BRIEF RESPONSE TO THE VEEP, DR. BAWUMIA’S PORT ‘’TAX’’ REFORM

BRIEF RESPONSE TO THE VEEP, DR. BAWUMIA’S PORT ‘’TAX’’ REFORM

13 April 2019
I am neither an economist nor a tax accountant, and my economic management is defined by two factors:
1. Charity begins at home – we were taught at home to live within our means.

2. Aggreyism– to learn, and if possible, improve upon the best practice of our domiciled country. (I currently live in a civilised country where good economic principles underpin economic policy.)

Paradoxically, these are the two factors lacking in Ghana and most of Africa’s politico-economic management culture.

In Ghana, we live beyond our means. Governments spending beyond their means is just the political arm of a cultural problem. Relatives and friends bankroll our profligacy, governments use import duties and taxes to feed their gluttony, while Governments have milked this cow mercilessly over the years.

It is obvious that there isn’t enough money to create new regions, districts and start free boarding SHS, yet we do them because our leaders think there’s a cow that produces unlimited milk. Now that approach isn’t only unsustainable, it threatens to bring about political pain to the wicked dairy farmer.

Things are falling apart, and the centre is no longer holding. The result is the bubble thought policy of PORT REFORMS announced by Bawumia on 03/04/2019.

PORT REFORMS TO ENHANCE COMPETITIVENESS

‘’To reduce the incidence of smuggling, the benchmark values for imports have been reduced by 50% except for vehicles it will be reduced by 30%.’’ Vice-President Dr. Bawumia 03/04/2019.

Benchmark values (BV) constitute internationally set prices for goods that are used to determine Import duty (ID).
ID = BV x tax rate. For vehicles, the tax rate is between 10%-20% depending on the engine capacity. A 2L car attracts 10% tax rate and 4L attracts 20%.

Let’s start with the duties and taxes from international trade or the Ports as in the Nov 2018 budget (in cedis and in millions).

Taxes at Ports 14 366.47 + xxxxxxx

• Import duty 7 417.79
• VAT 5 029.56
• NHIL 959.56
• Getfund 959.56
• Exim + Ecowas xxxxxxx (couldn’t see figures in budget)

Revenue from the ports of Ghc 14 366.47 + xxxxxx constitutes about 51% of Import duty and 49% of other taxes. Reducing taxes at the ports implies reducing ID or the other taxes (OT) or both (IDOT).

The government has reduced ID by reducing BV by 30-50%. It sounds good, but is it appropriate? NO.
I will discuss this under 3 broad areas of taxation; principles, objectives, and benefits.

PRINCIPLES: Simple; Neutral; Fair; and Flexible.

OBJECTIVES: Compliance and certainty.

BENEFITS: money for government; stimulate economy; inspire aspiration; and re-distribute wealth.

Simple – scrapping VAT, NHIL & Getfund simplifies the tax system, potentially increases compliance because total tax paid is reduced by 48%, and certainty is bolstered because these taxes are no longer available for government to increase arbitrarily.

Neutral: BV is indicative of the intrinsic value of a good, so arbitrarily reducing it is anti-market and unnecessary attack on the neutrality principle. Government could have reduced the tax rate instead if it really wanted to reduce ID.

The best approach is to reduce the OT which are market neutral.
Fair: People’s rational behaviour in any economy will always lead them to find ways to evade high tax. That’s the reality.

So while reducing tax is a good thing since it increases compliance, BV is not a tax. Dr. Bawumia the highly touted economist should know that.

Flexible: This allows for the application of taxes to achieve a specific socio-economic outcome. A blanket reduction of BV trumps flexibility. The best practice is to classify imported goods into production-linked (PL) and consumption-linked (CL), where PL goods are exempted from OT while flexible OT is applied to CL goods.

Australians pay $0.57/litre as fuel tax. This yields about $19b/year, about $7b goes back to farmers and others whose use is deemed production-linked. Government doesn’t reduce the BV of fuel – that will be interfering with the market. Rather it exempts farmers and PL users from fuel tax.

• Government indirectly subsidizes farmers
• Government indirectly eases cost of living since farmers would’ve passed the $7b on to users.
• The $7B is used to reinvest, employ more people and export more food, thus stimulating the economy. Ultimately, Government ends up getting more than the $7b from individual tax, company tax and increased exports.

