Ghana has just made a mistake with their taxation system. They’ve decided to abolish the supplementary tax on luxury cars while increasing the tax on telecoms services. Nope, wrong way to do it:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] The government has increased the Communication Service Tax to nine per cent from the initial six per cent. Finance Minister, Ken Ofori-Atta, announced the increment in parliament on Monday, 29 July 2019 when he presented the mid-year budget review statement. [/perfectpullquote] [perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Mr Ofori-Atta told the lawmakers that: “The Communication Service Tax (CST) was introduced in 2008 at an ad valorem rate of six per cent. The tax is levied on charges payable by consumers for the use of communication services. “Government proposes to increase the tax to nine per cent to develop the foundation for the creation of a viable technology ecosystem in the country. [/perfectpullquote]
Well, no, that’s not the way you do it. If you tax something you get less of it. Tax telecommunications and you’ll have fewer of them. Given that telecoms is the very heart of the current technology ecosystem by taxing telecoms you’ve just reduced, not increased, that sector.
The mistake is compounded:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Mr Ofori-Atta also announced the scrapping of the Luxury Vehicles Levy introduced in 2018 saying the government has considered agitations by the public and various bodies advocating the cancellation of the levy.[/perfectpullquote]
Nope, bad idea.
Telecoms are used as an input into business activity. Luxury cars not so much, they’re pure consumption goods. We should always want to tax consumption much more than business inputs – which, logically, we shouldn’t be trying to tax at all.
Therefore good tax policy would be higher taxes on luxury vehicles and lower to none on telecoms. Exactly the opposite, that is, of what the Minster has just announced.
So, why? Well, think it through in political terms. The sort of people who have luxury vehicles, who would pay the tax, are the sort of people with high incomes who take a direct and personal interest in politics. The people who will be impacted by the telecoms tax are the poor trying to get credit for their mobiles. Many more poor, of course, but they’re rather less directly and personally vocal to the Minister who sets the tax rates. Thus, I assume, the decision. Those the Minister knows will applaud this and who cares about those he doesn’t?