The Member of Parliament (MP) for Bolga Central, Mr Isaac Adongo, has noted that some policies and programmes in the 2017 budget would lead to the collapse of many local manufacturing companies in the country.
Citing examples, he said the government’s decision to abolish some taxes such as the one per cent special import levy, and the replacement of the 17.5 per cent Value Added Tax/National Health Insurance Levy (VAT/NHIL) with a three per cent flat rate for traders would lead to an import-driven economy where local manufacturing companies would collapse and unemployment would be increased.
“The theme of the budget is sowing seeds for growth and job creation but the same budget has serious policy contradictions,” Mr Adongo said in an interview with the GRAPHIC BUSINESS on March 9, 2017.
He said the reduction and abolishment of some import duties and the reduction of the VAT/NHIL from 17.5 per cent to three per cent would reduce the prices of imported goods which would create an unfair competition for the local manufacturers.
“When you reduce the taxes on imports and also reduce the prices of trading of those goods locally, then you are creating the appetite for imports,” he stated.
“The reduction of the 17.5 per cent VAT/NHIL for traders to three per cent will lead to a reduction of consumption tax by 14.5 per cent. The imported goods will also enjoy this reduction in the consumption tax, meaning prices of imported goods will go down by 14.5 per cent, assuming prices are flexible downwards,” he added.
He pointed out that even at a high import duty level and a high consumption tax rate, local manufacturing companies had not been able to compete, “so if you now create a situation where you have become an import-driven economy, then technically you are crowding out the domestic private manufacturing companies.”
He said what the government should rather have done was to abolish taxes on raw materials which would have supported the local manufacturing companies by reducing their cost of production.
“If you want to promote sustainable jobs, then you must have a budget that focuses on supporting the manufacturing companies,” he said.
Effect on cedi
The legislator also pointed out that the slash in import duties would also lead to a further depreciation of the Ghanaian cedi against the major foreign currencies.
He said this was because the government was creating an environment that would depend on more foreign currencies, especially the US dollar, for imports.
“This will put more pressure on the cedi and also lead to a negative balance of payment,” he said.
District industrialisation programme
Mr Adongo also pointed out that the budget did not support the government’s own district industrialisation programme in which it wants to establish at least one factory in every district.
He said the budget failed to announce any incentives that would encourage investors to invest in the less-privileged districts.
“What is in this budget that will demonstrate to an investor that when he goes to invest in a less-privileged district, he will be better off than in the popular centres?” he asked.
“So you are only using words to say one district one factory and that the private sector will drive this, meanwhile you are not signaling to the private sector through any clear measures to move into the hinterlands and invest there,” he noted.
“Don’t forget, the private sector will raise their monies through the banks and other risk sources and you don’t expect an investor to carry US$20 million dollars into a village and invest there just because the government says it wants a factory in every village,” he added.
He said the government, therefore, had to make a strong business case in the budget that would encourage the private sector to invest in the industrialisation programme.
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