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As Ghana’s economy continues to face significant challenges, the government recently introduced three new taxes – the Excise Duty Amendment bill 2022, Growth and Sustainability Levy bill, and Income Tax Amendment bill 2022 – to raise revenue and meet the criteria for a $3 billion IMF programme staff-level agreement.
However, these new taxes come at a time when the Ghanaian economy is already heavily burdened. The COVID-19 pandemic as we are made to believe by government has had a significant impact on the economy, leading to job losses, reduced economic activity, and increased debt levels. Additionally, the country has been facing challenges such as high inflation, recent power cuts, and a depreciating currency, among others.
The Excise Duty Amendment bill 2022 increases the tax rate on specific goods, such as tobacco, alcoholic beverages, and petroleum products. Similarly, the Growth and Sustainability Levy bill imposes a tax on the supply of goods and services, while the Income Tax Amendment bill 2022 affects individual taxpayers, including business owners. These new taxes are likely to have a significant impact on both businesses and consumers, as they could lead to an increase in the cost of production, higher prices, and an increase in the tax liability of individuals.
As a management consultant, my expertise lies in helping businesses navigate challenges, develop strategies, and identify opportunities for growth. While I am not a tax expert, I have a good understanding of the impact that changes in tax policies can have on businesses and the broader economy. With the recent introduction of the Duty Amendment Bill 2022, the Growth and Sustainability Levy Bill, and the Income Tax Amendment Bill 2022, I believe it is critical for businesses to evaluate how these changes will impact their operations and develop strategies to manage the potential effects
Businesses
For local businesses irrespective of size, the introduction of new taxes could pose a significant challenge. To sustain their operations amidst these changes, it’s essential to take proactive actions, develop plans and strategies, and explore new opportunities.
Here are some steps that businesses can take:
First, Evaluate the impact: The first step for small and local businesses is to evaluate the impact of the new taxes on their operations. Businesses should calculate the additional taxes they will have to pay and assess how this will affect their bottom line. For example, a small restaurant may need to evaluate the impact of the new taxes on the cost of food supplies and calculate how this will affect the menu prices.
To do this, businesses can conduct a thorough analysis of their financial statements and identify areas where they may face increased costs. By understanding the impact of the new taxes on their business, they can make informed decisions on pricing and other strategies to mitigate the impact.
Evaluate your supply chain: With the increase in the tax rate on specific goods, it’s essential to evaluate your supply chain and explore ways to reduce costs. This could include negotiating with suppliers, finding alternative sources of raw materials, or exploring new partnerships. Here are some steps:
- Identify potential vulnerabilities in the supply chain: businesses should assess their supply chain and identify areas where they may be at risk. This could include single-source suppliers, long lead times, or transportation bottlenecks.
- Build stronger relationships with suppliers: Building strong relationships with suppliers can help to mitigate potential supply chain risks. businesses can work with suppliers to establish backup plans in case of disruptions, negotiate better prices, or even collaborate on product development.
- Diversify suppliers: Diversifying the supply chain can help to reduce the risk of disruptions. Small and local businesses can work to identify alternative suppliers and establish relationships with them in case they need to switch suppliers quickly.
- Find alternative transportation methods: Transportation can be a significant bottleneck in the supply chain, especially for small and local businesses that may not have the resources to ship products quickly or efficiently. Finding alternative transportation methods, such as local delivery services or group shipping arrangements, can help to reduce costs and improve supply chain efficiency.
Develop a cost-management strategy: To manage the impact of the new taxes on your bottom line, it’s essential to develop a cost-management strategy that focuses on increasing efficiency in your operations. This could include investing in technology, streamlining processes, or outsourcing non-core functions.
- Analyze all expenses: Small and local businesses should conduct a thorough analysis of all their expenses to identify areas where costs can be reduced. This may involve looking at everything from office supplies to rent to employee benefits.
- Prioritize cost-saving measures: Not all cost-saving measures are created equal. Small and local businesses should prioritize measures that will have the most significant impact on the bottom line while minimizing the impact on operations or quality.
- Streamline operations: Small and local businesses can find ways to streamline operations to reduce costs. This may include automating certain tasks, improving inventory management, or outsourcing non-core functions.
- Implement energy-saving measures: Energy costs can be a significant expense for small and local businesses. Implementing energy-saving measures, such as using energy-efficient lighting or equipment, can help to reduce costs over the long term.
