Windfall taxes have been touted as another way the government could raise revenues to cushion low-income earners and vulnerable groups in the country.
According to the West Africa Regional Director of Consumer Unity and Trust Society – CUTS International, Lawyer Appiah Kusi Adomako, windfall taxes could be of great benefit to consumers by redistributing wealth and easing burdens in times of crisis.
Lawyer Adomako explains that windfall taxes are taxes imposed on businesses that record above-normal profits due to favorable market conditions and not due to an investment they have made. They are mostly recorded in times of crises where there is an abnormal surge in demand or when a company is declared a Significant Market Power (SMP) and hence cannot price its services and products below other industry players.
He dismisses the assertion that the government imposing a windfall tax might make the consumer worse off since the taxes may be pushed on the consumer.
The consumer protection advocate argues that there is a need for Ghana to legislate a windfall tax framework where the revenues gained from taxing the excess revenues can be used to cushion the vulnerable and low-income consumers.
Citing an example from the UK to justify his case, Adomako narrated how energy companies in the UK raked in “supra normal profits” at the start of the Russia-Ukraine crisis at the expense of the consumers. The UK government activated the windfall tax law where the revenues gained were used to subsidize the energy cost for pensioners and those in the low-income bracket.
“In the UK, during the early stages of the Russia-Ukraine war, energy prices; electricity and gas prices went up. This made the energy companies making supra-normal profits…What the UK Government did was that, they said look, we will then activate the windfall taxes. Instead of just paying the flat corporate taxes, there is another tax,” he narrated to The High Street Journal in an interview.
He added that “people were crying about the high cost of energy. The war started in winter time so people needed energy to heat their homes and people were crying. The windfall taxes that the government placed on these companies, the monies that they got, were used to subsidize energy for pensioners and people in low-income brackets.”
Based on the benefit of windfall taxes, Lawyer Adomako is therefore advocating for a similar windfall tax system to be replicated in Ghana to support vulnerable and low-income consumers.
He explained that “we don’t have a framework for taxing companies when they make supra-normal profit. ….it is fair and reasonable that the government allows them to pay additional taxes. And the question is, how do you utilize these [additional] taxes? In most countries, these windfall taxes are used to solve a particular effect among the vulnerable population thus those who are using those services. The revenue could be used to address the inefficiencies and cushion the burden of consumers.”
Commenting on whether such a measure won’t negatively affect investment, Mr. Adomako is convinced that given the relatively low corporate tax in Ghana compared to other countries, windfall tax won’t deter investment.
“No, it is not going to deter investment because in some taxes corporate taxes are so high. US for example, is so high but Ghana is still 25%,” he insisted.
Although the technical aspects of windfall taxes are crucial, they are widely adopted as a means of cushioning low-income families, pensioners, and vulnerable groups during times of crisis when living conditions are deteriorating. By targeting excess profits made by companies in favorable market conditions, windfall taxes ensure that those who are most affected by economic hardships receive support. This form of taxation not only redistributes wealth but also prioritizes the needs of the most vulnerable, providing a safety net in times when it is needed most.
However, one most important issues in the case of Ghana is “whether the revenues obtained from windfall taxes will be solely used for the intended purpose and not misapplied or diverted.
