GENDER AND INDIRECT TAX INCIDENCE IN GHANA Isaac Osei-Akoto, Robert Darko Osei and Ernest Aryeetey ISSER, University of Ghana 2009 IAFFE ANNUAL CONFERENCE Simmons College Boston, MA, 26-28 June 2009
Data:- Tax information (1) VAT Service & (2) Customs Excise and Preventive Service Expenditure data Ghana Living Standards Survey Round 5 (GLSS5); uses last round conducted between Sept 2005 and Aug 2006 Nationwide; 8,637 out of 8,687 households Classification of expenditure items (18 main groups with further disaggregation for policy analysis) Total household consumption expenditure is different from other definitions used in Ghana: Excluded consumption of own produced Excluded imputed values for rents but included use values of durables
Details of indirect taxes VAT general VAT rate of 15% (2.5% earmarked for education and 2.5% earmarked for Health Insurance) zero-rated items (0% tax rates); - exports, locally produced textbooks and exercise books and locally manufactured agricultural machinery and implements or tools Exempt items (avoid VAT at the retail level) e.g. imported items (including food) attract VAT even if exempted
VAT exempt list include the following: - agricultural products in their natural state live animals and edible animal products like meat and offal goods for the disabled, educational items and services medical supplies and financial services like the provision of insurance, issues and transfers water (excludes distilled and packaged types) electricity supply up to a specified consumption level printed matter such as books and newspapers and postal services, etc
Excise and fuel taxes at the time of the survey in 2005/6, excise taxes were mainly collected on specific ad-valorem basis, as explained below Item Rate Beer 50% Spirits and wine 25% Akpeteshie (local distilled gin) 20% Mineral or Aerated water 20% Malt 5% Tobacco 140% Even though petroleum products are VAT exempt, a number of taxes are levied on petroleum products in addition to 15% ad-valorem excise duties on ex-refinery current prices.
Tax as a percent of ex-pump price (based on the pricing formula for petroleum products used in January 2006 Type Excise Fuel levies Total fuel tax Premium Kerosene Gasoil Premix LPG 7.2 33.9 41.1 10.0 5.5 15.5 9.1 18.4 27.5 9.1 15.8 24.9 12.3-21.3-9.0
Main findings (1) Distribution of adults and children by household type Household type Children Adults All Percentage in total Presence of adult earners: Male earner 29.3 31.6 30.5 Female earner 21.5 19.5 20.5 Dual earner 38.5 36.1 37.2 No earners 10.7 12.8 11.7 Adult sex composition: Male-majority 14.3 24.9 19.8 Female-majority 38.0 35.0 36.4 Equal number 47.7 40.1 43.8 Headship: Male 76.2 77.2 76.7 Female 23.8 22.8 23.3 100.0 100.0 100.0 Male earner or male headed households are more than their female counterparts. But adult male majority households are fewer than adult female majority households. The adult female majority households also contain more people than adult male majority households In terms of employment females are mostly found in the informal sector, where they engage in trade and other service activities with unattractive work conditions.
0 0 Density.0002.0004.0006.0008 Density.0002.0004.0006.0008.001 Main findings (2) The population in the female type households are densely concentrated in the lower income groups. The implication for income redistribution is that the burden of taxes which fall more on lower income groups will disproportionately affect disposable incomes of female type households, and vice versa. Sex of HH Head Presence of Adult Earner 0 2000 4000 6000 8000 10000 Per Capita HH expenditure(c'0,000) GLSS5: Accra 1999 Prices Female Headed Male Headed 0 2000 4000 6000 Per Capita HH expenditure (c'0,000) GLSS5: Accra 1999 Prices Male earner Dual eaner Female earner Non Employed
0 Density.002.004.006.008.01 Main findings (3) The distribution of total indirect taxes by type of family structure suggests that relatively more of female type households pay lower indirect taxes than male type households. 0 200 400 600 Per Capita Total Indirect Tax (c'0,000) GLSS5: Accra 1999 Prices Presence of Adult Earner Since there are no differential indirect tax rates or exemptions for women, it could be inferred that the social dimensions of indirect tax incidence depend on the mix of Male earner Dual eaner Female earner Non Employed consumer items families choose.
Main findings (4) On average households in Ghana use about 7.3% of total expenses on indirect taxes. Incidence of VAT is higher as compared to excise duties and taxes on fuel Tax incidence is higher for male type households as compared to female type households (for all 3 types of taxes) Fuel Tax Female headed Male headed Fuel Tax None employed Dual earner Female breadwinner Excise Tax Excise Tax Male breadwinner VAT VAT Total Tax Total Tax 0.0 2.0 4.0 6.0 8.0 0.0 2.0 4.0 6.0 8.0 10.0
Main findings (4) 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Lower 20% Next 20% Next 20% Next 20% Upper 20% Total VAT Excise Fuel The incidence of indirect taxes decreases from 7.8% for the first quintile of households to 6.8% for the fourth quintile and rises again to about 7.7% for the top quintile of households. VAT is generally proportional, excise taxes are generally regressive and fuel taxes are generally progressive. The degree of progressiveness or otherwise differs across localities and across different gender types of households.
