New taxes not panacea, but fixing the inefficiencies – ACEP

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Newly introduced taxes on petroleum products will do little to stabilise the energy sector, if inefficiencies confronting state-owned energy agencies are not tackled head-on, the Africa Centre for Energy Policy (ACEP), has said.

In a statement, the think-tank said the government should scrap the new taxes because a significant component of the taxes on petroleum are used to sustain inefficiencies of energy sector agencies. Rather, it said government should take practical steps to fix the inefficiencies in the energy sector, a move it believes could free up significant revenue from petroleum taxes for critical development programmes such as efficiently effective mass transportation system, advanced road networks and climate action.

“Government needs to commit to critical review of the object of all the agencies and companies in the energy sector to ascertain the relevance of each of them under the portfolio of government business to cut waste and translate tax and margins to development outcomes,” ACEP said, reiterating that if maintained, the new taxes will amount to patronage of inefficiencies.

Currently, the downstream petroleum sector is characterised by unending evasion and smuggling, which account for revenue losses to the state. In 2019 for instance, about 850 million litres of petroleum products were unaccounted for, yielding total revenue losses of about GH¢1.458 billion, according to the sector’s regulator, National Petroleum Authority (NPA). The figure exclusive of pervasive illegal products on the market.

In all, the composite loss across the downstream industry is estimated to be in excess of GH¢3 billion, compared to an expected revenue increase of about GH¢1.5 billion from the new levies and margins, which ACEP says may prove counterproductive given the current microeconomic condition of citizens dictated by escalating inflationary pressures since the beginning of the year.

These, among others, are some of the inefficiencies and loopholes that ACEP wants the government to address, first and foremost.

The government in the 2021 fiscal year, has set a total revenue target of about GH¢72 billion from taxes and grants, out of which interest payment and employee compensation would absorb about 91.6 per cent of the amount.

Although ACEP said it acknowledges the economic context that government finds itself and the need to raise more money to support the national budget, it however prefers that efforts to raise more revenue had focused on innovative ways to harness untapped potential rather than burden those already in the tax bracket and facing significant economic challenges partly imposed by COVID-19.

Globally, it said many countries tax petroleum products and that in some cases, taxes constitute about 80 percent of the pump price. However, most of these countries, ACEP noted, tax products to engineer behavioural change and specific tangible development agenda. “The converse for Ghana is that a significant component of the taxes on petroleum are used to sustain inefficiencies of the energy sector agencies.”

It therefore wants at least all the increments on the margins recently imposed by the downstream industry regulator, to be scrapped, arguing that justifications provided are weak and present unnecessary burden on the consumer.

Among other things, the statement said the NPA and Bulk Oil Storage and Transportation Company should immediately publish the utilisation of the existing margins to show cause for adjustment, adding that the former should also deepen electronic tracking of petroleum products to save the consumer from the ineffective but expensive marking of petroleum products.

“Government must fix the debt accumulation in the power sector to avoid the persistent increase in petroleum taxes to pay energy sector debt.

The NPA must investigate the coincidental adjustment of Oil Marketing Companies margins and demonstrate to the good people of Ghana how it intends to prevent anticompetitive behaviour in the downstream sector,” ACEP recommended.

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