Tough economic lessons from Ghana (II)

Ghana is, and has always been a high tax environment. As regards their VAT, in 2017 they ‘reduced’ the 17.5% rate for small businesses to 3% flat rate in what is known as the VAT Flat Rate System (VFRS). The idea is to make tax collection more effective and to jack many little businesses into […]

Ghana is, and has always been a high tax environment. As regards their VAT, in 2017 they ‘reduced’ the 17.5% rate for small businesses to 3% flat rate in what is known as the VAT Flat Rate System (VFRS). The idea is to make tax collection more effective and to jack many little businesses into the tax net. Many small businesses who never filed VAT are now forced to pay the 3% flat.  The idea is certainly not to reduce government tax revenue, but to increase it. The focus of the so-called reduction is on retailers. Manufacturers still pay at 17.5%. The sophistication of tax administration in Ghana tells us it is a high tax system anyway. The 17.5% is usually administered on a net basis. What do I mean? Every business keeps records of VAT paid during the year, and backs this out from VAT received. The government gets the net. With this new 3% flat rate, the government is not interested in entertaining any deductions. Every retailer simply pays government 3%, no begging. It’s more like a sales tax. Nigeria’s 5% VAT is often a Sales Tax too, as most people do not know that they should back out input VAT. The FIRS takes 5% on sales from many SMEs every month. Only large companies try to deduct the VATs they paid in the course of their business.

Meanwhile at Buka Restaurant in Osu where we once had lunch, the final bill came with the following taxes; 1% Tourism Levy, 2.5% GETFUND (Ghana Education Tax Fund), 2.5% NHIL (National Health Insurance Levy), and 12.5% VAT. This is 18.5% in all. Please don’t believe the hype.  I imagine Nigerians will hit the roof if half of these kind of taxes were introduced at our retail level. The usual complaint is that government mismanages what they collect. While this is true, we must be careful not to be moving round and round in circles. Chicken and egg. Which one goes first? There is also corruption in Ghana even if not at the level of what we have here. The elites and middle-class especially should stop demanding for things from government before paying their taxes – or paying their dues to society.  Our country is ours to build. Someone must bell the cat. I will want to say that I believe Ghanaians are overtaxed and beaten down though. The tax system has made everything very expensive and I don’t see their indigenous entrepreneurs thriving. Nigeria is however too free, too cheap, too disorganized, too deluded about its oil wealth and too wayward. We need to meet somewhere in the middle. The other day I stated that the VAIDS program was too early. We need some serious enforcement, discipline and education first, sustained over a period of time, before we introduce voluntary compliance and offer people ‘get-out-of-jail-free’ cards.

Meanwhile petrol sells for one dollar per litre. That is 5.18 Ghana Cedis or N360 per litre. This is however not an excuse to justify the frauds, inefficiencies and corruption that we have suffered in the hands of our leadership here. The subsidy idea has been all too fraudulent anyway but that is a talk for another day. I have maintained that Nigeria’s budgets are too small and that we can generate multiples of our current revenues.  For instance a car tax was introduced recently in Ghana which mandates taxes as follows under the Luxury Vehicle Act, 2018 (Act 969), : vehicles with engine capacity ranging from 2.9L to 3.0L are charged GH¢1,000 (N70,000 equivalent yearly); capacities ranging from 3.5L to 4.0L are charged GH¢1,500 (N105,000 yearly), while vehicles with engine capacity of 4.5L and above are levied GH¢2000 (N140,000 yearly. Nigerians will riot if this happens.

Also, I believe Nigeria can easily generate a lot of money from areas such as excise duties (cigarettes and alcohol are probably cheapest in Nigeria than anywhere else on earth), property taxes, capital gains taxes, inheritance taxes and a raft of existing levies, duties, fees, fines, rents, rates, which are mostly ignored in Nigeria simply because our leaders are not ready to lead by example, and they have an anti-collective development mindset which they have infected the rest of us with.

Come back with me to Kotoka International Airport. The other day it was Omotola Jalade-Ekeinde who complained that it took N72 to buy one Ghana Cedi. Just like the illusion of our new N30,000 minimum wage which is equal to $82 at the current exchange rate of N360, when N18,000 was once equal to $150 (when exchange rate was N120), the ‘strong’ exchange rate of the Ghana Cedi is a great illusion today. Ghana cannot be used as a lightning rod example of how to run an economy because the country still has many of its own problems. The old currency was 9400 to one Dollar when they redenominated in 2007 by removing 4 zeros. The new Ghana Cedi became 0.94 to one US Dollar, thereby becoming ‘stronger’ than the dollar. Since then it’s been a one-way devaluation traffic that has no end. Today the Ghana Cedi is 5.18 to the Dollar. In other words, the currency has devalued from 9,400 for one Dollar in 2007, to 51,800 to the same Dollar in 2019! Forget redenomination. I wish this government luck though because it seems to listen to the worst advise.

One last thing at the airport. At the gate, one is approached by a nice lady, Rahmatu, whose parents hail from Tamale in Northern Region of Ghana.  I’ve always wondered about how Ghana’s north to south seem better integrated than Nigeria’s north and south. John Mahama is from the north of Ghana. The way Ghanaians speak you will never guess that there were different indigenous languages in that country. Anyhow, Rahmatu’s duty today is to administer a detailed questionnaire on the experience of every foreigner who visited Ghana. The questions were businesslike and targeted. I took pictures of each page. I wondered what it is they do at NTDC or Ministry of Culture and Tourism. I hear we scrapped the ministry of tourism. Meanwhile Kotoka International Airport Free WiFi is one of the fastest in the world. The airport sitting area is very friendly and they obviously planned it with the comfort of passengers in mind.

So much to learn and unlearn. I think Nigeria will do well to study Ghana’s more strategic approach at development, even though we should continue to encourage our youths to dare. We should however reduce the focus on money for money’s sake. We should be more systematic in our revenue drive. Every can of drink sold in Ghana had a tax stamp on top (in QR codes). Retail items cannot be sold without this code, and penalties for noncompliance is steep. So long as Ghana is more responsible around its spending, that country may emerge before Nigeria into a proper developing country. With their parliamentary system of government combined with an executive president who is not an MP, I see this country moving fast at some point. They should however ensure the indigenous people are empowered else the Chinese, Lebanese and Europeans will keep cleaning out the country. My fear though is that Ghana is like UK’s guinea-pig in Africa. Everything they do in UK is often replicated in Ghana. Even personal income tax rate was increased to 35% for people earning a mere 10,000 Ghana Cedis (about N700,000 monthly). In Nigeria, our personal income tax has an upper band of 24% the last time I checked.  While this means a very frugal, tax-driven society, there is a need to think about the poorest and most disadvantaged Ghanaian. As for Nigeria, I hope our luck continues to hold up. There is a reason many are relocating from here to other countries and a lot of that has to do with governance or lack of it.