Incidence (%) Incidence (%) 10.0 9.0 8.0 Total Indirect Tax Incidence by Sex Composition and # of Children (%) More Males W Child Incidence of total indirect tax is higher for households without children than households with children for all types of taxes. 7.0 More Males W/O Child More Females W Child More Females W/O Child Equal # W Child Equal # W/O Child The reverse is the case for the poorest female type households that do not have children. 6.0 5.0 Lower 20% Next 20% Next 20% Next 20% Upper 20% 7.0 6.5 6.0 5.5 VAT Incidence by Sex Composition and # of Children (%) More Males W Child More Males W/O Child More Females W Child More Females W/O Child Equal # W Child Equal # W/O Child VAT rates are generally progressive for all male and female-majority groups without children but generally proportional for the groups with children. 5.0 4.5 4.0 Lower 20% Next 20% Next 20% Next 20% Upper 20%
Incidence (%) Incidence (%) 1.6 1.4 1.2 1.0 0.8 Incidence of Indirect Tax on Basic Un-processed Food by Sex Composition and Gender Employment Status (%) Almost all the female type households bear higher incidence of indirect taxes on basic food items (both processed and unprocessed) than male type households. 0.6 0.4 0.2 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Male Dominated Female Dominated Male Earner Female Earner 1.5 1.3 1.1 Incidence of Indirect Tax on Fuel for House Use by Sex Composition and Gender Employment Status (%) Estimated tax incidence for fuel for house use are relatively low as compared to other taxes. 0.9 0.7 0.5 0.3 0.1 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile But because of its highly regressive nature policy reforms on it will impact quite strongly on the extreme poor, of which the majority are females. Male Dominated Female Dominated Male Earner Female Earner
Incidence (%) Incidence (%) 1.0 0.9 0.8 0.7 0.6 0.5 0.4 Incidence of Indirect Tax on Clothing and Footwear for Children by Sex Composition and Gender Employment Status (%) The rates for children clothes are regressive, just as clothes for adults but poorest female earner households bear the highest burden of taxes on children clothing and footwear. 0.3 0.2 0.1 0.0 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Significant policy change in this area will impact the latter more positively than the others. Male Dominated Female Dominated Male Earner Female Earner 3.0 Incidence of Indirect Tax on Tobacco by Sex Composition and Gender Employment Status (%) Incidence of taxes on tobacco products is generally regressive. 2.6 2.2 1.8 1.4 1.0 0.6 0.2 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile However, the rates for male type households are significantly higher than rates for female type households. Is it a possible source to finance tax cuts? Male Dominated Female Dominated Male Earner Female Earner
Incidence (%) Incidence (%) 1.4 1.2 1.0 Incidence of Indirect Tax on Alcoholic Beverages by Sex Composition and Gender Employment Status (%) Tax burden on alcoholic beverages for households tends to be generally progressive except for households that have more adult females than males. 0.8 0.6 Is it a possible source to finance tax cuts? 0.4 0.2 0.8 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Male Dominated Female Dominated Male Earner Female Earner Incidence of Indirect Tax on Communication by Sex Composition and Gender Employment Status (%) Communication tax incidence is generally low but highly progressive. 0.7 0.6 0.5 0.4 0.3 More revenue could be raised from an increase in the tax rates to offset revenue loss resulting from tax cuts, because of its increasing use. 0.2 0.1 0.0 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Male Dominated Female Dominated Male Earner Female Earner In that sense the new Communication Service Tax law passed in 2008 may be a step in the right direction.
Policy Issues (1) Policy simulations (4 considerations) 1. Complete removal of VAT on food items except taxes on sugar/confectionaries, and meals purchased from outside; 2. Complete removal of VAT on basic un-processed food items; 3. Complete removal of VAT on children clothes and footwear; and 4. Fifty percent reduction of kerosene tax rates. 2 financing options analysed: 1. A combination of items with considerable level of progressivity and gender differences; i. e. increasing tax rates for tobacco and alcoholic beverages by 100%. 2. A continuation of the communication service tax of 6% on all communication charges, popularly known as talk tax.
Effects of proposed policy changes on tax incidence Food Policy issues (2) Zero-rating of taxes on food will have the highest impact on tax incidence. On average existing levels of tax incidence will be reduced by more than a quarter (27.9%). The greatest impact will be felt by female type households, in particular female headed or female breadwinner households with a reduction of about a third of existing levels. Middle income households will benefit more from the policy changes than the 1 st or the 5 th expenditure quintiles. Similar patterns but lesser effects on incidence (12.9%) will be observed if taxes on basic unprocessed food are completely removed from the tax regime. The analysis reveals that the use of the indirect tax system alone to finance any of above tax cuts will be difficult.
Children clothes and footwear Zero-rating taxes on children clothes and footwear will have less than 3% reduction in incidence of total indirect taxes for all gender typologies. But it will have relatively higher reduction in incidence rates for poorer households in Ghana than richer households. Households with more adult females than males or female breadwinner households will benefit more than male type households. Kerosene Policy issues (2) The average expected reduction in tax incidence is the smallest among the 4 options analysed with little or no significant gender differences. However, the policy will have the highest relative benefit for poor households than others. Reduction in tax incidence for the poorest quintile will be nearly 6% but that for the 5 th quintile will be about 1%.