No decision on VAT increase yet

In spite of speculations that the government of Ghana would increase the current Value Added tax rate in the face of declining fortunes of the economy and huge internal and external debt, the government is still undecided on the matter.

However, a B&FT report indicates that both domestic and import VAT rates may see some upward adjustments in the much-awaited 2003 budget which is expected to be read next month.

Just a couple of weeks to the unveiling of the budget, the chances of an upward hike are withering.

Financial analysts have speculated about 2.5 per cent increase in the rate now pegged at 12.5 per cent. A deputy Minister for Finance, Dr. Gyesika Adombila Agambila indicates that an increase in most unlikely, although the issue has not been ruled out completely.

Keeping the rate at its present level would be a wise political decision since sections of the Ghanaian public have gone outrage at the almost 100 per cent increase in prices of petroleum product which has automatically affected prices of almost everything, although without a corresponding increase in wages and salaries.

There are also fears that the increase could make the government more unpopular because of the opposition the ruling party then in opposition and led by the present president mounted on the then government.

“Of course we are in the process of putting together the 2003 budget which would take absolute care of taxes, rates, revenue projections, salaries and investments,” Dr. Agambila said.

Agambila said the Kufuor administration is doing its best to ensure that the imminent budget would adequately address all issues that concern the economy.

The search for macro-economic stability in Ghana largely depends on the ability of government to finance its expenditure without resorting to unsustainable borrowing.

In 2002, government was compelled to borrow from the domestic market because of a shortfall in donor inflows. To avoid a similar situation in 2003, some people in government believe they should bite the bullet and increase the VAT rate. The inflow of external loans (project and programme) was significantly lower than expected. While project loans fell short of projections by about ?311.6 billion the projected inflow for programme loans of ?724.8 billion id not materialize.

VAT is assessed on all transactions involving the production of goods or provision of services to consumers.