‘Sin tax’ may cure revenue shortfall

Ken Ofori-Atta, Minister of Finance

With government implementing various strategies to bridge the GH₵1.43billion shortfall in much-needed revenue, experts have proposed the implementation of a ‘sin tax’ to enable central government implement various social programme that will serve to benefit the poor and reduce the strain on the public health system.

‘Sin tax’ refers to taxes imposed on sugar/surgery drinks, alcohol, and tobacco consumption, three major products identified as the leading causes of Non-Communicable Diseases (NCD).

African countries such as South Africa, Nigeria and Tanzania have implemented the ‘sin tax’ and raised revenue to fund the provision of various social infrastructure, while bringing NCDs under control.

‘Sin tax’ on alcohol and tobacco products in South Africa in 2018 generated about R1.3billion (US$ 235million) in revenue to plug the central government’s revenue shortfall.

A recent study published in the Lancet medical journal showed that NCDs such as cancer, stroke, and diabetes, causes an estimated 80 percent resultant deaths in middle-income countries.

In Ghana, it is estimated that approximately 4 million Ghanaians are currently living with the disease. The Centre for Non-Communicable Diseases’ data show that 90% of all cases are not diagnosed early in order to ensure early treatment and 70% of all cases are diagnosed only after death.

World Bank Group’s 2015 study titled: “Tobacco and Alcohol Excise Taxes for Improving Public Health and Revenue Outcomes– Marrying Sin and Virtue? Noted that ‘sin taxes’ are more acceptable forms of mobilising revenue.

“The economic (or public health) calculus works out, one important reason that taxes on tobacco and alcohol are always attractive to policy makers is as a relatively acceptable means of mobilizing revenue.  The negative image (and reality) associated with consumption of these products makes it relatively easier to sell such taxes to the public than other taxes such as general income and sales taxes.

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Taxes on alcohol and tobacco may thus be presented as not only increasing revenues but doing so by taxing ‘bads’, correcting socially inappropriate consumption decisions, and compensating society for some of the costs arising from the unwise consumption of these products,” the study noted.

Dr. Rachel Nugent, RTI International, and chair of the LancetTaskforce on NCDs and economics commenting on the impact of the ‘sin tax’ on the poor noted that: “The evidence suggests that concerns about higher taxes on tobacco, alcohol, and soft drinks harming the poor are overstated.”

“Some degree of taxation on tobacco is common in many countries, and while we are starting to see progress on alcohol taxes, there is much more governments should be doing – in both high and low income countries – to consider the careful introduction of taxes on other unhealthy products like soft drinks and snacks. Price policies such as taxes will be a key part of the response to rising rates of non-communicable diseases.”

Gov’t new revenue generation measures

Finance Minister, Ken Ofori-Atta, in the 2018 mid-year budget review presented to Parliament last week, announced new tax measures aimed at raising more revenue to meet set targets in the 2018 budget and to enable government execute its social intervention programmes.

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One of the revenue generation measure was the increase in individual earnings of GH₵10,000 and above—which now attract up to 35 percent tax, as well as the imposition of luxury vehicle tax on vehicles with a capacity of 3.0litres and above.

Other tax measures includes conversion of National Health Insurance Value Added Tax rate of 2.5 percent to a straight levy, and the conversion of GETFUND Value Added Tax rate of 2.5percent also into a straight levy.

For a government badly in need of additional revenue after abolishing various “nuisance taxes” in 2017 that cost it over a billion cedis in revenue, ostensibly to stimulate production and grow the private sector, additional taxes were largely expect.

Most people seem to accept alcohol and tobacco consumption creates real social costs which justify relatively heavy taxation on these products (Brezis and Marans 2010).

Indeed, in recent years the social acceptance of smoking in particular has declined so much that even smokers often accept that they should pay a fiscal penalty for indulging.

Shortfall 

According to Mr. Ofori-Atta, the fiscal performance for January to May 2018, showed that both revenue and expenditures were below their respective targets but the shortfall in revenues (GH₵1.43billion) was much greater than the shortfall in expenditures (GH₵797million), which led to a fiscal deficit of 2.6percent of GDP compared to a target of 2.4percent.

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