Ghana braces for major price increases in May

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This week, Ghanaians will have to navigate a plethora of price increases as tax increases and new levies announced in the 2021 budget proposals come into effect. The new fiscal measures, aimed at reeling in government’s runaway budget deficit from 11.7 percent in 2020 to 9.6 percent this year took effect from May 1 and cover energy costs as well as the general cost of goods and services. Furthermore, it appears that for an unrelated reason, both voice telephony and data costs are in for a hike as well.

First of all the new fuel taxes are to take effect this week resulting in a 47 pesewas per litre increase in the price of gasoline at the pump. The Chairman of the Committed Drivers Association, Charles Danso has already confirmed that the taxes will be passed on to passengers.

“Definitely, whenever the government imposes taxes on us, we too have to pass it on to the final consumer” he says, warning that any attempt by government to cap the resultant increment in transport fares will be strongly resisted.

“Nobody should tell us to only put five percent or ten percent on transport fares. We will not agree to any percentage of that sort unless we also calculate the money we are going to pay to the government.”

 The new fuel taxes are as a result of the imposition of an Energy Sector Recovery Levy of GHc20 pesewas per litre of petrol and diesel. It also includes a levy of GHc18 pesewas per kilogram of liquefied petroleum gas which means customers will have to pay an extra GHc4.50 on every 25 kilogram cylinder of LPG.

In typical fashion various operators along the supply and value chains are looking to take advantage of the imposition of the new taxes and levies to boost their own profits. In effect the “Committed Drivers” are saying they will not be bound by the financial impact of the new petrol taxes on their costs in setting new transport fares, which indicates that they are looking to use the situation to actually increase their profit margins.

In addition, the imposition of a Sanitation and Pollution Levy of 10 pesewas per litre of petro; and diesel respectively will contribute to the new tax.

There is also talk that some oil marketing companies are looking to expand their margins by as much as three percent as the new taxes are introduced as well. Their argument is basically that with the new taxes, a larger amount of investment capital will be needed to procure any given amount of petroleum products; and therefore wider margins are necessary to retain the same level of returns on capital employed.

Also taking effect on May 1, are the COVID 19 Health Recovery Levy Act 2021 (Act 1068) and the Energy Sector Levy (Amendment) Act (Act 1064).

The Ghana Importers and Exporters Association has already served warning that it foresees significant increases in the general price levels for goods and services due to the application of the Health Recovery Levy which will be passed on to consumers in much the same way as the commercial transporters are planning to do – possibly taking advantage to expand profit margins in the same way too.

Interestingly, the cost of telecommunications is in for an increase too, although not because of any changes in the tax structure because none were proposed in the new budget. What is happening here is that the National Communications Authority has been planning to force the industry leader, MTN Ghana to increase its on-net Tariffs in particular, so as to enable its competitors to do the same – and become profitable without losing their price competitiveness against MTN itself – using the authority given it having classified the industry leader as a Significant Market Player. With government having acquired the Airtel Tigo network – its former owners having exited the Ghanaian market because MTN prevented them from setting prices that could generate substantial profitability – it now needs the NCA to execute its plans quickly and this is what is now happening. The end result will be higher tariffs across all the networks as the NCA seeks to ensure that MTN does not use what it calls “predatory pricing” to decimate the competition.

Combined with the increases in energy costs and the general price level (which will also be worsened by increases cost of haulage of goods nationwide), Ghana is in for a significant price shock this month; one which will likely send consumer price inflation well above the upper end of the Bank of Ghana’s target band of six percent to ten percent. – Goldstreet

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