Punitive DVLA taxation can backfire  

Much is known about people’s attitudes, as well as their response to tax cuts or increases. Generally, people react favouraly to tax cuts and frown on tax increases. On that score, the recent imposition of a heavy tax on Driver and Vehicle Licensing Authority (DVLA) road worthy sticker has been described in various terms. The commonest description is that the roadworthy tax is a punitive tax.

In simple terms, a punitive tax is a tax imposed by government to discourage a certain behavior.  One other characteristic of punitive tax is that, it is often very severe and that people find it very difficult to pay. So, if indeed punitive taxes are to discourage a certain behavior, was the DVLA’s roadworthy tax imposed by government to discourage the use of cars with engine capacity above 3.0? If this was the sole purpose, the decision is counter-productive and needs to be reviewed.

Policy tools

The two policy tools that every government uses for financial management are monetary policy and fiscal policy. Monetary policy consists of open market operations or restrictive requirement changes and discount rate changes, while fiscal policy consists of government expenditure and tax changes. In the area of fiscal policy, since 2017, the Akufo-Addo Administration has been prudently using a combination of tax reduction and tax increases perhaps, targeted at specific policy interventions. And depending of which category of Ghanaians a tax increase or reduction is the targeted, the responses have, quite expectedly been either negative or positive.

On one hand was the withdrawal of the so-called nuisance taxes in the 2018 budget, which targeted importers, traders and low-class workers, like head porters. Electricity tariff reduction later in the year, also targeted small scale businesses like, hairdressers, welders, barbers etc. On the other hand, is the tightening of the noose around the necks of those perceived to be in the high and middle class. In recent times these high-class taxes have taken the form of the uncontrollable fuel prices hikes and the punitive road worthy sticker recently slapped on all cars with engine capacity of 3.0 and above.

At the heart of this new tax is the compulsory redefinition of the rich and affluent in Ghana by virtue of the engine capacity of one’s car. Using myself as an example, I bought my Nissan Pickup (Hardbody) with 3.2 engine capacity in 2009. I had to buy the Nissan hardbody because the previous cars I used (Honda CRV and Mazda Demio) could not survive the terrible road to my house. Thus, under the circumstances, it made sense for me to acquire a car that can withstand the rough terrain. Though the pickup has 3.2 engine, with all honesty, it is not a luxury car, like the Tundras, Hybrid and V8 series.

But in the judgement of the Minister of Finance, Mr. Ken Ofori Atta and the Government’s Economic Management Team, per the 3.2 engine capacity of my pickup, I have become an affluent man; who should pay a punitive fine of GHC1000 , in addition to the original GHC120  I previously paid for the roadworthy licence. This brings the total to GHC1200 cedis.

Truly, on September 5, 2018 when I went to Kuntunse DVLA to renew my roadworthiness certificate, I was confronted with a bill of GHC1200 . I had to return to empty whatever was left in my account to raise the GHC1200 . After paying, the attendant examined the car and gave feedback that all four tires were won out and until I changed them the licence would not be issued. What’s painful is that the attendant took the money before disqualifying the vehicle. My honest response was that the money I would have used to purchase new tires was the same money I had to cough up for the punitive tax. In fact, in my view, and with time, it would be unacceptable for refusing anyone licence on the grounds of won out tires after compelling one to pay GHC1200   A breakdown of the 1200 indicates that government is charging me GHC100 per month for driving my own car; in addition to the huge taxes wrapped in ex-pump price of petroleum products. Over the last two years, prices of petroleum products have hit a record-breaking level of GHC5 per gallon. For the first time in Ghana, diesel is selling higher than petrol. My consolation in the past was making a little savings out of using a diesel engine. No more.

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Retroactive application

In fact, the other problem I have with this tax is, its retroactive application. At the DVLA I met an elderly man with a similar situation. He has been driving his Nissan hardbody (3.2 engine capacity) since 1994. The question he asked, when he was handed a bill of 1200 cedis was, why should such a law, unfairly target people like us who have already paid enough taxes to the state all these years?