Explore new opportunities: While the introduction of new taxes may pose a challenge, it could also create new opportunities for small and local businesses. Such that, by focusing on locally sourced materials or developing new products or services that are not subject to the new taxes, businesses can differentiate themselves and capture new markets.
- Offer new products or services: businesses can explore new opportunities by offering new products or services. This may involve identifying gaps in the market or developing new products that complement their existing offerings.
- Expand into new markets: Small and local businesses can also explore new opportunities by expanding into new markets. This may involve targeting new customer segments, expanding geographically, or selling through new channels.
- Partner with other businesses: Especially small and medium sized businesses can also explore new opportunities by partnering with other small businesses. This may involve forming strategic alliances or joint ventures to reach new customers or develop new products.
Seek professional advice: Businesses may benefit from seeking professional advice on tax planning and financial management. By working with a financial advisor or tax planner, businesses can develop a strategy to minimize their tax liability and optimize their finances.
Seeking professional advice is an essential step for businesses to take in navigating the new tax environment. Professional advice can help businesses to identify potential tax savings opportunities, ensure compliance with new tax regulations, and avoid costly penalties for non-compliance. They can also provide guidance on how to structure business operations to minimize the impact of the new taxes.
It is important for businesses to choose the right professional adviser, who has the relevant expertise and experience to provide practical and effective advice. Business owners should seek referrals from trusted sources and conduct thorough due diligence before engaging any professional adviser.
Additionally, the introduction of these new taxes comes at a challenging time for the economy. Local businesses need to understand the implications of these new taxes and take proactive actions to sustain their operations.
Other alternative strategies for SMEs to consider
Cut costs: In order to offset the additional tax burden, businesses should consider cutting costs wherever possible. This could involve reducing overheads, negotiating better deals with suppliers, or finding ways to reduce energy costs.
For example, a local store may consider reducing the number of hours they are open to cut down on utility costs. Another strategy could be to negotiate better deals with suppliers or switch to cheaper suppliers where possible.
Increase efficiency: Businesses should focus on increasing efficiency to maximize their profits. This could involve streamlining their operations, improving their inventory management, or adopting new technologies to automate tasks.
So, businesses may adopt a cloud-based accounting system to reduce the time spent on bookkeeping tasks. They could also invest in inventory management software to optimize their stock levels and reduce waste.
Diversify revenue streams: Small businesses should consider diversifying their revenue streams to reduce their reliance on any one source of income. This could involve offering new products or services, expanding into new markets, or creating partnerships with other businesses.
For example, a small retail store could start selling their products online to reach a wider audience. Alternatively, they could partner with a complementary business to offer bundled products or services.
Business owners
Business owners play a critical role in ensuring the sustainability of their businesses, particularly during challenging times. Here are some steps that business owners can take to manage the impact of the new taxes and address potential layoffs:
Review your business model: The introduction of new taxes could lead to a significant increase in the cost of production, which could, in turn, impact profitability. Business owners should review their business model and explore ways to reduce costs, increase efficiency, and improve profitability.
Prioritize essential functions: During difficult times, it’s essential to prioritize essential functions and focus on the core activities that drive revenue. Business owners should evaluate their operations and identify areas that can be streamlined, outsourced, or temporarily suspended to reduce costs.
Consider alternative revenue streams: To mitigate the impact of potential layoffs, business owners should explore alternative revenue streams. This could include expanding product or service offerings, exploring new markets, or diversifying revenue streams to reduce reliance on specific products or services.
Communicate with employees: If layoffs are necessary, it’s essential to communicate with employees and provide support during the transition. Business owners should be transparent about the reasons for the layoffs, provide clear timelines, and offer assistance with job search or career development.
Seek professional advice: Business owners may benefit from seeking professional advice on financial management, tax planning, and human resources. By working with experts in these areas, business owners can also develop a strategy to manage the impact of the new taxes and potential layoffs.
The introduction of new taxes in Ghana could have significant implications for businesses and could potentially lead to job losses. By taking these steps, business owners can navigate the challenges posed by an already burdened economy and sustain their operations.
Consumers
Indeed, consumers will also be impacted by the new taxes, which could lead to an increase in the cost of goods and services, potentially resulting in a decrease in the standard of living.
Here are some steps that consumers can take to manage the impact of the new taxes:
Budgeting: Reviewing and adjusting one’s budget is a critical step in managing the impact of the new taxes. Consumers should start by identifying their essential expenses, such as rent/mortgage, utilities, and groceries, and ensure that these are covered before allocating funds to non-essential expenses. They can use budgeting tools and apps to help them monitor their expenses and identify areas where they can reduce costs.
