Why the 17.5% will not affect fares
The 2015 Budget has introduced a 17.5 per cent special tax on petroleum products, which has already been passed by Parliament for immediate implementation.
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A Tax Policy Advisor to the Minister of Finance, Dr Edward Larbi-Siaw, told a section of the media in Accra on November 20 that the tax had to move into immediate implementation because assigning a longer time-line for implementation would trigger hoarding and distortion of the market.
Pass through effect
He explained that the 17.5 per cent tax would not have a blanket impact on the various petroleum products, but would vary according to products.
For instance, at the pump, the price of premium petrol will be 3.04 per cent; gas oil (diesel) will be 3.13 per cent and 2.85 per cent on kerosene, used in rural areas mostly by the poor.
The tax is said to have a negative 9.54 per cent impact on liquefied petroleum gas (LPG); with premix fuel used in the fishing industry and residual fuel oil (RFO), a low grade petroleum bi-product, having neutral impacts.
Even though the Finance Minister, Mr Seth Terkper, did not explain the incidence in the budget, expert views the GRAPHIC BUSINESS sought indicates that the incidence of the 17.5 per cent special tax would be applied on the crude oil component of the ex-pump price and not the entire figure as paid by the final consumer, which includes levies and taxes.
“There are levies, fees and some taxes already built into the price you pay at the petrol station. But you cannot impose a tax on a levy or tax. Therefore, before applying the 17.5 per cent special tax, you need to disaggregate the figure and take out the taxes and levies, which leads to the varying impact,” an expert told this paper.
The Deputy Minister of Finance, Mrs Mona Quartey, supported by Dr Larbi-Siaw, explained that since the net impact on the ex-pump price was not up to 10 per cent, it would have no pass through effect on transport fares.
“This tax has been on the table for a long time and discussions have been ongoing. It was a hard choice for us to make, but this is a sacrifice that we can make as a people to ensure that we generate more revenues to run the economy,” the tax policy advisor said.
Other views
But economist and lecturer in finance at the University of Cape Coast, Dr John Gatsi, said even if there were prior discussions, they were not widely consultative.
“This area affects the ordinary Ghanaian and therefore fire pre-budget discussions should have been done. From now on, the posture of government should be post-budget information management to explain why the tax, what it is intended to achieve and so on,” the chartered economist and analyst said.
Dr Gatsi wants the National Petroleum Authority (NPA) to come out with explanations as to why the automatic price adjustment formula for petroleum products did not trigger. Even though the prices of crude oil on the world market was reducing, prices in Ghana did not follow the same trend.
“The NPA should come clean on the total amount of indebtedness and the reasons; were they as a result of subsidies and how much the country has raised by the refusal to operationalise the automatic adjustment formula,” he said in the belief that those could help make matters clearer to the general public.
The economist was, however, satisfied with the mitigating factors such as the procurement of business for the Metro Mass Transit, which he said could help minimise the impact of the special petroleum tax on the ordinary Ghanaian.
In addition, the tax concessions and support to sections of the private sector, he explained, would help lower the cost of doing business, help companies to grow and expand and also create jobs.
VAT flat rate
The budget also proposed the implementation of a five per cent Value Added Tax (VAT) flat rate for the real estate sector, where the government had in the previous budget proposed to apply 17.5 per cent to rationalise sectors that charged VAT
However, banks and the real estate sectors engaged the government with the explanation that it would increase costs of products and services in those sectors.
Dr Larbi-Siaw said that tax was expected to rake in GH¢30 million from the real estate sector, while about GH¢200 million would come from fee-based financial services.
Last year, the government introduced a 2.5 per cent Value Added Tax (VAT) which it would channel into an Infrastructure Investment Fund to undertake ambitious infrastructure projects across the country. GB
