Business News of Thursday, 13 September 2018
The Association of Ghana Industries (AGI) has called for a review of the 5% flat rate tax imposed on goods and services approved by Parliament in July.
In a letter signed by AGI Chief Executive, Seth Twum-Akwaboah and addressed to the Finance Minister, Ken Ofori-Atta, AGI urged the minister to “hold off the implementation of the 5% straight levy in its current state” to allow for a review that safeguards businesses and increases government revenue.
The AGI’s letter to the finance minister states that the implementation of the straight levy and its ultimate impact on consumer pricing will significantly constrain business and increase the cost of living, thereby bringing economic hardship to the ordinary citizen.
AGI is requesting the finance ministry to hold off the implementation of the 5% straight levy in its current state to allow for their concerns to be addressed, in order to safeguard businesses and livelihoods and also maximise revenue for the Ghana Revenue Authority.
The umbrella body of businesses in Ghana is also proposing a waiver of the 5% straight levy for businesses with extended value chains and seek the opportunity with the minister to further dialogue on alternative ways of generating the desired revenue without creating the identified inflationary impact through the chain.
High inflationary impact on consumer
AGI states that its assessment shows that the new tax regime will lead to high inflationary impact on the consumer.
“We, therefore, write to request your office to hold off implementation to allow for further engagement and fine-tuning.
“Most businesses in Ghana have wide distribution channels which typically run from manufacturer/importer-distributor-wholesaler-retailer.
“The compounding impact of the 5% straight levy cost through the various value chains sampled shows a price inflation to the consumer of 15% – 20%. This will significantly impact the purchasing power of consumers as retail pricing is estimated to go up by 15% – 20%,” AGI said.
AGI explained that within the current economic environment, the 5% flat rate tax would be challenging for manufacturing concerns to pass on the 5% cost through their value chains as the level of price inflation will cause volume contraction as consumers purchasing power is impacted.
“This will create significant operating capital challenges, consequently constraining re-investment, capital expenditure and job creation opportunities,” it added.
AGI also pointed to a negative impact on businesses when the implementation of the tax kicks off.
Negative impacts on businesses
With the application of the straight levy regime, manufacturers can only claim 12.5%, leaving 5% as cost burden, which will be passed on through the chain.
AGI states that the new regime puts local manufacturers at a disadvantage as other businesses covered under the 3% VAT Flat Rate Scheme (retailers/traders) will not suffer the unclaimed VAT (5%) under the new straight VAT regime and can, therefore, offer more competitive prices.
Negative impacts on competitiveness of local business
“This effectively makes local manufacturers less competitive. The straight levy also places an additional tax burden on already tax compliant local manufacturers and increases already stretched input cost pressures as the 5% becomes part of their production cost.”