Tax Analyst kicks against calls for VAT reduction for aviation and hospitality sectors

A Tax Analyst, Timore Francis Boi, has kicked against suggestions that the Value Added Tax (VAT) of 12.5 percent should be reduced for players in the hospitality, tourism, and aviation sectors due to the severe impact of COVID-19 on those sectors.

His call comes after global auditing giant, Deloitte, in its post-Mid-year Budget analysis report, proposed among other measures, the implementation of a COVID-19 tax amnesty for six months, to provide waivers for interest and penalties; reduction of Corporate Income Tax (CIT) rate to 20 percent for 2-3 years for most-affected industries – i.e. hospitality, tourism, aviation, private schools; and target sectors for growth such as the pharmaceutical industry.

Speaking to Citi Business News, Mr. Boi stated that there is no assurance that such a reduction will reflect in price changes and boost demand.

“I think some of the are laudable. But I disagree with the reduction in the VAT. We have seen instances where Custom duties have been reduced, for example on spare parts but we didn’t see any significant reduction in prices. So, we may reduce indirect taxes, thinking that it will result in reduction in prices which will eventually lead to an increase in demand. But at this moment we can’t guarantee that because in this country, it doesn’t happen like that. Prices continue to remain the same despite the reduction,” he said.

He further urged government to rather restructure the tax system to improve collection from areas that have been neglected for long. He also appealed to government to enhance the distribution of its stimulus packages.

“I think the government should continue enhancing the stimulus packages for companies that have been affected by the pandemic. By doing that, we will be able to bring those who have not been paying taxes into the tax net,” he added.

Tax collection has always been the largest source of revenue to government. But following the outbreak of the novel Coronavirus, many countries including Ghana, have been forced to find other sources of revenue mobilisation.

In Ghana, one source of revenue generation is through Indirect Taxes, which are collected by entities in the supply chain and paid to the government. This tax is mostly passed on to the consumer as part of the purchase price of goods or services.

This includes excise duties on fuel and liquor, customs, excise and preventive services, as well as consumption taxes such as the Value Added Tax.

The standard VAT rate is 12.5 percent calculated on the value of the taxable supply of goods or services or the value of import.

During the presentation of the 2020 Mid-year budget review, the Finance Minister announced new measures such as reduction in the Communication Service tax from 9 to 6 percent and the extension of free water supply to Ghanaians for the next three months and free electricity supply to lifeline consumers for the rest of the year.

But, some stakeholders in government have expressed concern about government’s silence on taxation, and how it intends to fund its various programmes amidst the COVD-19 pandemic without adequate domestic taxes.

Currently, the country’s total expenditures (including arrears clearance) amounted to GH¢46,352 million or 12.0 percent of GDP, compared with the programme target of GH¢41,554 million or 10.8 percent of GDP.

Parliament has also approved government’s request for a supplementary budget of 11. 8 billion Ghana cedis, to support government’s expenditure for the rest of the year towards the implementation of various initiatives to strengthen the economy.