Graphic Business News

Stabilisation Levy to be extended but economists not impressed

By: Emmanuel Bruce
Mr Ken Ofori-Atta — FInance Minister
Mr Ken Ofori-Atta — FInance Minister

The government is working at extending the National Fiscal Stabilisation Levy (NFSL) in the 2018 budget, sources close to the process have told the Graphic Business in confidence.

It is, however, exploring the possibility of reducing the rate from the traditional five per cent to around three per cent to help relieve businesses of the fiscal burden it places on their operations.

It also plans to replace the uniform rate with discretionary bands for the different sectors of the economy, one of the sources added.

The levy was first introduced in 2009 as a temporary measure to help mobilise revenue to stabilise the economy from the fiscal slippages it suffered at the time. Two years later it was scrapped, only to be reintroduced in 2013 to run for 18 months.

It, however, remained, prompting businesses to push for it to be scrapped. Although a sunset clause in the act allowed for it to be removed in December this year, one of the sources said, “From what I am gathering, it will continue to stay.”

“But how we have set it out in the past is what worries me because we cannot say everybody should pay five per cent across the board. It will be better if we grade them so that the rates will differ for different sectors,” it said.

Economists against extension

Although a decision to extend the tax is yet to be announced, two economists told the paper in separate interviews that extending the tax would contradict the government’s stance on taxing the private sector.

The two, Dr John Gatsi of the University of Cape Coast Business School (UCCBS) and Dr Said Boakye of the Institute for Fiscal Policy (IFS), added that extending the levy would send wrong signals to the business community and further compound their challenges.

While professing knowledge of the planned extension of the tax, the two economists said such a move would increase the financial difficulties of the private sector.

Dr Boakye said it would be wrong for a government that wants taxes to be reduced to enhance economic activities, particularly for the private sector, to at the same time, extend the payment of the stabilisation levy in spite of several complaints from businesses.

“Last year’s budget reduced some taxes and scrapped some of them off, so why will it even consider extending the stabilisation levy?” he asked.

“The government has indicated that it will promote production rather than taxation, so I will be surprised if the levy is extended because this will be a contradiction to what the government believes in,” he stated.

Policy orientation

Dr Gatsi, for his part, said the move did not match up with the policy orientation and principles of the government and would, therefore, be surprised if the levy was extended.

“The government indicates that the 25 per cent corporate tax is too much for businesses and it is expecting to reduce it to 20 per cent, so why would you, at the same time, impose stabilisation levy on the income of businesses?” he asked.

“If you want to reduce the corporate tax, then it is because you believe corporate entities are suffering and they need to be relieved and so I will be surprised if the stabilisation levy is extended,” he noted.

Revenue mobilisation

Dr Gatsi said this was a clear indication that the government was still having problems with revenue mobilisation and for that matter its finances, hence its decision to consider extending the levy to provide some revenue.

Although it would provide revenue for the government, he said, it needed to match its policies with the orientation and principles.

“The government has indicated quite clearly that businesses are suffering and that is why it has sacrificed some taxes and levies. One would, therefore, expect that the levy would be allowed to die out because it has already been over-extended and will not be in the best interest of businesses,” he said.

Step in right direction

An economist at the Institute of Statistical, Social and Economic Research (ISSER), Professor Peter Quartey, however, believes the extension of the levy will be a step in the right direction.

He said in a separate interview that the government had given a lot of reliefs to businesses already and was now struggling to meet its revenue targets.

He said scrapping another tax would, therefore, not be in the interest of the country.

“I think some extension will do for now, and later when the revenue base is up to the level that is required, then they can scrap it. But for now, scrapping it will deepen the revenue challenges of the country,” he explained.