Taxation is the price which civilised communities pay for the opportunity of remaining civilised, said Albert Bushnell Hart, an American historian. Yet, paying taxes is not a natural desire of many, be it individuals or businesses. And this is for the simple reason that taxes increase cost of living or cost of doing business.
But inasmuch as tax increments imposes some burden on individuals and businesses, it is a major source of revenue for every government. Citizens demand government to provide them with certain social amenities and interventions including good and affording education, healthcare, roads, among others, and all these can be rolled out if government has the required resources to carry it out.
And more so when the coronavirus pandemic has increased the demands on government, thereby, shooting government expenditure to abnormal levels. According to the 2021 budget statement, the COVID-19 resulted in an unexpected and unavoidable rise in expenditures of GH¢11.7 billion, whereas, there was a shortfall of revenue of GH¢13.6 billion, thereby, widening the fiscal deficit to 11.7 percent of GDP in 2020. In fact, government says the fiscal impact of the pandemic on the economy was GH¢19.7 billion last year.
COVID-19 related expenditure
The sudden appearance of the pandemic also came with many emergency expenditures government had not planned for. Health workers and other essential workers had to be provided with the needed logistics to be on the frontline of the battle against the deadly disease.
According to the 2021 budget statement, within a few weeks into the pandemic, government had to rollout an Emergency Preparedness and Response Plan (EPRP I & II) and the Coronavirus Alleviation Programme (CAP) for health workers and businesses. The former provided financial clearance to employ additional 24,285 health professionals between March and June to help fight the pandemic; expanded the capacities of laboratories to increase COVID-19 testing and established isolation centres in all regions and districts; provided 3.6 million reusable face masks, 50,000 medical scrubs, 90,000 hospital gowns and head covers to health facilities as at June 2020.
Government also provided 50 percent of basic salary as allowances for frontline health workers; v. waived Income Tax for all healthcare workers; waived income tax on the 50 percent additional allowances paid to frontline health workers; absorbed the transport cost and cost of sustenance for contact tracers and field surveillance officers; fully covered water consumption for all Ghanaians from April to December, 2020; fully covered the power consumption of the over 1 million lifeline customers, and subsidised the consumption of all other customers by 50 percent.
Then, under the Coronavirus Alleviation Programme (CAP), government rolled-out the GH¢750 million CAP-BuSS Programme in May 2020 to directly support Micro, Small and Medium-Sized Enterprises (MSMEs). It also established a GH¢2 billion Guarantee Facility to support all large enterprises and for job retention; GH¢100 million fund for labour and faith-based organisations for retraining and skills development; an Unemployment Insurance Scheme to provide temporary income support to workers who are laid off due to the pandemic; transferred over GH¢50 million to 400,000 most-vulnerable individuals under the LEAP programme; provided cooked meals to 2,744,723 vulnerable persons and worked with faith-based organisations to distribute dry food packages to 470,000 families.
Other COVID-19 related interventions further include the provision of hot meals for 584,000 final year Junior High School students and 146,000 staff, of public and private schools from August 24 to September 18, 2020 as they wrote their final exams; supply of 5.2 million re-usable face masks, 64,700 ‘veronica buckets’, 8100 thermometers guns and in excess of 1.5 million pieces of 200-ml of hand sanitisers as well as over 126,000 gallons of soap to enable schools re-open.
And again, government paid the WASSCE examination fees amounting to GH¢75.4 million for 314,000 SHS 3 students; reduced the communication service from 9 percent to 5 percent to support students and workers who have adopted on-line platforms to study and work; extended due dates for filling of taxes from 4 to 6 months after the end of the financial year; permitted the deduction of contributions and donations towards the pandemic as allowable expenses for income tax purposes; waived VAT, NHIL, and GETFund Levy on donations of stock of equipment and goods for fighting the pandemic; waived income taxes on Third-Tier pension withdrawal; fumigated schools, hospitals, markets and lorry parks; undertook a vigorous public sensitisation and engagement exercise to inform and educate Ghanaians on the pandemic; and paid all public sector salaries in full.
All these expenditures were mainly financed by borrowed money which essentially shot the country’s debt to GDP up to 78 percent in 2020, according to the IMF.
The COVID-19 related expenditure continues in 2021
Once the pandemic is not over, there will also be no end to spending to bring the disease under control and save precious lives, and also bring the economy back to normal. Actually, the IMF has cautioned that containment measures and public health surveillance will have to be adapted by all African countries and this will require added spending, not only to scale up the resilience of local health systems and support the testing and tracing that a more tailored containment approach requires, but also to ensure that the logistical, administrative, and financial requirements of mass vaccination are in place.
To appreciate the scope of how much government wants to spend, it is important to consider the various programmes laid out for the year.
First on the list is procurement of vaccines for the adult population of the country which is estimated at some 20 million. Then, government also plans to establish fourteen (14) medical waste treatment facilities across the country for safe disposal of medical waste in collaboration with the private sector. Again, thirty-three (33) major health projects have been approved for implementation at a cost of €890 million.
