JBA calls on government not to extend Stabilization Levy

By: Fred Yaw Sarpong

The Journalists for Business Advocacy (JBA), a media advocacy group for small and medium scale enterprises has called on the government not to further extend the application of the National Fiscal Stabilization Levy (NFSL).

According to JBA, government plans of extending the levy until the end of 2017 will further increase the financial difficulties of all the companies in the sectors which are already paying.

The National Fiscal Stabilization Levy ACT, 2013 impose a special levy known as the National Fiscal Stabilization Levy (NFSL) on specified companies and institutions in order to raise revenue for fiscal stabilization of the economy and to provide for related matters.

Under the Section 1 of the Act, companies and Institutions liable to pay National Fiscal Stabilization Levy are Banks (excluding rural and community banks), Breweries, Non-Bank Financial Institutions, Insurance companies, Telecommunications companies liable to collect and pay the Communications Service Tax under the Communications Service Tax Act, 2008 (Act 754).

The group reminded government that when the NFSL was reintroduced in mid July 2013, the legislation backing its establishment set its duration at 18 months. Therefore, the Levy should have been withdrawn at the end of 2014.

This contained in a statement issued by JBA after a workshop held at GIMPA. The statement was signed by Mr. Suleiman Mustapha, JBA President.

“This is both unnecessary for government’s efforts at reducing its fiscal deficit to manageable proportions and is debilitating for the enterprises who are obliged to pay the Levy and who are already suffering from sharply rising business operating costs and falling effective customer purchasing power, which consequently are squeezing both their sales volumes and their net profit margins,”

The group said the reintroduction of NFSL in 2013 was in response to a fiscal deficit incurred in 2012, but the deficit had been cut to 7.1% by 2015 and is now expected to fall further to 5.3% this year. This implies that the deficit is now falling to manageable proportions again and thus the Levy is no longer of critical importance to government’s fiscal balancing efforts.

“JBA is acutely aware of the downside risks to government’s ongoing fiscal consolidation efforts in 2016, this being an election year, and having very little fiscal space to operate in. These challenges are exacerbated by the imperative need to keep within the targets set under the ongoing programme with the International Monetary Fund (IMF), including that of a 5.3% fiscal deficit target this year,” it noted.

However “we believe this need to be weighed against the negative effects of the continued application of the NFSL on enterprises obliged to pay it.”

“It is instructive that several sectors where companies are obligated to pay the NFSL are experiencing downturns in profitability even as their working capital, recapitalization and retooling requirements continue to rise,” the group stated.

“For instance, mining support service companies are confronted with having to deal with customers whose profits have fallen dramatically because of the slump in gold prices on the global market; the banking industry is seeing its profits fall significantly due to rising loan repayment defaults due to the increasingly difficult business operating environment for their customers; and telecom companies are having to absorb steeply rising operating costs in cedi terms in order to retain market share in a ferociously competitive environment which is however benefiting customers in the form of tariff stability.”

“JBA wishes to suggest the policy option of replacing NFSL with a marginal increase in consumer taxes, which would itself be temporary,” the group noted.

It noted “Government projects to earn GHc213.11 million from the NFSL in 2016, which is equivalent to just 1.9% of the GHc11, 323.878 million expected from consumption taxes in the form of excise tax, VAT, and health insurance and energy levies. This means a 1% increase consumption tax revenues could replace the revenues foregone if the NFSL is not applied during the second half of this year.”

“Similarly, projected revenue from the NFSL in 2017, at GHc373.55 million is equivalent to just 2.9% of the GHc12, 981.442 million expected from consumption taxes for the whole of 2017. This means a 3% increase in consumption tax revenues in 2017 would easily replace the foregone revenues in NFSL revenues for the whole of next year,” said JBA.

“We believe this would be a much fairer alternative since consumption taxes are paid by all, the amounts paid commensurate with consumption levels, which in turn are determined primarily by income levels,” JBA added.

JBA further stated that this would help restore Ghana’s faltering competitiveness as an investment destination, which the JBA insists is crucial to the country’s economic growth prospects and therefore it ability to create jobs and incomes for its citizens going forward.