John Dramani Mahama must be commended for his promise to scrap the “Luxury Vehicle Tax” introduced by Nana Addo in 2018.
Good Public Policies are those that have gone through the policy cycle or at least, very well thought through before implementation.
The Luxury Vehicles Tax does not appear to have been properly thought through at all to the extent that, it harms the rural poor, benefits the urban rich and adds nothing to government.
It is therefore not surprising that, the presidential candidate for NDC has made that bold call on government to scrap it, failing which his administration will scrap it in 2021.
THE RURAL POOR AND THE TAX:
It is a fact that the road situation in most of our rural communities are terribly bad and largely unmotorable. For the poor rural dwellers, the only type of vehicles capable of withstanding the harsh terrain of their roads are vehicles with very rugged undercarriage. Such vehicles are largely of engine capacities of 3.0 and beyond. They include pick-up trucks and other Midsize SUVs. The engine size of these vehicles being used by our rural folks have no bearing with the luxury lines obtainable in them. Farmers and rural dwellers buy such vehicles for their robust undercarriage. Why on earth will a government classify such vehicles as luxury cars and proceed to tax them accordingly? It does not make sense. Is it the expectation of this government that, poor people and rural dwellers who wish to own cars should procure saloon/Tico cars? Tico/salon cars cannot be the option for our rural folks because, they’re just too fragile for the rural roads. The last time my friend traveled to his village with a Tico, the car could not make a return trip to Accra. In fact, the car is still in the village as it does not make economic sense for him to attempt bringing it back to Accra.
Farmers use pickups not because they are seeking luxury but out of necessity. That is the vehicle with the required torque and robust undercarriage for their farms and farm roads. Clearly, the tax is anti poor and anti rural.
THE RICH AND THE LUXURY VEHICLE TAX:
To a very large extent, there is a very convenient way for the rich man to avoid this tax.
Contemporary technology in the auto industry has led to the production of vehicles with *”stratified engines”*. This technology enables auto makers to manufacture vehicles with low engine 4cyl (1.6 or 2.0) that are full of unimaginable luxury features capable of performing like vehicles of 6cyl, twice their engine sizes in the traditional technology. These are some of the vehicles that are not liable to the luxury tax. But because such a technology is new, the vehicles are very expensive and beyond the reach of the poor. Is it therefore not absurd that, a rich man who can afford a 2019 Range Rover Evoque with a 2.0 engine full of all the luxury features you can imagine is not liable taxation under the luxury car because it’s engine is 2.0 yet the poor man from the village who manages to buy a vehicle as old as 2007 Toyota Tacoma pick up or 2007 Ford Escape is required to pay the luxury tax?
Where did we get this definition for luxury in Ghana?
LUXURY VEHICLE TAX AND THE REVENUE LOSS.
Because this policy was not properly thought out. It’s intended revenue targets are being missed like a blind man throwing blows in a boxing ring.
Here is why: people who imported vehicles with very high engine capacities and got caught up by this useless policy have simply decided not to register the vehicles at the DVLA. Instead, they are using “trade plates” otherwise known as “trial plates”. This has proven to be far cheaper than registering the vehicles and paying luxury taxes.
The revenue projections that were made based on the luxury vehicle tax are bound to be missed. The figures were not subjected to any sensitivity analysis, they were not seasoned and not adjusted. It is not surprising that revenue targets are not being met. As soon as the tax was imposed people stopped the importation of vehicles with high engine capacity. This is trite and I expect the tax planners to have known this.
De ja vu.
LUXURY VEHICLE TAX AND JOB LOSSES:
It is sad that, Car/Auto Dealers have for almost a year now been crying so loudly into the ears of corpses and expecting a response. Their concern is a very simple one to appreciate. Seeing how punitive the luxury car tax is, Ghanaians stopped buying vehicles with high engine capacity from the dealers since the new law came into effect. As a result of the drop in sales, some of them had to fold up or lay off workers. So government even lost corporate taxes as a result. Another challenge they are having to grapple with is the fact that, they are unable to service loans they contracted from some financial institutions as they have the stocks V6,V8, V12…..) locked up in their garages
Government behavior is akin to throwing a fishing hook into your drinking pot and hoping to catch some fish.
This is how a very poorly conceptualized tax policy is affecting Ghana and Ghanaians.
WRITTEN BY A.W. SULLEYMAN.
(Public Policy Expert, Development Finance Major)