Industry players want cost of business reduced to survive VAT squeeze

Such dispensation, they contend, would create a congenial atmosphere for them to survive and become more competitive.

Speaking to the Daily Graphic , the Executive Director of AGI, Mr Twum Akwaboah, said “even if VAT becomes so critical for the government to generate revenue and support development, the best way is to reduce costs in other areas so that the businesses become more competitive.”

In the view of Mr Akwaboah, a reduction would help to address the challenge of added cost to their products, which would inform reduced purchases by consumers.

Impact of New VAT

Touching on the impact the new rate was going to have on the operations of the over 1,200 companies belonging to the association, he said; “That is sales tax, so naturally, in principle, it is not the company that is supposed to pay so it is passed on to the consumers of the product.”

Mr Akwaboah explained that although usually when there was VAT increment, it was for the consumer to pay. “Once it is a tax it adds to the cost of your product and once the cost of product is going up, consumers with their limited income, may begin to be more prudent in their expenditure.

“For example, interest cost is still very high – it is still 25 per cent and that is a major cost of operation to businesses. Electricity cost has gone up, water is going up and then even the inefficiencies in the system in terms of bureaucracy, in terms of traffic, fuel all add to the cost of operation, he said.

The new Value Added Tax (VAT) rate of 17.5 per cent took off on January 2, 2014, following the presidential assent given the VAT Act 2013 (Act 870) on December 30, 2013, and its subsequent gazetting the following day. Under the regime, the standard rate, which was 12.5 per cent, moves up to 15 per cent, whilst the National Health Insurance Levy (NHIL) remains at 2.5 per cent.

Mr Akwaboah further said that the association’s members were initially confused about when to start implementation of the new rate, as that was not made clear when the Minister of Finance delivered the budget statement last year.

“I know some have called and we were not sure of when it was starting and then they got to know that it was indeed starting on January 2, 2014.

That was when some of them got to know so it created a bit of confusion,” he stated.

The AGI Executive Director added that as a result of the uncertainty, members were still charging the old rate when the New Year began and suddenly they got to know that implementation was starting on the second day.

Sharing similar sentiments in an interview with the Daily Graphic, Mr Isaac K. Adjei, Senior Accountant of Woimex Limited, a grocery shop in Accra, said the 2.5 per cent increment was virtually an increment in the price of goods and services.

He acknowledged that even though there was nothing wrong with the increment, it was necessary for all stakeholders to be given enough notice to do the necessary adjustments before its implementation.

Mr Adjei explained that because they were not aware of the date of implementation of the new rate, they were using the old rate from the beginning of the year, while they were required to file returns on goods they had sold before actual implementation began.

“So that we don’t scare our customers away, increment has not been made promptly but management will decide on the price change soon,” he added.

Way Out

On steps the association takes to deal with the high cost of doing business, Mr Akwaboah said the best way out of the quagmire was a constant battle of regular advocacy, surveys to monitor the effects of some of the factors on businesses and their impacts.

Mr Akwaboah divulged that the AGI business barometer came out with a ranking of the top 10 factors that militated against businesses every quarter, out of which they focussed on the top three for the necessary action, by informing and dialoguing with policy makers on their challenges.

He cautioned that some of the challenges like the high interest rates were long term in nature and couldn’t be solved overnight, while others could be solved in the medium term.