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04 July 2017

3% VAT rate will hurt economy – Financial Analyst

Financial Analyst, Abraham Benson is concerned the 3% flat rate Value Added Tax (VAT), will eviscerate the positive gains made in the economy.

The implementation of the flat rate by the Ghana Revenue Authority (GRA) took effect on Saturday, July 1, replacing the old VAT law which mandated manufacturers and service providers to charge 17.5% VAT on behalf of the state. 

Barely a week after the implementation of the law, food and beverage producers say they cannot absorb the expected increases in cost of production. Some shops are reported to have started increasing prices of goods while a number of manufacturing companies are threatening to lay staff off, to make up for the additional costs. 

Executive Secretary of the Food and Beverage Producers Association of Ghana, Samuel Aggrey said although they support the policy “what makes the big difference is the across board implementation”.

“In effect, you are either being taxed twice or thrice for the same transaction,” he told Joy FM’s Super Morning Show Tuesday, July 4, 2017.

However, the GRA maintains the new tax regime should not cause an upsurge in the prices of goods on the market.

“The 3% is not widening the scope any bigger than the 17.5%,” Commissioner of Tax in charge of Domestic Revenue, Kwasi Gyimah Asante, who was a guest on the show, told host Kojo Yankson.

He explained: “The 3% will be seen in areas where the 17.5% operated in the form of input [and] output taxes.”

Kwasi Gyimah Asante

Commissioner Gyimah Asante said a monitoring exercise carried out over the weekend by staff of the GRA since the new took effect, did not indicate hikes in prices. He assured however, the GRA will “find out what the issues really are” with regard to the reported price increments.

Impact on inflation 

But Financial Analyst, Abraham Benson says the new tax policy will cause more harm to the economy because “inflation will certainly peak up” which may have a negative impact the cost of living.

According to him, the GRA is “aware some of these manufacturers are at the same time wholesalers” and for that matter, any addition to the cost of doing business will affect their operations.

Abraham Benson, (left) discussing the new tax

“When you distort the rates along the line…business will find a way to cover that difference within the cost and that will definitely increase prices,” Mr. Benson indicated.

His position was bolstered by a member of the Association of Ghana Industries (AGI), Stephen Otu, who feared that manufacturers have no option but to make consumers bear the brunt. 

According to Mr. Otu: “The longer the chain, the higher the price and the consumer is going to face the consequence.” He suggested that manufacturers will be better off if they imported their raw materials from abroad.

“For manufacturers, the cost of raw materials bought internally is also going to up…it will be better for me to buy straight away from the importer. The repercussions are serious,” he warned.

Play audio attached to listen to the discussion:

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