How Increase in VAT Will Affect Ghanaian  Lives and Businesses  

Ken Ofori-Atta, Minister of Finance

Accra, Ghana, July 17, 2018//-Some prominent Ghanaians who can be trusted for their knowledge in economics are advising the government not to review the 17.5% VAT to 21% upwards in the mid-year review budget, because it will have a telling effect on the economy and change the cost structure of doing business in the country.

It is against  this backdrop, some of us are advising  the government to look elsewhere for revenue. One, the loans that we are borrowing as a country are not being utilized well to yield the needed benefits.

The management of the economy seemed to be one-sided, that is,  all the sectors of the economy are not given the needed attention to.

Even agriculture that seemed to have received much attention is bedeviled  with problems. We must look at value addition to reap the needed benefits. In the agriculture value chain, a lot can be done to earn more.

Some are asking the government to look at property tax. This is an area government can make some money to cushion itself.

Already, businesses are being suffocated, so introducing VAT will aggregate the plight of ordinary Ghanaians, because, that element of increase in VAT will by all means be pushed to the ‘already tired’ consumer.

Businesses will not allow the increase to go down the drain, unless there is a pragmatic policy to prevent them from pushing it to the consumers. That will also amount to cutting profits of businesses that are struggling to recover cost.

Why would the government be looking at only the cheapest ways of raising revenues, when there are other good sources to do so?

For example, if the Public Addressing System the government has purchased is true and working, the government should be able to locate all businesses that are in the informal sector that are not paying any tax to start paying good money to the government.

If government goes ahead to increase the VAT, small scale businesses that did not register with VAT Unit of GRA  should do so. That is the only way they can avoid some of the costs, and push it fully to the consumer.

Assuming A, B and C indicate Value Chain

A                                                                              B                                                                       C

GHC15,000GHC21,500GHC27,000

Assuming the VAT rate has increased to 21.5%

VAT (GHC)

A: 21.5% × GHC15000   = GHC3,225    3,225

B: 21.5% × 21,500 – 21.5% × GHC15,000=  GHC4,622.5 – GHC3,225 1,397.5

C: 21.5% × GHC27,0000 – 21.5% × GHC27,000 = GHC5805 – GHC4,622.5   1,182.5

So businesses are advised to strive to add more value, but register with the GRA.

If not, the VAT effect on them would be more pronounced. The small scale businesses must avail themselves the chance also to be abreast with the formula for calculating the VAT Input and Output to be able to be fair in their dealings.

Despite the above-mentioned effects on the lives of Ghanaians and businesses in the country, the Minister of Finance, Ken Ofori-Atta is bent on reviewing the VAT and other taxes upward in his mid-year budget to be read on Thursdays, 19 July 2018.

So 1. Government should look at property tax because it is a huge source of potential revenues for the government.

  1. Government should target the informal sector, because the number which is not paying any tax on their income from the informal sector is huge.
  2. Government should address all the leakages in the economy, 4. Government should be prudent in management of its projects so that, this syndrome of inflating contracts be tackled because, it is one huge source of leakage government has created itself. 5. Government should invest and stop borrowing for consumption.

Government must forgive Ghanaians who are already suffering. Increasing the VAT by government is amounted to broad day robbery. Government should look at  other sources and leave VATwhich  is already overburdened.

By Francis Gamli – Dovene,  Facilitator University of Cape Coast (UCC) CoDE& UEW IDeL

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