…as 20% excise duty takes toll
By Thomas-Moore ADINGO
More than a year and a half into implementation of the Excise Duty (Amendment) Act 2023 (Act 1093), which imposes a 20 percent tax on sweetened and fruit beverages, manufacturers are struggling to stay afloat according to the Association of Ghana Industries (AGI).
The tax took effect in July 2023 as part of a series of desperate measures to meet the conditions for an International Monetary Fund bailout. However, more than a year into its implementation, the AGI says it has brought several domestic producers to the brink of collapse.
In fact, with the majority of producers resorting to cost-cutting measures including downsizing, employee layoffs and relocating to neighbouring countries with more favourable tax regimes, the AGI argues that the state has lost more revenue than it has gained through this tax.
“Closure or capacity reduction of industry-related manufacturing and trading companies has led to a decline in duties and levies, PAYE, withholding taxes, corporate income tax, VAT and related taxes.
“Moreover, the significant downturn in the allied informal sector has had a corresponding impact on the self-employed and broader employable population,” AGI’s Chief Executive Officer, Seth Twum-Akwaboah, told the B&FT.
The final straw that broke the camel’s back
Long before the introduction of the 20 percent duty on beverages, AGI had consistently argued that the tax regime was prohibitive, punitive and counterproductive to the country’s industrial aspirations.
For instance, it is estimated that taxes alone – pre-production and postproduction taxes – constitute over 50 percent of production cost for producers of sweetened beverages and natural fruit-juices in the country.
This, AGI stated, contradicts government’s vision of positioning the country as an industrial hub under the African continental Free Trade Area (AfCFTA), given stark realities on the ground.
“The manufacturing sector, which is already saddled with various taxes, has had to be compelled to accommodate an increase in our pre-VAT prices by an automatic duty of 20 percent in the form of excise duties introduced on new products including sweetened beverages and fruit-juices.
“Manufacturers were already struggling under staggering multiple taxes which had led to decline in sales and were surprised that instead of reduction of these taxes the then government rather elected to increase same in the face of worsening investment condition,” the CEO said.
To reinforce this point, a fruitjuice manufacturer, which requested anonymity, revealed that it has reduced its production capacity from 85 percent to 38 percent due to the impact of the 20 percent excise duty.
It stated that its products have become uncompetitive compared to imported alternatives from companies benefiting from economies of scale and operating in markets with more favourable tax regimes.
“Sales have dropped more than half after the introduction. Hundreds of workers have been laid off. Before the excise duty introduction, production utilisation was around 85 percent. It then dropped to currently 38 percent on average,” a rep of the company said.
According to AGI, this idle capacity should be a major concern for the state, as it translates into missed opportunities—both in revenue and employment—compared to what is currently being generated.
For Mr. Twum-Akwaboah, the stifling environment in which manufacturers currently operate also raises questions about how the 24-hour economy agenda can be implemented under the prevailing prohibitive tax regime.
“In line with 24-hour economy, it is our belief that the removal of this excise amendment will allow us to revert to our original production utilisation and even beyond. This will lead to increase in employment and higher VAT payments and all other allied taxies, generating even more revenue for government,” he said.
Why Ghana stands to lose the W/A, AfCFTA battle
Within the West African sub-region, it is only Nigeria that applies an excise tax of 2.4 percent on sweetened beverages. Most countries impose such taxes on imported beverages.
These varying tax regimes indicate that while some neighbouring countries have implemented taxes on sweetened beverages, the rates and structures differ in application, affecting the competitive landscape for Ghanaian manufacturers under the AfCFTA.
What this means, Mr. Twum-Akwaboah explains, is that any investor looking to set up a manufacturing plant in West Africa would find Ghana’s tax regime unattractive compared to those of its neighbours.
The Blue Skies story
Blue Skies, a processor of fresh juice free from sugar and additives, shared how the country’s hostile fiscal regime has forced it to suspend its vision of using Ghana as a hub to reach the West African market.
In 2020, the company launched its brand new fresh-cut facility in Benin after growing frustrated with Ghana’s ‘nuisance’ taxes.
The new facility in Benin incorporates a host of pioneering and new technologies that will increase efficiency, reduce energy, water, plastic and chemical use and recycle over 90 percent of water consumed, although its capacity is smaller than the one in Ghana.
“The tax [20 percent excise duty] took us by surprise because we do not produce sweetened beverages. We produce fresh fruit-juices without added sugars and additives.
“We made a loss because we couldn’t pass the full cost on to the customer. We tried increasing the price but that also affected demand, impacting our bottom line negatively,” the company stated.
This example is a clear misapplication of the law, the company argued.
Meanwhile, farmers and other players along the supply chain have not been spared the impact of the 20 percent duty, as companies struggle to operate at full capacity.
Calls for policy reversal
AGI, while calling for an urgent reversal of the 20 percent excise duty, stated that manufacturers currently pay over 16 different taxes/duties on their raw materials for production apart from this excise duty.
These taxes include import duty, import VAT, ECOWAS Levy, Import NHIL, Disinfection Fee, Network Charge and GETFund Levy.
Others are inspection fee, African Union Import Levy and COVID-19 Health Recovery Levy, in addition to a 22.9 percent VAT on sales.
The addition of the 20 percent excise tax on sweetened and fruit beverages has therefore placed an extra burden on local manufacturers, undermining their competitiveness within the AfCFTA framework, AGI noted.
The plight of domestic producers is further compounded by disparities in excise tax rates across West African countries, prompting industry leaders to advocate a reassessment of the policy to support local production and employment.
“The records are clear,” said Mr. Twum-Akwaboah. “We can state categorically that apart from Nigeria, which applies a 2 percent rate, no other country within the ECOWAS sub-region imposes excise duty on sweetened beverages and fruit-juices. If not reversed, this policy will eventually render exports from Ghana unattractive due to higher prices.
“It is our sincere hope that the onerous Excise Duty (Amendment) Act 2023 (Act 1093) will be reversed in the next budget, as its adverse effects are severely impacting the industry,” he concluded.
