Ghana's SME owners left reeling from petroleum product tax increase

Owners of small- and- medium-scale enterprises (SMEs) throughout Ghana are bracing for the struggles they may face after the nation's government announced a 27 percent tax that would be levied on all petroleum products.

The announcement came as worldwide prices of crude oil plummeted.

Some business owners aren't sure how - or if - their businesses will survive, because they will likely have to increase the prices of their products to cover increased fuel costs.

“Obviously, it is going to affect businesses and entrepreneurs are going to suffer the most," Yaganoma Baatuolku, owner of Wanjo Foods, said. "It is going to be difficult for most of us to increase our prices and be competitive within the market. So either we are going to break-even constantly or we are going to run at a loss."

Wanjo is a producer and marketer of fruit juices and other beverages. Baatuolku said the fuel price hike will likely mean decreased project margins for Wanjo, noting that the abruptness of the tax increase on petroleum products would not allow for gradual price increases on Wanjo's products.

"My business has seen a constant reduction in profit margins, and it is going to get worse," Baatuolku said. "I believe the fuel price hikes will push many SMEs out of business because they can no longer absorb the high cost of doing business in the country.”

Wanjo's products are made using raw materials Baatuolku has to have shipped into Ghana; additionally, the company has delivered products to the customers without a delivery charge. Given the fuel price hike, Baatuolku is unsure whether Wanjo will be able to continue providing this service.

Some energy industry experts are also decrying the tax hike. Mohammed Amin Adam, the African Centre for Energy Policy's (ACEP) executive director, said he could not think of any justification for the decision to hike the tax so dramatically.

“We have challenges understanding why, apart from paying higher electricity tariffs, consumers are also being asked to pay debts accumulated from inefficiencies on the part of VRA and ECG, as well as government’s negligence of its responsibility to the utilities through petroleum levies,” Adam said.

Baba Yabdow, a producer of fruit juice whose business is based in northern Ghana, also fears for the survival of his business, noting the tax will raise his daily operating expenses drastically.

"Hiking these prices all in the space of one month is very insensitive on the part of government, and it is going to collapse some small businesses," Yabdow said.

Still, Casiel Ato Forson, Ghana's deputy minister of finance, stood behind the decision to raise the tax on petroleum products.

"Parliament didn’t do a poor job," Forson said. "Parliament did a wonderful job. What Parliament did was to give approval to a law, and it is one of the best laws ever made in this country."