June 23rd, 2014

Fresh Air Matters... with Capt. Yaw

The company I work for was recently privileged to be audited by the Ghana Revenue Authority. What lovely people they are. Seriously. Much as I was uneasy about 'what they might behave like', they did a thoroughly professional job, going through every piece of paper for several years, and asking lots of technical questions. They showed a real interest in the business, its practices and what it did. They were totally professional. It was a very positive experience. Well done GRA! 

They advised on how to 'better comply' with the system in a clear and precise manner. What I found hardest was the 'education about policy in Ghana' that damages local development. I was shocked to realise that our 'Tax Laws' can be terribly 'anti-Ghanaian' and most definitely 'anti-rural development'. We talked about my feelings, with the GRA and our own financial auditors, and much as those professionals in taxation and business law could understand my point of view, they pointed out, quite rightly, that 'they didn't make the rules'. So, we are being, through economic and policy impact, forced to support larger foreign companies, and to avoid spending money in the local economy. Simple - those are the rules. Did that wake you up? Does that make you 'angry'? Or, are you nodding your head?

Well, let me explain.

I work in aviation and engineering in rural Ghana. It is a happy choice. I used to try to support local businesses where possible for supplies. Wouldn't you? But I can't any longer. Let us look at the most striking 'anti-rural development rule' that makes no sense: Withholding Tax.

Withholding tax is, in effect, a punitive tax on the purchaser and the supplier - and particularly anti-rural development. It states that for certain purchases (above a nominal amount), you must 'withhold 5% of the purchase amount, and go physically to a tax office, pay it on behalf of the company you are purchasing from, get a certificate and take it to the company - or make it available to them'. So, for the seller, they lose 5% of their sale (even if their profit margin is less than 5%), and for the purchaser, well, they incur a) additional paperwork, b) transport costs, c) time and effort costs, d) a delay in access to the product (since you may have to take the certificate for the 5% to them), and d) probably an increased price from the seller to cover the 5%. BUT there is good news! Some companies are EXEMPT from the 5% withholding tax! Yes, they are bigger companies - and YES, they are in the urban areas - and YES they are often foreign owned... So, the smaller, local, companies are 'being restricted' from market access and growth because of the rules. Still not convinced? Let me give you an example.

If I purchase GHS11,750 of product from a company in Tema (with foreign ownership and lots of foreign nationals on their payroll), they are exempt from the 5% withholding tax (GHS500), and will give me a VAT receipt. I can pick up the product, pay the money and even get the GHS1,750 VAT allowed against my sales in a matter of minutes! However, had I wanted to 'facilitate my local economy', and to obtain the same items from my local supplier, being ready to write off the VAT against convenience and supporting the local economy (since they are not VAT registered), I find that then I have to send a person to the tax office to pay 5% of the purchase price - and that the 'seller' is going to add that amount to the price he is quoting, since he is only make a few percent on the sale anyway. Yes, that is the reality of withholding tax. It makes us seek out larger companies in urban areas who are exempted. It prevents the growth of smaller, particularly rural companies (because access to the tax offices is more challenging, time consuming and transport intensive). Withholding tax is, albeit unintentionally, a de facto punitive tax on rural development. But it is the law, and so, we will no longer make larger purchases in the rural areas. We will not be 'practically enabled' to boost the development of our local area, simply because the rules were written for those in the urban areas. (Perhaps they will change if somebody reads this). I don't like it. I don't think it is fair on the small Ghanaian businesses - but we didn't bring the rules, we must simply follow them.

This leads us to the new currency control rules. I may be in the minority (?) by being concerned about their effects, but I know that I am not alone in feeling their effects. The new 'amended rules', leave me further concerned for the development of Ghana's (especially rural) businesses. Rather like the 'withholding tax being an urban concept', the same goes for the 'currency controls'. 

The statement last week states 'Exporters of services such as hotels, educational institutions, insurance companies and others may receive payment in foreign currency from non-residents.' 

This winds me up as much as the fact that Aburi Gardens, Mole Game Reserve and other places have a two tier charging system 'one price for Ghanaians, and another for so called foreigners'. (How would a Ghanaian feel being charged more than an American or European to enter an event in the USA or Europe - regardless of the economic ability?)

Rules should be the same for everybody. Regardless of where you are from - or where you are based. So, with the new rules, a 'white person', resident or not, can easily use foreign currency - since nobody will ask questions. BUT a resident Ghanaian cannot enjoy the same economic benefit of using foreign currency that they have in their possession! Wow! I am left wondering about how this came about? 

But it gets worse... even non-residents still cannot purchase GOODS with foreign currency (the new rules are only for services). AND Ghanaian businesses cannot insure their foreign purchased items in foreign currency - making the Ghanaian entrepreneur the one who is 'disadvantaged', or so it seems to me.

Remember, this whole currency thing is based on the URBAN economy - those with ready access to a FOREX bureaux, banking systems and infrastructure! (Forex bureaux really are hard to find in the rural areas!). Consequently, a visitor who is travelling in our neck of the woods cannot legally purchase items using their foreign currency - and cannot change the money locally - and the Ghanaian entrepreneur would be breaking the law to take the foreign cash. Another blow to rural development.

Surely, if we want to make our wonderful nation attractive to investment, tourism and development - urban and rural - for Ghanaians and non-Ghanaians - we need to level the playing field. Right now the economic playing field is heavily inclined towards big business, foreign owned and in urban locations - and the economic ball is running down the pitch at speed, leaving rural areas without practical access to much needed development - by LAW! 

At least that is how I feel - living and working in rural Ghana, speaking to rural dwellers and rural business folks. Perhaps many of those reading this are working in foreign owned urban businesses - and are enjoying the rules that favour their game... Just remember, unless greater equality and distribution of wealth is established, it will eventually strangle the market of demand, and the whole nation will suffer. We all need rural development to drive nationwide economic growth and sustainability. We need policies and rules that level the overall playing field - urban and rural, foreign and national. Simple as that. These are my views, and perhaps I am wrong... I would love to hear your views on these matters... so drop me a line.

Capt. Yaw is Chief Flying Instructor and Chief Engineer at WAASPS, and Pilot/Engineer with Medicine on the Move, Humanitarian Aviation Logistics (www.waasps.com www.medicineonthemove.org e-mail capt.yaw@waasps.com)