Watch Out For A Tax Hike-Kodua Kofi David From University Of Ghana Writes.

In mitigating the effects of the global pandemic, covid 19 countries have invested substantial resources in the health and industrial sectors in order to protect the citizenry against the virus and at the same time maintain macro-economic stability.
The measures involves decreasing interest rates, extending loan repayment policies, availability of soft loans to small and medium enterprises and tax relief measures to protect companies from collapsing.
This calls for countries especially, developing countries to allocate their limited resources strategically to maintain economic growth and reduce their debt stock. The government in achieving these goals, launched a 600 million Ghana cedis Coronavirus Alleviation Programme (CAD) accompanied by tax relief measures to help support firms hit hardly by the pandemic.

The government of Ghana debt stock stands at 236.1 billion Ghana cedis as at the end of March 2020 accounting for 59.3% of the Debt-to-GDP-Ratio. The government finances these projects by using part of the money borrowed and must find ways to pay them back with the accumulated interest rate. However, this has become problematic since the government estimated revenue has fallen and expenditure increased.
Firms and individuals are to be rational in their spending during this period of tax relief though after tax wages are going to be high. It is expected that, aggregate demand in the economy will increase as well as income and employment because of the tax reliefs.
It is expected of firms to realize that, the government is financing the tax reliefs by running a budget deficit and in the future, the government have to raise taxes to pay off the loan and its accumulated interest rate. The income earned must be seen as transitory and will be taken back in the future by a tax hike. This necessitate consumers and
producers to save more of their profits and personal income to sustain production and smoothen consumption in the period to come.
Manufacturing companies especially, must keep inventory of the total production in this period since they are benefiting from government incentives. In the future, production cost will increase and profit margins be reduced because of a tax hike in the future. This will help the firms to reduce production cost in the future and able to meet the demand of the populace. In addition, firms must make sure that, storage cost and production cost does not exceed their projected revenues after the tax hike.
Consumers should not feel well off because of the tax relief policies since the tax cut today has an inherent tax hike tomorrow. When consumers do not observe this, some will have to borrow at high interest rate in order to afford basic nutritional needs in the period to come.

By: Kodua Kofi David
(Policy Analyst-University Of Ghana)

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