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Tax cuts benefit being eroded by tumbling cedi - PwC
The government's first budget proposed the abolishing of duties on spare parts and reduction of "nuisance" taxes such as VAT on financial services,
“As part of our commitment to reenergize the private sector, Government has decided to review these taxes to provide relief for businesses. The one measure that has already sparked debate is the elimination of duty imposed on spare parts imports.
"Our view is that, while dismantling this duty could lead to a lowering of operational cost and an abatement of cash flow pressures, spare parts dealers would benefit more from a stabilized Ghana Cedi," Vish Ashiagbor, Country Senior Partner, PwC Ghana said.
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He added: "This is because their costs are foreign currency denominated, while their sales are in local currency."
The government's first budget proposed the abolishing of duties on spare parts and reduction of "nuisance" taxes such as VAT on financial services, Real Estate sales, domestic airline tickets, selected imported medicines among others.
But to realise the gains made from the tax reviews, Mr Ashiagbor is urging the government to "act quickly, through its fiscal management, to restore the confidence of the market and help stabilise the Ghana Cedi."
"Failing to achieve stability in the currency value could mean that the removal of import duties would do little to improve the lot of spare parts dealers. Indeed, most businesses will continue to hurt, if the Ghana Cedi continues to slide at the current rate,” Mr Ashiagbor said.
The PwC analysis also noted that the relaunch of the National Identification Programme and the National Digital Address System will help establish a good foundation for building a business-friendly environment, one that lends itself to achieving improved tax compliance.
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The report said: "A major complaint of the financial services/ banking industry and foreign investors who seek local partners has been the absence of a reliable address system that allows them to track persons and organisations that do business with them.
"This has been cited among the reasons for high payment default rates. Indeed, some banks have admitted that their expectations of elevated default rates cause them to price interest rates on their loan facilities high.”"The Central Bank reports that average lending to individuals and businesses peaked at 32percent per annum by November, 2016, with Non-Bank Financial Institutions, especially microfinance companies, lending at rates as high as 100percent per annum."Non-Performing Loans (NPLs), on the other hand, peaked at 19.3percent in May 2016, before dropping to 17.4percent in December, 2016. The National Identification Programme and National Digital Address System, according to the PwC report, are the key initiatives to tackle the phenomenon.
READ MORE: IMF programme a “complete waste of time”: Finance Committee chair“We envisage that, with a functioning digital address system in place, a plethora of innovative technology-enabled services could be deployed across different economic segments, leading to enterprise and job creation, especially by the youth.
"Indeed, these two policy initiatives are fundamental to our socio-economic development and should be executed to an appropriate level of detail over the medium term, if it cannot be completed in the short term."
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