The Association of Ghana Industries (AGI) has advised government against imperiling industry in its pursuit of International Monetary Fund (IMF) bailout loan.
According to AGI’s Chief Executive Officer, Seth Twum Akwaboah, businesses were hoping to see signs of recovery this year, 2023, having been under pressure from an unstable business environment coupled with so much uncertainty since last year, 2022, hence, opined that the tax proposals are not only harsh and ill-timed but could wipe domestic producers out of business and deny government much-needed revenue.
While other countries within the Africa Continental Free Trade Area (AfCFTA) are incentivizing manufacturers to take full advantage of AfCFTA, Mr. Akwaboah said, Ghana is doing the direct opposite.
“If we are not careful, we might end up collapsing the few tax compliant ones. We have a huge informal sector and we are of the view that much more should be done to rope that sector into the tax bracket, rather than overburdening the few which are contributing.”
Mr. Akwaboah
More importantly, the AGI warned that the two tax proposals, if allowed, could significantly diminish the competitiveness of producers within the continental free trade area framework.
Government, in a desperate attempt to meet conditions for the proposed US$3billion bailout to restore economic stability, is seeking to introduce a number of taxes: including the Growth Sustainability Levy bill of 2022, and an amendment to the Excise Duty Act, Act 879, which will result in a substantial increase to its rate for a number of manufacturing companies.
The Growth and Sustainability Levy is to be imposed on profit before tax of companies, and is expected to generate about GH¢2billion in revenue this year. Under it, breweries, banks, non-bank financial institutions, insurance companies and telcos, among others, will be required to pay a rate of 5 percent before tax under category A.
Category B, comprising mining and petroleum upstream companies, will pay 1 percent on gross production, while category C – companies that neither fall under A or B, will pay a rate of 2.5 percent before tax as Growth and Sustainability Levy.
Excise duty, on the other hand, seeks to impose a tax rate of 20 percent on ex-factory prices of the following: water, including mineral water of all descriptions – whether or not containing added sugar; and sweetened or flavored drinks and non-alcoholic beverages.
Excluding mineral water and malt drinks, all other sweetened beverages, including processed fruit and vegetable juices, attract the same 20 percent excise duty.
Beer, stout and other indigenous beer, that use less than 50 percent of local raw materials will attract an excise duty of 45.5 percent. Those that use between 50 percent and 70 percent will pay 32.5 percent, while those above 70 percent will attract 10 percent.
Others are: cider-beer, 20 percent; wines including sparkling wines, 45 percent; spirits including akpeteshie, 50 percent; cigarettes and cigars, 50 percent – including a specific duty of 28 percent, among many others.
Govt’s latest tax proposals may be the final straw that breaks the back of manufacturers
In response to the aforementioned levy breakdowns, the AGI argued that with the industry already overburdened with hikes in electricity and water tariffs of 56.5 percent and 48 percent respectively within the last two review windows, and 2.5 increase in value added tax among others, the two tax proposals could be the final straw that breaks the back of manufacturers.
Meanwhile, the Public Utilities Regulatory Commission (PURC) has slapped beverage producers with a 172 percent water tariff hike. The regulator also placed beverage producers; commercial bottled water and drinks producers, under a new category with a tariff of 316 percent.
Companies under the new category previously fell within the industry class – which saw a hike of 48 percent in last month’s review.
All these developments, Mr. Akwaboah lamented, pose a serious threat to employment prospects and the survival of businesses, adding that a number of industries are already downsizing their human capital. In the CEO’s view:
“The lessons of COVID-19 and the Russia-Ukraine war must teach us a big lesson; to quickly develop local supply chains and reduce the country’s dependence on imports, since the over-dependence creates panic whenever such sources face constraints. Such unbridled imports also put pressure on the cedi.”
Mr. Akwaboah
For this reason, the AGI believes, this is the time for Ghana to stage-manage and build up the capacity of industries with even more coherent policies and incentives, instead of tax imposition, which render local industry uncompetitive.
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