Shopping around: Consumers can save money by exploring different options for goods and services. This can involve comparing prices between different stores or exploring online options. Consumers can also consider purchasing items in bulk, which can reduce costs over time.
Prioritizing needs over wants: It’s important to prioritize essential expenses over discretionary spending. Consumers should focus on meeting their basic needs such as housing, food, and healthcare, before spending on non-essential items.
Seek financial advice: Consumers may also benefit from seeking some financial advice to help them manage their finances during these times. Financial advisors can provide guidance on budgeting, saving, and investing, helping consumers make informed decisions about their finances. They can also provide advice on managing debt and improving credit scores.
Support local businesses: Supporting local businesses can have a positive impact on the local economy and help businesses survive during challenging times. Consumers can consider purchasing from local businesses, which can provide a competitive advantage for these businesses and help sustain jobs. They can also recommend local businesses to their friends and family, helping to increase their customer base.
The impact of the new taxes on consumers could be significant, but these are critical steps that consumers can take to manage their finances effectively
Economy
Certainly, the impact of these new taxes on the economy is multifaceted and complex. On the one hand, the introduction of these taxes is intended to help the government generate more revenue, which can be used to fund critical public services such as healthcare, education, and infrastructure development. This, in turn, can contribute to long-term economic growth by creating jobs and improving the standard of living for citizens.
However, the implementation of these new taxes may also have some short-term negative effects on the economy. For example, the increase in the cost of goods and services resulting from the taxes may reduce consumer spending, which could lead to decreased sales and profits for businesses. This, may also lead to lay-offs and potentially increase the unemployment rate.
Furthermore, the new taxes can impact foreign investment, which can have long-term implications for economic growth. If foreign investors perceive the new taxes to be too onerous, they may choose to invest elsewhere, which could lead to a reduction in foreign capital inflows.
Overall, the impact of these taxes on the economy will depend on a variety of factors, including the implementation and enforcement of the tax policies, the responsiveness of businesses and consumers to the changes, and the broader economic and political context. However, with careful planning and management, it is possible for the government to achieve positive economic growth and development through the implementation of these new taxes.
Can government meet the criteria for IMF bailout with the introduction of taxes?
The introduction of these new taxes is part of the government’s efforts to meet the International Monetary Fund’s (IMF) criteria for a bailout. Whether or not the government will meet these criteria will depend on a variety of factors, including the successful implementation and enforcement of the new tax policies, as well as other reforms and measures being implemented to address the country’s economic challenges.
It’s worth noting that the introduction of new taxes alone may not be enough to meet the IMF’s criteria for a bailout. The IMF typically requires a comprehensive package of economic and financial reforms to be implemented, including measures to address fiscal deficits, improve the investment climate, and promote sustainable economic growth.
Therefore, while these new taxes may be an important step towards meeting the IMF’s criteria, the government will likely need to implement a range of other measures to address the country’s economic challenges and secure the necessary support from the IMF.
In conclusion, Ghana’s recent new taxes, including the Excise Duty Amendment Bill 2022, the Growth and Sustainability Levy Bill 2022, and the Income Tax Amendment Bill 2022, has caused widespread concern among businesses and consumers alike. The already-challenged and heavily-burdened economy is likely to face further strains as a result of these measures.
For small and local businesses, the key to surviving these difficult times will be to evaluate their supply chain, develop a cost-management strategy, explore new opportunities, and seek professional advice where necessary. By taking these steps, businesses can improve their financial resilience and maintain their competitive edge in the marketplace.
For consumers, the impact of these new taxes is likely to be felt through higher prices and a reduction in the overall standard of living. However, there are steps that individuals can take to mitigate the effects of these measures, such as adjusting their spending habits, seeking out deals and discounts, and exploring alternative sources of income.
While the introduction of these new taxes is a challenging development for Ghana’s economy, it is not necessarily an insurmountable one. With careful planning, strategic thinking, and a willingness to adapt, businesses and consumers alike can navigate this new tax landscape and emerge stronger and more resilient in the years ahead.
Written by Harmony Seyram Attise – a multiple award-winning management and business consultant with 10 years of industry experience and a writer. A consultant delivering exceptional results for clients. specializes in strategy and planning, operations, project & change management, innovation, and performance improvement. Contact: attiseharmony@gmail.com | 0507038639
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