Taxes should be targeted at the rich; else it’ll be ‘counterproductive’ – UG Economist

The timing of the taxes announced by the government in the 2021 budget and economic statement is “problematic”, Dr Priscilla Twumasi Baffour, a Senior Lecturer at the Department of Economics, University of Ghana, has said.

In her view, the government could have been more “innovative” with the taxation option by targeting the haves instead of burdening the have-nots, too, with the same taxes.

Caretaker Finance Minister Osei Kyei-Mensah-Bonsu, on Friday, 12 March 2021, told Parliament while delivering this year’s budget that the government is introducing a 10p sanitation and pollution levy; and 20p excess power capacity levy, both on the Energy Sector Levy Act (ESLA) with the combined effect being an increase in the ex-pump price of fuel by 5.7 per cent.

Additionally, the government is introducing a 1 per cent COVID-19 levy on VAT, Flat Rate Scheme; 5 per cent financial clean-up levy on banks’ profit-before-tax and also considering adjusting road tolls to align with current trends.

Discussing the budget on Class91.3FM’s current affairs programme ‘The Watchdog’ with other panellists on Saturday, 13 March 2021, Dr Twumasi Baffour said she expected the government to have found “other ways of generating revenue”.

“There was a rumour, prior to the budget presentation that taxes would go up. Per best practice, I was expecting a massive mobilisation of resources, for example, through property taxation”, she told host Eugene Bawelle, adding: “I was expecting, maybe, a reintroduction of the luxury vehicle taxes”.

“When you do those things, what you’re trying to do, really, is taking more from the people who have”, she explained. “We have been quite heavy on social expenditure, so, for that matter, you’ll be taking more from those who have, to cushion the bottom and that would have been OK”.

In her view, that strategy would have been OK even though “a lot of people will complain”.

“These are not normal times”, she observed, insisting: “Those who have should pay more to support the vulnerable”.

“The reason being that: if we consistently look on and look at the helpless situation people are in, no matter how protected you are because you have a lot more resources at your disposal, when there is an uprising, when there is massive crime, a whole lot of unrest in the economy, it affects us, so, there’s nothing wrong for the rich to pay more to support the poor”, Dr Twumasi Baffour justified.

She also argued that considering the havoc wreaked by the COVID-19 pandemic to the economy, taxation may prove counterproductive.

“Indeed, conventional wisdom will tell us that when an economy is hit by a major, adverse shock like this, that is not the time you try to use contractionary measures – you try to use taxation – because what taxes do is to contract the economy”, she explained.

“You’d rather want to stimulate and with stimulation you can go on the tangent of massive government expenditure and you find some aspects of that in the budget; you see that the government is coming out with a lot of bold innovations and projects. How those projects will be funded is still not too clear but the whole idea is that you’d want to stimulate and boost [the economy]; and growth is demand-determined, so, when people have a lot more resources, a lot more extra money in their pocket and they go spending, that is what will propel the growth for us to recover and recover in good time”, she intimated.

“And, so, if you ask, the use of taxes at this point can be counterproductive although the margins are not significant, we are yet to see how it will turn out because taxes on fuel will translate into transportation, cost of food, and a whole lot of others; the manufacturing sector that we are trying so hard to revamp will adversely be affected because most of them will use fuel to power their machines and all that. But it’s a very dicey and difficult situation that the government finds itself in”.


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