringing in only GH¢6 billion”
Dr. Mark Assibey-Yeboah, moreover, asserted that all of the efforts of the government is geared towards an inclusive growth and requires all hands on deck.
“That is what we call inclusive growth; …doing something that will bring everybody along. If the pandemic stays for another one year, I’m telling you that the banks will still be making profits. The rich households will still be getting wealthier and the poor ones will be getting poorer”.
Speaking on the issue, Prof. Peter Quartey, the Director of ISSER believes that the government should also consider avenues to improve revenue collection in addition to imposing the new taxes.
“So, my view is that, yes, the government has done very well in helping us fight the pandemic- cushion people with the freebies i.e., free water, electricity, feeding for school children. What has been given by the government has been good. We are tagged as one of the countries that has managed this pandemic well. Now, how does the government finance it? Raising more revenues should be the way forward rather than additional taxes”.
Prof. Quartey indicated that the government wouldn’t have resorted to taxation if it were a developed economy. According to him, such economies were able to manage the pandemic without necessarily imposing taxes.
He then asserted that Ghana’s circumstances are such that government’s only options are to either borrow or impose taxes.
“We are coming out of a recession. So, it’s a recovery budget, and to recover, you raise revenue and then spend. In fact, spending is very key in any recovery”.
Furthermore, Professor Quartey specified that there are two sources of mobilizing resources to aid the recovery process. They include domestic and external sources. He pointed out that the domestic sources could be either through taxation or from non-tax revenue. As a result, the ISSER Boss called for more automation in the revenue collection mechanisms. This, he believes, will help raise enough revenues to finance economic activities.
“Unfortunately, we have focused on only tax revenue. Our non-tax revenue is not expanding very much. We have not been efficient in non-tax revenue. Even in tax collection too, we have not been very efficient. There are a lot of human interfaces and a lot of discretion. Let’s make use of digital ways of collecting revenues. We are not getting as much revenue as we should. So, every now and then, we are introducing new taxes”.