TAXES, FREE SHS AND THE CHANGE

I have racked my mind over the last couple of weeks about the issue of taxation and the optimal level of taxation needed to spur development in a developing country like Ghana.

Last week, a source close to the presidency sparked a furious debate on social media when he hinted of a ‘possible increment in VAT rate’. The one person who vehemently opposed any intended tax hike was the President of the think tank, IMANI. The major thrust of his argument was that, the government needed money to fund its flagship programme, which is the policy of free secondary education. In his view, since the government was warned by IMANI and others on the fiscal implications of free SHS, it doesn’t have the moral right to increase VAT rate.

I must say I find the position of the IMANI boss quite untenable. It is imperative to note that the NPP campaigned on a manifesto and should be seen delivering on that. It is trite to say the implementation of free SHS has further squeezed the fiscal space available to the government to undertake capital expenditure. The infrastructure deficit facing our country in sectors such as health, education, housing, energy etc. coupled with rising youth unemployment requires the state to follow a rather fiscal expansionist policy. The problem with that is we have fiscal deficit that also needs fixing.

What is the way forward for the government then?  One of the solutions proffered by IMANI is the use of means-testing to determine the beneficiaries of free SHS, rather than the current universal system employed by the government. On the surface of it, means-testing might sound plausible but it ignores fundamental challenges it would pose politically. However, my opposition to means-testing has to do more with economics than ideology. Means-testing is very expensive to administer and requires an elaborate bureaucratic system. The cost of maintaining that bureaucratic structure will most likely eat up any apparent savings we envisage. Which would we rather prefer; a universal free SHS or a group of civil servants administering a system to determine who qualifies for free SHS?

I don’t even want to go into the possible corruption and political patronage such a system would breed. Contrary to popular opinion, means-testing benefits aren’t actually fair. Large numbers of poor people tend to miss out on such benefits. We should just look at LEAP and the erstwhile COCOBOD scholarship scheme to learn lessons.

I am not sure the current concept of free SHS would remain exactly the same a decade from now. It is not prudent for the government to be paying for boarding fees and one meal a day for students. But I agree we must start from somewhere and the earlier the better. It is heartening to learn of new proposals being advanced by some educationalists on how to deal with the infrastructure challenge free SHS poses at both the secondary level and the tertiary level in the not-so-distant future. I have read about ideas such as ‘open universities system, distance learning, multi-track calendar SHS system’. It is important to debate these ideas and adopt what would work for our peculiar case without compromising on quality and standards. We are a people who are set in our ways and averse to change. However, we must brace ourselves for changes and new ideas as we seek to develop our nation saddled with limited financial resources and a growing population.

The question then remains; would I support an increase in taxation now? I am against any further increment in our VAT rate. Our VAT rate at 17.5% is one of the highest in sub-Saharan Africa. We don’t need to burden businesses and consumers with any further increments. The government scrapped what it termed as nuisance taxes just last year so I don’t see the ‘rush’ to increase and introduce new ones. The reduction in corporate tax rate last year was commendable.

Given time, the reduction in corporate tax would definitely yield the expected results of boosting production and stimulating economic growth. However, a four-year mandate is hardly enough for any government to achieve such lofty ideals. What then is the optimal thing to do? Tax compliance! We need to use every available means to get the majority of our citizens and businesses to be tax compliant. On this score, I must say the GRA is doing very well and the result would be evident in the medium-term.

Another area of interest is the argument of widening the tax net. I am in favour of that but my concerns have to do with how such an ideal would be achieved in our very large informal economy. Again the prospect for this in the medium to long term is positive once the national ID project and the addressing system (not just digital) is fully implemented. I am very much in favour of an increase in the communication service tax (CST) and an ad valorem tax on imported alcoholic products and cigarettes to fund the NHIS.

.However, we need to be careful not to be seen as the ‘mad man who kept fetching water with a basket’. Whilst I believe the NHIS is in a precarious financial position and urgently needs increased funding, I am not oblivious of the massive fraud and leakages associated with NHIS claims and general operations. The sensitive nature of the role of health insurance in the life of the citizenry (especially the vulnerable) means we can’t allow the scheme to collapse entirely. It is however imperative on the government to as a matter of urgency carry out a forensic audit of NHIS operations to block any leakages associated with claims management and general wastage before the introduction of any new source of funding for the scheme.

In conclusion, whereas I have the luxury of theoretical musings to test my ideas, the government and public officials for that matter face the hard choice of delivering on their electoral promises, keeping their political base happy and managing the economy prudently. It is not a pretty position to be in but politicians have a moral duty to the electorates to do the right thing at all times and must therefore not relent on that. If what it takes is the introduction of new taxes, then so be it but it should be done in a careful manner not to bring untold hardships on the citizenry and businesses. Of course, more also needs to be done in tackling public sector corruption and blocking revenue leakages and wastage across various governmental agencies.

On the question of free SHS, it goes to the heart and core of our social re-engineering project for development. The assertion of a correlation between quality education and cost doesn’t necessarily mean the cost should be borne directly by the parents. In any case, it would be borne indirectly through taxation. I remain convinced in my mind that, free SHS would be the strongest legacy that would define the presidency of Nana Addo and therefore everything must be done to ensure it succeeds in delivering free, accessible and quality education to every Ghanaian child of school-going age.