Dr. Osei-Assibey proposes ban on plastics, VAT increased to 18.5%

Dr. Osei-Assibey proposes ban on plastics, VAT increased to 18.5%
Source: Ghana | Dr. Eric Osei-Assibey (Ph.D | Senior Lecturer, Department of Economics, University of Ghana
Date: 11-07-2018 Time: 08:07:23:pm

Overall, I think the economy’s performance over the last one year has been impressive in all fronts – a much improved fiscal performance, high growth momentum, declining inflation, relative stability in the exchange rates, and declining interest rates; not to mention the enhancement in the social protection policies and flagship policy initiatives to drive growth and job creation.

This is no mean an achievement, Hon Minister and I say a big KUDOS to you in your avowed commitment to fiscal discipline, which largely explains this good performance.

Despite this sterling performance however, I think the key issue now is sustainability and the consolidation of the gains achieved thus far. In my view, there are two key standing blocks to solidifying the macroeconomic fundamentals, namely low revenue and slow decline in lending rates.

The low revenue implies that government cannot spend enough particularly on infrastructure to stimulate sustainable growth; and the high lending rate also indicates the private sector’s inability to respond and take advantage of the numerous government interventions to unleash their potential for growth and create sustainable employment.

While the Finance Ministry cannot do much about the latter (and so I will shelve my comments for now), the former is well within its ambit to act.

Although the Ministry has done well so far in trying to match expenditure with revenue in order to meet fiscal target, I do not think it is sustainable – in fact, it could be highly detrimental to the growth prospect of the economy and tend to confound the buoyancy of tax revenues.

Given the important need to spend on infrastructure such as roads and protect some key government flagship programs, expenditure cut should not be the panacea to the current challenges – although it is a prudent fiscal measure in the midst of lower revenues.

The only way to create fiscal space on the back of ensuring declining debt path is to pursue a much more aggressive tax policy measures.

I think the Ministry has done well in regard to tax administrative measures, in particular to enhancing compliance. However, as it has been noted in empirical evidence and other policy documents such measures take time to bring in significant additional revenues that are sustainable.

In this regard, although I reckon the Ministry intends to roll-out a number of tax policy measures in the upcoming budget review and in the 2019 Budget Statement, I would like to suggest a few additional measures that the Ministry could consider (i.e., if it is not already on the table).

1. Impose excise tax on the use and importation of all forms of plastic materials: This is intended to achieve two purposes: revenue enhancement and environmental conservation through improved sanitation. This is being done in many other developing countries like in Kenya.

2. Increase VAT by one percentage point to 18.5% and ring-fence the proceeds to fund the flagship Free-Senior High School Policy. Given the volatile nature of oil revenues, this will ensure sustainable financing and to ease the heavy fiscal burden that will be imminent in the near future when the full program is rolled out.

I believe every social policy measure must be paid for by citizens either directly or indirectly to ensure sustainability. If this is well communicated to the Ghanaian people, I believe they will generally embrace it;

3. Impose some marginal tax on mobile money transactions, e-business/online transactions and some sophisticated financial services;

4. Increase the road levy by at least 100%;

5. As a medium-term measure, digitized the tax payment system in the informal sector by deploying mobile money tax payment system to increase efficiency in tax collection and compliance. There are good examples in Tanzania and Uganda currently;

6. Make property tax payment compulsory for all property owners and deploy a number of the Nation Builders Corpse workers to move from building to building to collect these taxes.

A special court should be set up in all districts to prosecute defaulting property owners to serve as a deterrent to others;

7. Review upwardly the PIT and CIT, particularly on some selected businesses and corporation. E.g., Oil marketing companies, mining, Telcos, etc; 8. Reduce the VAT threshold to broaden the tax net;

9. Intensify the Stamp tax collection from micro and small enterprises to close the tax gap in the informal sector. The Builders Corpse workers can be tasked to do this;

10. Impose special profit levy on some selected corporations such as bottled water producers, Telcos, financial institutions such as insurance companies.

I believe that these policies, if effectively implemented, has the potential to rope in additional 2- 3% of GDP in revenue in the shortest possible time.

However, given that these policies are likely to face strong resistance (and possible social outcry) from some sections in the society, there is the need for the Ministry to immediately and proactively sensitize and engage selected stakeholders through advocacy, lobbying and media engagements.

 

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