The desperate, myopic and dubious handset import tax

The desperate, myopic and dubious handset import tax

The desperate taxes are a burden on innocent Ghanaians with low income



Mr. President, when a government places taxes on some of the most unimaginable items in a wholesale manner like your government has done, that is desperate; when a particular tax is schemed to protect one player in a particular gargantuan industry, that is myopic; but when the taxes obviously threaten to increase crime (smuggling), destroy companies and jobs, and place a double-dose burden on consumers, that is dubious.

It is not a secret that the recent taxes government placed on some of the most ridiculously-selected items like condoms, slippers, cutlasses, fertilizers, fishing nets, outboard motors and others triggered huge public outcry; and rightly so because it was most disingenuous some of the items on the government’s hit list. Some of those items like slippers and cutlasses are mostly used by the under-privileged in society. And the least said about taxes on condoms the better. But it seems there is ‘no mercy for the cripple’ with the current government, which claims to be social democratic party.

Players in the affected sectors and the generality of the Ghanaian populace have not failed to register their disgust for the macho-style announcement of those taxes from the rather reserved and soft-spoken Finance Minister, Seth Terkpeh. As per the complaints of the affected industries, the government did not consult any stakeholder prior to announcing those taxes.

But one can understand the desperation of the government, trying to stabilize the failing economy after the government machinery, including the presidency and all ministries, departments and agencies had over-spent their legally approved budgets by unacceptable and dubious margins, leading the president to admit that “the meat is down to the bones”. So government officials chewed more than their fair share of the meat and now Ghanaians are being asked to pay for it, so that those government officials can continue to fund free vehicles, free utility services and free everything for themselves.

TALK TAX

In the midst of that desperation the government seems to be getting myopic too, particularly in their approach to taxes on the telecoms industry. Firstly, government placed a 5% Stabilization Levy on a number of sectors including the telecoms service providers; plus it has legalized double Communication Service Tax (aka talk tax), forcing telecom operators to pay double talk tax to government – one (6%) charged directly on phone call minutes, and the other (6%) charged on termination rates.

This double talk tax threatens to raise phone call tariffs because, already, the telecom operators have been absorbing the first 6% on behalf of their customers, and have been lobbying government to review the tax regime and remove the second one. But the government chose to do the opposite and rather legalize it to burden consumers more. If the telcos decide they can longer bear that cost, phone call rates will go up. It is as simple as that.

It is important to note that because of the relatively low telecom tariffs in Ghana, only one out of the six telcos is actually making profit after tax. That is a sad commentary on an industry we boast so loudly about as a country. Sooner than later, the telcos will reinvest their moneys elsewhere so the tax-drunk government can take over the industry and tax itself in this amateurish and myopic manner.

PHONE IMPORT TAX BACK

Worse still, the government also placed a 20% import tax on mobile phones and their accessories. That was kind of weird because the CST or talk tax was introduced by a previous government to replace import taxes on phones specifically because the latter threaten to kill the mobile phone industry and deny lots of Ghanaians the opportunity to own phones and thereby be part of global telecom/ICT revolution.

The introduction of the talk tax was like killing two birds with a stone – the talk tax itself is much easier to charge because it is easy to monitor how many minutes of calls happen on each of networks of the telecom service provides, and that would help government to calculate its tax component of the revenues thereof. Indeed the industry regulator, National Communication Authority (NCA), in collaboration with the telcos, have devised a system to monitor and reconcile the figures.

The second achievement of the introduction of talk tax was that it took away the difficulty in implementing the phone import tax because the import tax led to a lot of smuggling of handsets unto the market. The phones got to the Ghanaian market alright, but government could not get its expected taxes because they were smuggled in. This made Internal Revenue Service (now Ghana Revenue Authority) staff run after phone dealers on the market daily for taxes but to no avail.

Once the import tax was removed, the smuggling stopped and all the phones started coming through the ports. The added benefit was that because there is no import tax, phones got to the final consumer at very affordable rates and soon the era of phone snatching, which plagued this country some time back was over because the average Ghanaian could afford their own phones. The jobs it has provided for thousands of Ghanaian youth cannot be overemphasized. And now more people are talking on phone so more talk tax. Some telcos are recording an average of a billion minutes of call in a month, according to the NCA.

The talk tax has since been working great and now government has even found the need to charge an added component of the talk tax, which is not exactly ingenious, but at least would have been bearable if it only reflected in slight increase in call tariffs with affordable phones. What this government has done is to also bring back the treacherous import tax on handsets, which nearly killed the industry. Worse of all, the import tax is not coming back to replace the talk tax, but rather to add on to it.