There is also an ambitious project called Agenda 111, which will see to the construction of 100-bed District Hospitals in 101 Districts with no hospitals, seven (7) Regional Hospitals for the new Regions, the construction of two (2) new psychiatric hospitals for the Middle Belt and Northern Belt, respectively, and the rehabilitation of Effia-Nkwanta Hospital in the Western Region. Finally, there is also the need to recruit more health care professionals, in addition to the 100,000 recruited in the first term of the President.
The outbreak of every pandemic also comes with some sanitation challenges. Already, even before the pandemic, the country had serious issues with sanitation. It is usually a common sight to see mountains of garbage piles up on the streets and market places. So to address this canker, government plans to improve urban air quality and combat air pollution; support the re-engineering of landfill sites at Kpone and Oti; support fumigation of public spaces, schools, health centres and markets; and revamp or reconstruct poorly managed landfill facilities.
Again, government plans to construct more sustainable state-of-the-art waste treatment plants both solid and liquid in selected locations across the country; construct waste recycling and compost plants across the country; construct more sanitation facilities to accelerate the elimination of open defaecation; construct final treatment and disposal sites for solid and liquid waste; provide dedicated support for the annual maintenance and management of major landfill sites and other waste treatment plants and facilities across the country; and construct medical waste treatment facilities to prevent generation of infectious diseases especially under the Coronavirus Treatment Programme.
It must also be noted that, human lives are not the only to protect here. Businesses likewise need a friendly environment to operate in order to revive the economy.
Where taxes come in
As already noted, all these expenditures will require huge funds to undertake. But granted, these expenditures can no longer be financed all through borrowing, lest the economy will crash.
It means therefore that government has to find ways of raising some of the funds within the country. And the most reliable approach, given the exigency of the times we live in, will be through taxes, even though it will be a bitter pill to swallow.
Some will argue that this is not the right time for taxes, especially considering the pandemic’s impact on individuals’ incomes and businesses as well. Many have either lost their jobs or have lost about half of their monthly income due to decreased economic activity, hence, it will come as double slap to individuals and businesses.
But it is still important to bring the economy back to life to support the lives that will be saved; and that is where taxes come into the picture. Even though there are quite a number of taxes in the system, the country still suffers from revenue shortfalls, especially, tax revenue. According to the World Bank, for the past two decades, the tax ratio has remained at around 12.8 percent of GDP, below the Sub-Saharan Africa average of 15 percent.
In view of this, in the 2021 budget statement, government has decided to introduce a new tax dubbed COVID-19 Health Levy which will see a one percentage point increase in the National Health Insurance Levy and a one percentage point increase in the VAT Flat Rate to support expenditures related to COVID-19 such as the Agenda 111 and other projects mentioned earlier.
In addition to this, government said it is proposing a Sanitation and Pollution Levy (SPL) of 10 pesewas on the price per litre of petrol/diesel under the Energy Sector Levies Act (ESLA) to address sanitation problem.
Also, a further Energy Sector Recovery Levy of 20 pesewas per litre on petrol/diesel under the ESLA as a means of finding additional resources to cover the excess capacity charges that have resulted from the Power Purchase Agreements (PPAs). This will ensure stable power for households and industry.
The implementation of these two proposed levies for sanitation and pollution as well as to pay for excess capacity charges, according to the budget statement, would result in a 5.7 percent increase in petroleum prices at the pump.
Besides these taxes, government has further introduced a financial sector clean-up levy of 5 percent on profit-before-tax of banks to help defray outstanding commitments stemming from the financial sector clean-up. The levy, the budget states, will be reviewed in 2024.
That is not all, the budget statement further added that there will be a review of existing road tolls which will be aligned with current market rates as part of the framework for promoting burden sharing as the country seeks to transform road and infrastructure sector in a post-COVID era.
Another area that government seeks to tap into for revenue is the gaming industry as it is estimated that the economy loses over GH¢300 million annually in revenue due to leakages in the sector. The gaming industry is fast gaining grounds in the country with the influx of online betting and automation.
COVID-19 support initiatives
Despite the newly introduced levies and revision of existing ones, the budget further introduced initiatives to cushion the effect of the pandemic on the individual and businesses. These include tax rebates of 30 percent on the income tax due for companies in hotels and restaurants, education, arts and entertainment, and travel and tours for the rest of the year.
Other initiatives also include the suspension of quarterly income tax instalment payments for the rest of the year for small businesses using the income tax stamp system; and suspension of quarterly instalment payments of the vehicle income tax for the third and fourth quarters of 2021 for public transports and taxis as part of measures to reduce the cost of transportation.
And again, there is also the extension of the waiver of interest as incentive for early payment of accumulated tax arrears.
So yes, the hardship on people and businesses is real; it cannot be downplayed at all. But to save lives and the economy from collapse, taxes remain a better option than borrowing which comes at a great cost to the economy. Already, the country’s borrowing has reached unsustainable levels and the IMF has put it in the list of countries at high risk of debt distress. So, it is prudent for government to avoid pilling up more debt.
So let us all swallow the bitter pill now, as that is the country’s best option to heal the wounds inflicted on the economy by the pandemic; and also the most practical means to raise revenue to provide the infrastructure needed to save lives.