By December 2021, a three-year zero-rate Value-Added Tax (VAT) on the supply of locally manufactured textiles passed by parliament will come to an end; but players in the sector are pushing for an extension for two more years.
The policy, which cost government an estimated revenue of GH¢120million over the period, was devised to help reduce their cost build-up, make the local textile industry price-competitive, and help them compete with the influx of cheap textile products from other parts of the world – but very little has been achieved, as some companies still struggle to pay workers.
The players have blamed the challenges on COVID-19 and government’s inability to roll out additional measures concrete enough to fight the influx of cheap textiles manufactured with copied designs.
A taskforce that was set up by the Minister of Trade and Industry, Alan Kyerematen, to protect the country’s borders from the smuggling in of fake textiles, and also rid the market of fake textiles, collapsed amid operational challenges. Meanwhile, a textiles tax stamp that was to be introduced to differentiate fake from original fabric and aid government to rake in some revenue from the sector has been suspended indefinitely.
Secretary of the Coalition of Textile Workers in Ghana, John Ackon, in an interview with the B&FT said the three-year zero VAT rate for the textiles industry came at a time when the industry was in a coma and the policy helped some companies to survive.
“The zero VAT was extremely beneficial; at the time it was introduced, some companies were folding-up. Even with its introduction, some companies have been struggling; ATL and Juapong Textiles are still finding their feet. There are other companies that are not able to pay their workers to date. COVID-19 worsened our plight; some companies were about to pick up, but the pandemic wiped out all the gains they made,” Mr. Ackon said.
Two-year extension
As a result of the tough challenges faced during the period, the sector was not able to benefit from the expected gains. The Association of Ghana Industries (AGI) and other stakeholders in the sector have begun discussions with the Ministry of Finance for a possible two-year extension of the zero VAT rate.
Chief Executive Officer of AGI, Seth Twum Akwaboah, told the B&FT in an interview that the extension is critically needed to prevent a collapse of the sector. “Let us look at this critically; apart from the extension, measures need to be put in to prevent smuggling. We need to take a relook at this whole regime of the textile industry and define what as a country we want to do with the sector, so we do not have to ask for a further extension another time.”
Mr. Ackon also added that the two-year extension being sought is not enough, considering the fact that challenges of the sector are not likely to subside in the next two years.
Background
The country used to boast a textile industry that employed about 30,000 people. However, in recent years the textile industry has fallen on hard times and now employs just about 5,000 – a situation that has largely been blamed on high-cost production in the sector and the current tax system, which contributes to the cost build-up of locally manufactured textiles.
