Gov’t should get innovative with the taxation option by targeting the ‘haves’ instead of burdening ‘the have-nots’

A policy research and advocacy civil society organization, SEND GHANA, has raised concerns with the 2021 budget especially the new taxes introduced by the government.

In its assessment of the 2021 budget, the organization analyzed six main areas including Health, Water, Sanitation and Hygiene (WASH), Education, Agriculture, Social Protection and Child Welfare, and Taxation.

On taxation, the organization was much particular about the inequality system the new taxes may create and burden the poor in the society more.

“A major characteristic of a fair and just tax system is equity, where taxpayers contribute according to their ability to pay. We are concerned that some of the tax proposals in the 2021 budget are more consumption-based, and the fact is, the burden will fall more on the poor and vulnerable. In particular:

• The COVID-19 Health Levy (1% increase in NHI levy; 1% increase in VAT Flat Rate)

• The 5.7 % increase in petroleum prices at the pump (Energy Sector Recovery Levy of 20 pesewas; the 10 pesewas Sanitation and Pollution Levy per litre on petrol/diesel)”.

This, the group argues “translate into high public transport fare, cost of food and other basic goods and services consumed by all, with the poor feeling the brunt more”.

The group bemoans the low transparency and budget credibility of the government stressing that the “government’s commitment to open and credible budget demands that the annual budget statement, execution and performance reports are made available with adequate information and in format that can be accessible and understood by its citizens.”

Citing sections 27, 30, and 34 of the Public Financial Management Act (PFM) 2016 (Act 921), SEND GHANA insists that the government’s obligation to budget transparency is founded on that Act.

Backing their claims up, the organization said the government’s inability to indicate the actual fiscal performance of ministries departments and agencies and metropolitan, municipal and district assemblies is worrying and is a big concern.

“The 2021 budget statement did not indicate the actual fiscal performance of Ministries Departments and Agencies and Metropolitan Municipal and District Assemblies on education and other sectors for the year ending 2020.

“Such information is relevant for assessing previous year’s performance based on which projections are made for the current and other years”, the group added.

For example, SEND GHANA mentioned that the education sector in 2018 overspent its allocation of GHS 9.25 billion to a tune of GHS 12.77 billion in nominal terms.

“The education sector is known for overspending its budget, especially on the compensation line item. In 2018, the ministry spent GHS 12.77 billion which was above its allocation of GHS 9.25billion in nominal terms. Even though the continuous overspending in the sector denotes fiscal indiscipline, the absence of information on progress in expenditure and policy intervention for the year ending 2020 cannot be overlooked. This flouts the PFM Act and affects the credibility of the national annual budget.”

On the government’s Ghana Beyond Aid Agenda, the organization observed that the poor budget execution and overdependence on donor funding across the Health, Water, Sanitation and Hygiene (WASH), Education, Agriculture, Social Protection and Child Welfare, and Taxation sectors possess a threat to attaining the Ghana Beyond Aid agenda and accomplishing the Sustainable Development Goals (SDGs).

The organization believes that the 2021 budget is overly dependent on donor partners (DPs).

In their assessment, the Agriculture sector is expected to receive 84.8 and 88.9 percent of projected allocations in 2021 from DPs to finance capital expenditure of the Ministry of Fisheries and Aquaculture Development and the Ministry of Food and Agriculture respectively.

In SEND GHANA’s opinion, investing in capital expenditure is very critical in the growth of the country however, it is very risky on the government’s agriculture and industrialization drive especially for the fact that donor support is unpredictable.

Again, “Investments in the provision of Water, Hygiene and Sanitation (WASH) service in the last three years have largely been donor-driven. In 2019, 70.26 percent of projected allocation to WASH was sourced from donors. In 2020, it increased to 82.39 percent. This trend is set to continue in 2021 with projected funds from DPs, for purposes of capital expenditure, constitutes 75.43 percent, while the GoG, Internal Generated Funds (IGF), and the Annual Budget Funding Amount (ABFA) collectively make up of just about 25 percent. With this trend, the government will most likely miss its target to reducing grants by 10% to finance goods and services and CAPEX by 2023 as envisioned in Ghana Beyond Aid strategy document.”

Therefore, the organization suggests to the government that

The Sanitation and Pollution Levy could have been flapped as a kind of ‘sin tax’ or ‘polluter pay tax’ on plastic bag usage to address the plastic bag menace, as exist elsewhere (Germany, Belgium, Hong Kong, Bangladesh, South Africa, Kenya, Rwanda, Botswana, among others).

• Government could relook at the implementation challenges/bottlenecks with the luxury vehicle tax and consider reintroducing it; and the high-income earner tax (personal income tax band rate exceeding GH₵ 10,000 at a rate of 35%; reviewed to include an additional band of GHC 20,000 and above at a rate of 30%) introduced in the 2018 mid-year budget review. To our disappointment, the government bowed to pressure from various interest groups and economic elites and repealed these taxes in less than a year. Records from the 2018 performance indicators show that personal tax revenue projection out-turn recorded a 0.6 percent increase over the revised budget figure. Indeed, by our estimation, the revenue targets for the last half-year of 2018 were exceeded partly due to these and other progressive tax measures that were introduced.

• Other progressive tax measures such as enhancing the efficiency in the collection of property taxation, taxing high net worth individuals, reducing excessive tax holidays for multinational companies, should have been looked at.

Source: Modern Ghana



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