The Institute of Economic Affairs (IEA) is of the view that the government should have increased taxes on flourishing businesses instead of consumers.
According to the IEA’s review of the 2019 Supplementary Budget and Mid-Year Economic Review, flourishing businesses make profits which needed to be taxed, instead of the consumers’ income.
The government proposed an upward adjustment in the Road Fund Levy, the Energy Debt Recovery Levy, and the Price Stabilisation and Recovery Levy, to bring the ratios close to 21%, to help bridge the financing requirements.
Government proposes to increase the Energy Sector Levies by 20 pesewas per litre for petrol and diesel and 8 pesewas per kg for LPG, so as to increase the inflows to enable government issue additional bonds to pay down our energy sector debt obligations.
Based on current indicative prices for petrol and diesel, this translates to 90 pesewas per gallon.
The communication service tax is to be increased to 9% to develop the foundation for the creation of a viable technology ecosystem in the country.
The budget review looked at areas such as revenue, expenditure, public debt, budget deficit, economic growth, and job creation.
IEA explained that, in effect, consumers are losers whereas businesses are winners in relation to the 2019 Mid-Year budget review.
Director of Research at IEA, Dr John Kwakye, who addressed the media, noted that the Minister’s approach to increase consumer-based tax to make up for the decline in revenue is a misplaced approach.
According to him, the taxes would worsen the burden on taxpaying households.
He said that the IEA expected the Minister to address the issue of the tax exemptions bill.
“We were expecting firm action to deal with several revenue leakages such as mis-invoicing, corruption, transfer pricing,” he added.
He recommended that the government can increase revenue if it gives serious consideration to the exploitation of natural resources, and supernormal profits of banking, mining, and telecommunication companies are targeted instead of consumers.
On expenditure, the budget showed that there is a high expenditure, and accumulated revenue is not enough to supplement expenditure.
The IEA advised the government to prioritise cost-cutting measures to reduce expenditure.
Some of the recommendations by the IEA are to renegotiate contracts to remove ‘take-or-pay’ obligations, expand power coverage to increase demand, use a means-testing scheme to get financially-capable parents who can pay for their wards’ educational expenses under the Free Senior High School Policy, or to agree on a cost-sharing arrangement with parents.
On the budget deficit, the Minister indicated the rise in the annual budget deficit. The IEA called on the government to adhere to the deficit ceiling of 5% in the Fiscal Responsibility Law (FRL), but Dr Kwakye urged the government to come up with innovative tax measures to reduce the budget deficit.
On growth and employment, the budget showed that there is a gap between growth and jobs.
The supplementary review by the IEA indicates that “the unbalanced growth driven by the extractives, with lagging agriculture and manufacturing growth, has restricted job creation”.
Therefore, the review suggested that “direct state interventions to support the lagging agriculture and manufacturing sectors will be key to achieving balanced growth and creating more permanent jobs”.
The review also suggested that proper implementation of the ‘One District, One Factory’ policy will help decrease unemployment, especially at the rural areas.
The IEA review also advised the government to check the public debt by practicing fiscal discipline and adhering to the FRL.
Source: The Finder
