Withdraw stabilisation levy
The Journalists for Business Advocacy (JBA) has called on the government to as a matter of urgency withdraw the National Fiscal Stabilisation Levy (NFSL).
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This, the advocacy group says, would lessen the financial difficulties that companies face through the imposition of the levy.
A statement issued in Accra and signed by its lead person on Economics and Finance, Mr Toma Imirhe, noted with concern the government’s intention to further extend the application of the NFSL until the end of 2017.
“This planned extension of the levy will further increase the financial difficulties of all the companies on which it is being levied,” the statement said.
The withdrawal has become even more imminent and needful because of the implementation of the Income Tax Act 2015, (Act 896), which has introduced sweeping reforms and adjustments which are already biting businesses and individuals hard.
“We wish to remind the government that when the NFSL was reintroduced, effective mid-July 2013, the legislation backing its establishment set its duration at 18 months. Therefore, the levy should have been withdrawn at the end of 2014, but this did not happen. Rather, the government now intends to apply it until the end of 2017,” the statement added.
Hurting businesses
This is both excessive for government’s efforts at reducing its fiscal deficit to manageable proportions and debilitating for the enterprises which are obliged to pay the levy and are already suffering from sharply rising business operating costs and falling effective customer purchasing power, which consequently are squeezing both their sales volumes and their net profit margins.
When the NFSL was initially introduced in 2009, government’s fiscal deficit, inherited from the previous administration, was over 12 per cent of GDP. But due to the increased revenue generated by the levy, the fiscal deficit was nearly halved by 2011 and the levy was duly abolished, in line with an 18-month legislative sunset clause it had.
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Its reintroduction in 2013 was in response to another round of fiscal challenges for the government, of similar proportions incurred in 2012, but the deficit had been cut to 7.1 per cent by 2015 and is now expected to fall further to 5.3 per cent this year.
This implies that the deficit is now falling to manageable proportions and thus the levy is no longer of critical importance to fiscal consolidation efforts.
For a fact, JBA is acutely aware of the downside risks to government’s ongoing fiscal consolidation efforts in 2016, this being an election year, and having very little fiscal space to manoeuvre in.
These challenges have been exacerbated by the imperative need to keep within the targets set under the ongoing programme with the International Monetary Fund, including that of a 5.3 per cent fiscal deficit target this year.
Not long after that, utilities increased their tariffs substantially. All these combine to stifle the smooth operation of businesses and also dampen demand for their goods and services.
However, JBA believes that this needs to be weighed against the negative effects of the continued application of the NFSL on enterprises obliged to pay the levy, such as reduced availability of internally generated funds for reinvestment in production capacity and the dissatisfaction of shareholders in the yields they are receiving on their investments, compared to available alternatives elsewhere.
Falling profits
For instance, mining support service companies are confronted with having to deal with customers whose profits have fallen dramatically because of the slump in gold prices on the global market; the banking industry is seeing its profits fall significantly due to rising loan repayment defaults due to the increasingly difficult business operating environment for their customers; and telecom companies are having to absorb steeply rising operating costs in cedi terms in order to retain market share in a ferociously competitive environment which is, however, benefiting customers in the form of tariff stability.
Policy options
However, in view of the need to reconcile government’s ambitious fiscal targets with the urgent financial imperatives of companies who are obliged to pay the NFSL, the JBA wishes to suggest the policy option of replacing it with equally ambitious efforts to broaden the tax net.
The options should include properly targeting and capturing all property for tax purposes, on-street parking fees, especially in the Central Business District and commercial parts of cities. More roads should be tolled, the newly constructed ones, to rake in more to close the deficit.
Government projects to earn GH¢213.11 million from the NFSL in 2016, which is equivalent to just 1.9 per cent of the GH¢11,323.878 million expected from consumption taxes in the form of excise tax, VAT, and health insurance and energy levies.
This means a one per cent increase consumption tax revenues could replace the revenues foregone if the NFSL is not applied during the second half of this year.
Similarly, projected revenue from the NFSL in 2017, at GH¢373.55 million, is equivalent to just 2.9 per cent of the GH¢12,981.442 million expected from consumption taxes for the whole of 2017.
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This means a three per cent increase in consumption tax revenues in 2017 would easily replace the foregone revenues in NFSL revenues for the whole of next year.
We believe this would be a much fairer alternative since consumption taxes are paid by all, the amounts paid commensurate with consumption levels, which in turn are determined primarily by income levels.
This would help restore Ghana’s faltering competitiveness as an investment destination, which the JBA insists is crucial to the country’s economic growth prospects and, therefore, its ability to create jobs and incomes for its citizens going forward.