When I first heard about the tax, I thought it was to be applicable to new vehicles to be registered. Without exception, it is usually a bad case for taxes to take retrospective effect. Therefore, I think this tax is unfairly targeting the wrong people. Tagging people as affluent by virtue of the engine capacity of the cars they bought several years back is arbitrary and should be reconsidered. Could it be that the DVLA is wrongly interpreting and implementing the law?

Besides, there is everything wrong with the dramatic increase in the tax. Lifting the tax from GHC120 , to GHC1200  makes it more punitive, than the usual rational behind introducing tax to solve interventions like the Free Senior High School policy. In several articles, I hailed this government’s boldness in introducing the free SHS policy, as well as other social interventions. I’ve also been on record as an ardent advocate for the government to broaden its tax net to reign in more money; but any tax that appears to be discriminatory, gives cause for worry.

Governments are assumed to be responsive to the desires of the electorate and to seek either to minimize citizen displeasure or to maximize citizen satisfaction through their choices of policy instruments. Bear in mind that those who must pay current taxes are the electorate at the moment when the policy action is taken. These taxpayers exist in here and now, and their views about tax increases should respected.

Taxation in all its forms, and how it is managed come with dire consequences for every sitting government. The electorate will probably not just take the simple explanation that government has no hand in the incessant fuel price hikes. Whatever the case, it will go down in history that it was during the tenure of this administration that fuel prices hit the 5 cedi mark.

Revenue mobilisation

While the government needs to be commended for blocking some channels of revenue leakage, the revenue agencies need to evolve new strategies and adapt innovate ideas from other jurisdictions to maximise revenue collection. In fact, there are still various revenue sources in Ghana that have yet to be brought on stream. One source is the those who run virtual businesses which cannot be traced to any office, but which are very lucrative. These virtual businesses are in the form of architects, surveyors, building technicians, internal decorators to mention a few. They earn lots of money monthly and yearly for their services, but end up paying nothing to the state; though they enjoy all infrastructure and social amenities provided with taxes. A few weeks ago, I hired the services of a surveyor (who is actively employed with a state agency) to do a site plan for six plots of land I acquired in my village for commercial purposes. He charged me GHC300 per plot, bringing the total fees to GHC1800 . As I handed the money to him, it pained me that, he did not have to pay tax on the GHC1800 . But there was little I could do in the absence of any legal or policy framework that compels virtual businesses like the surveyor to pay taxes on their private earnings. Only God knows how much he makes a year, given that his services are in hot demand at the district in the northern region. Perhaps, If the Minister of Finance and his team can fashion out how such businesses can be brought into the tax net, the resort to DVLA and vehicle-related taxation as a major source of revenue would be minimized. I encourage the Ghana Revenue Authority to rigorously implement the tax identification project, so as to track those who run virtual businesses.

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My worry is that when tax-fatigue in the DVLA system sets in, it could begin to backfire. In basic economics, we learnt that transportation is one of the key factors of production, and a stimulus to economic growth. So, when it appears that having a means of transport amounts to wrongdoing, it reminds one of the communist systems, where only the state controlled all forms of transportation.  No doubt, the combined effects of fuel price hikes and the punitive road worthy sticker tax could compel many people soon to abandon their cars.

Private taxation

Another area government should keep a close eye on is the practice of private taxation. Per our Constitution, only Parliament has the power to approve new taxes or withdraw old ones.  But in many parts of Ghana, especially in the urban areas some private people have arrogated the powers of imposing taxes on people for their private use. This practice is common at various lorry stations, where some private tax collectors, working for individuals use brute force to collect illegal taxes from drivers and petty traders. On a few occasions I witnessed how some drivers who resisted paying the taxes had their tires deflated or their windscreens smashed. My understanding is that all the roads and lorry parks in Ghana were or are being financed with the taxpayers’ money; so every tax collected for the use of such facilities should go to the state coffers. How come the practice of private taxation has become so entrenched in Ghana, with its practitioners acting with impunity?  Research has shown that it is in failed states like Somalia and DR Congo that private taxation is the norm.

(***The writer is a Development and Communications Management Specialist, and a Social Justice Advocate.  All views expressed in this article are my personal views and do not represent those of any organization(s). (Email: safoamos@gmail.com. Mobile: 0202642504/0243327586/0264327586) 

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