A good economic principle I’ve learned from Australia is that you don’t reduce BV or the intrinsic value of a commodity. Rather it is best to reduce or scrap taxes on a good to increase compliance, certainty, stimulate growth, generate more personal and corporate wealth and thereby more tax revenue to the state.

For Dr. Bawumia to announce a tax policy aimed at smuggling (compliance) only is very disappointing, and for the NDC not to be able to confront him on that shows we lack depth. We are in trouble.

This is my Easter appearance. Stay tuned.

Freedom to life, democracy and dictatorship – Rwanda vs Ghana

Freedom to life, democracy and dictatorship – Rwanda vs Ghana

18 April

‘’Anu gbee ko kɛjɛ Rama, nkɔmɔyeli kɛ yaafo, Rahel miifo ebii lɛ ahe, ni ekpɛlɛɛɛ miishɛjemɔ, ejaakɛ amɛ bɛ.’’ The English rendition is:

“A voice was heard in Ramah, lamentation and bitter weeping,
Rachel weeping for her children, refusing to be comforted for her children, because they are no more.” Jeremiah 31:15.

The above quote was Rwanda 25 years ago. May the souls of the one million Rwandese who were murdered RIP. May God bless Kagame and Rwanda.

Rwanda is the most unique country in the modern world.
1. It lost 1m people in 100 days by ethno-genocidal madness that targeted minority Tutsi group. A population of 8m became 7m. A nation lost 12.5% of its people in a flash. In Ghana, that would have been the entire population of Upper East & West + half of Northern region.

2. A new nation starting with probably 25% of its kids without at least one parent.

3. Redeemed by a minority-led military campaign, which intrinsically made for an unstable redemption.

4. Added to the above, Rwanda is a tiny, poor landlocked African country which required a biblical scale exodus that called for a Moses, and God provided one. Amen.

Paul Kagame got the most difficult job in modern history, and he has delivered the most impressive results since recorded history. Unfortunately, he has no peer in modern Africa.

The Rwandan miracle unravelling before our eyes is not due to Kagame’s excesses or his mistakes. They reflect an output from an extraordinary visionary. His greatest achievement yet is what I call ‘’FREEDOM TO LIFE or FTL.’’
What is freedom to life? Simply, it is when a child lives past its 5th birthday.

Countries with low Under 5 Mortality Rate (U5MR) like Singapore, Australia, UK, Cuba have high life expectancy and conversely, countries with high U5MR (Ghana, Nigeria, DRC) have low life expectancy. U5MR therefore has a high predictive value for life expectancy.

In 1962 when Rwanda attained independence its U5MR was 214/1000. By 1992, 30years after independence, the U5MR was down to 165/1000. At the end of the year of the genocide, 1994, the U5MR rose to 282/1000 (highest in Africa).

From the post genocidal year till 2015, the U5MR had dropped miraculously to 42/1000, the 3rd lowest in Africa behind South Africa (40.3/1000) and Botswana (40.6/1000) only.

No country has achieved this feat in history.
In 1994, when Rwanda was in the throes of the crisis, South Africa’s U5MR was 61 and Botswana’s was 65.4/1000. By the end of 2020, at the rate it is going, Rwanda will likely overtake South Africa and Botswana and Rwanda will become the number one guarantor of life in Africa.

At independence in 1957, Ghana’s U5MR was 228/1000. During our golden age of enlightenment between 1957 to 1966, it dropped to 194/1000, by about 3.7% (???) per year against Rwanda’s drop of 11.4 (%%) per year.

In 1994, Ghana’s U5MR was 111/1000, and Africa’s ‘’free and most democratic’’ country managed to drop the U5MR to 63/1000 by 2015, a puny 2.8% per year. What are we doing about it slow rate of improvement of U5MR? Nothing. Instead, we are busy raising funds for Cathedrals and re-writing our political history?

Shame on us!
What do you prefer, Rwanda’s freedom to life for its children or Ghana’s freedom to impunity and corruption for politicians to openly put money on the head of journalists? Rwanda celebrates solutions and results, Ghana celebrates slogans and rhetoric.

Part 2 will examine democracy and dictatorship in Rwanda and Ghana. Stay tuned.