What this government is therefore telling consumers is that, even though they (government) claim to be social democrats, supposedly with empathy for the less privileged, they are making it difficult for the average Ghanaian to acquire a phone and also making Ghanaians pay more for making calls. One wonders, Mr. President, which part of this policy is ‘social’ and which part is ‘democracy’.

So whereas a government that is known for its capitalist tendencies thought it wise to scrap the import tax on handsets to enable dealers sell to Ghanaians at an affordable rate so more people can acquire phones; more people can talk; and more talk tax can be generated, the social democrats have rather chosen to close their eyes to the concerns of the underprivileged and make it difficult for people to acquire phones, and even possibly end up paying higher tariffs for talking on phone.

But what is even more dangerous and dubious is the fact that the introduction of the import tax would drive some of the dealers and indeed other dubious characters here and abroad to start smuggling phones in so they can sell at affordable rates, once they have managed to avoid the tax. And the phone dealers and manufacturers have not failed to state these concerns emphatically.

The argument is simple – importers are already paying 15% VAT (value-added tax); now there is 20% import tax, which allegedly stared on August 3, 2013; so the total tax on phones is now 35%, plus other few charges, it come to about 40%. The dealers and manufacturers have said they cannot absorb that high tax because none of them is making that margin of profit. So they are going to increase phone prices.

The dealers have said that people are already not buying phones lately like before, so the price increases would make things worse for them. The only way out would be to either quit the phone business and reinvest in other sectors, or try to avoid the tax by resorting to smuggling. And smuggling may not be done by the same dealers, but other persons who consider Ghana ripe for the affordable phones, but for the import taxes.

The desperate, myopic and dubious handset import tax

If indeed this import tax is meant to protect Rlg, then that is sad indeed, because it has caused more anger in the giant industry players and has opened up the market for smuggling



But in all these discussions, something very intriguing cropped up when the Chairman of RLG Communications, Roland Agambire spoke about the tax and said it should be an impetus for the phone manufacturing giants to collaborate with local players to establish assembling plants in Ghana.

RLG is a company that, among other things, imports phone and laptop components from mainly China and assembles them for sale in Ghana and parts of Africa. Lately, it does more of laptops with taxpayers’ money state rather than assembling mobile phones for sale. It has been in the phone business for a while now but its handsets have not ever showed up in any of the statistical reports on handset sale in Ghana. In short, RLG phones are not doing as great as the impression created about them.

So Roland Agambire’s comment on the import taxes seems to have exposed the real intentions behind government’s claim to wanting to protect the local handset industry with the introduction of the import tax. The truth is RLG is the only local company supposedly assembling phones in Ghana. Agambire promised to build a US$100million assembly plant on the Spintex road a year after they launched. It has been years since they launched and no show. So the question on the minds of industry players is whether government is rubbishing the immense contribution of all the other players in this gargantuan industry just to protect this one company, which already enjoys hefty tax holidays – is government twisting the arms of the phone manufacturers to collaborate with RLG to build its ambitious US$100million assembly plant?

The dubiousness of it is that while trying to encourage one company against the several others who have and are still aiding to boost the country’s telecoms sector, government is also throw the industry to the dogs by playing blindly into the hands of smugglers, who would in the long run deny government of the needed revenue to offset their over-spent budgets, and also probably deny RLG of the opportunity to collaborate with any of those phone giants, who are angry about this extreme, desperate, myopic and dubious move to protect one company against the likes of Samsung, Nokia, Apple, Blackberry, LG, Tecno, Huawei, Alcatel and the rest.

I am not a tax expert, but I do not need to be one to know that this move is infantile and amateurish. For one, the NCA recently announced it is working with Nokia and Huawei to import more affordable smartphones into the country so the average Ghanaian can afford smartphones and get broadband access on the move, so that the massive data capacity available to the country would be consumed widely. Apple has also recently started a campaign towards introducing affordable Apple products in emerging markets like Ghana. Obviously, 20% import tax, to protect one local company, would kill these efforts and deny the average Ghanaian the benefits that these initiatives promised.

Mr. President, please go back to the drawing board and rethink these taxes. Till date the infamous GYEEDA (Ghana Youth Employment and Entrepreneurial Development Agency) Report, which talks about RLG activities among others, has not been published simply because, Mr. President, you are doing further consultation on it. I think you need to also do further consultation on these desperate, myopic and dubious taxes.

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