Excise duty: Scope for expansion?
Historically, excise duty has been referred to as “sin tax” because it is traditionally charged on products that are considered harmful to health, well-being, the environment, etc. such as alcohol, tobacco, and mineral/bottled water.
The tax is also used to influence consumer behaviour; where products are considered to have harmful effects on the consumer and the general public, excise duty is charged on the product. But is there scope for bringing other goods and also including some services under the excise duty regime?
In this way, the tax base for excise duty, and in effect, the much needed tax revenue would be increased.
To provide some more information on excise duty, it is an indirect tax charged on selected imported and locally manufactured goods. In Ghana, excise duty is only applicable on the selected goods as provided in the tax law.
Excise duty can be described as a narrow based indirect tax. This is because, excise duty is charged on selected items unlike other types of indirect taxes such as Value Added Tax (VAT) which can be said to be broad-based because it is applied by exclusion. That is to say, if a transaction is not outside of the scope of VAT, specifically zero rated or exempt from VAT, then VAT is applicable at the standard rate on the transaction.
Punishing the sinner
Generally, the “more sinful” the product, the higher the excise duty rate. For instance, tobacco products which are viewed as having adverse impact on the individual and society are subject to high rates of excise duty.
This has a two pronged effect - one is that it discourages the consumer from using the harmful product and two, it enables the government to counteract the adverse impact of the product on the users and affected third parties. Hence, the notion that excise duties are a case of “punishing the sinner as retribution for their sins”.
Scope for expansion
But wait a minute, is there a scope for roping in other goods? For example, in a bid to promote the “buy Ghana, build Ghana” products, the government might consider levying excise duty on imported finished products and protecting similar products that are locally produced from excise duty. Examples of such products that may be considered include fizzy drinks with high sugar content, “junk food”, flavoured milk, yoghurt among other dairy products. The government can consider levying excise duty on imported yoghurt, while exempting the locally produced yoghurt.
Looking at expanding the excise duty regime to cover services, consideration can be given to levying excise duty on fees paid for some services. For example in other jurisdictions such as Kenya and Tanzania, excise duty is applicable on financial services.
In the case of Ghana, the government can consider services such as the services offered by some restaurants, and betting services. This will have the effect of regulating betting activities and further increasing the tax base for excise duty.
Other tax implications
Of course the examples provided above may have other tax ramifications that have not been discussed. It is upon the government to weigh the pros and cons for expanding the tax base for excise duty.
Conclusion
We can start having the discussion on whether there is scope for expanding the tax base for excise duty. Should the scope of excise duty be expanded beyond what is currently being applied on, then the traditional notion of excise duty being a “sin tax” may not hold.
The jury is out there on the excise duty trends and what the future of excise duty is in Ghana. One thing we can be sure of though is that excise duty serves several purposes - such as encouraging consumption of local raw materials in production - but the paramount purposes are revenue collection and influencing consumer behaviour.
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