Ghana: Will pressure force the government to drop taxes on fuel prices?

By Nii Larte Lartey

Posted on Wednesday, 1 December 2021 12:35, updated on Monday, 10 January 2022 11:41
Transport in Kumasi, in the Ashanti region, Ghana, July 21, 2019. REUTERS/Siphiwe Sibeko

The production of oil in Ghana has very little bearing on the price of fuel in the country and its citizens are getting concerned.

Between January and November 2021, the price of fuel went up more than 15 times from GHS4.80 ($0.81) to GHS6.99 ($1.14), with analysts projecting that it may end the year at above GHS7. Commercial drivers in Ghana are threatening to increase their fares by 30% before Christmas to make up for losses from the recent surge in fuel prices.

They would be sidestepping the ministry of transport to actualise their threat if negotiations between the two parties do not succeed by the end of November.

The cost of fuel is a big political subject and almost every Ghanaian government has made promises about keeping fuel prices low. Since 2015, the Ghanaian government has stayed clear of manipulating and announcing fuel prices, leaving that in the hands of market forces.

That notwithstanding, certain dynamics in the local economy, for example, currency depreciation and taxes also directly influence the price.

Compared to Ghana’s West African neighbours Nigeria, Togo and Côte d’Ivoire that sell a litre of petrol at $ 0.619, $ 0.91 and $1.076 respectively, the cost of fuel in Ghana is becoming a headache to the highly mobile citizens.

“I get nervous any time I hear conversations about fuel price. As a regular trotro [commercial minibus] user, it just means that transport fares are going to go up. The drivers always use the fuel price increase to justify a hike in the fares,” Edwin Asante, a commuter in Accra told The Africa Report. 

Before the most recent fuel price-induced 13% hike in transport fares, he spent GHS21 ($3.44) on his daily home to work commute from Tema to Adabraka in Accra. Today, he pays GHS24 ($3.93) and is expecting another hike in the coming weeks.

Government must consider removing some of the taxes and levies.

Ibrahim Abbas Moro, an official at the Ghana Private Road Transport Union says they can hardly cope with the situation.

“Anytime there is a fuel price increment, it automatically reduces our daily income. We have been enduring this over the years and so all that we are asking is a reduction in fuel taxes. If this is not done, we will park our vehicles and no one will work,” he tells The Africa Report.

Tax burden

“We are often told the high prices are due to the world market prices but, it is also a fact that the currency depreciation has contributed significantly to the increase we have seen in recent times. We are also mindful of the very high taxes slapped on petroleum products by the government,” says Duncan Amoah, the executive director of the Chamber of Petroleum Consumers.

There are at least seven taxes on fuel in Ghana. These include Energy Fund Levy, Sanitation and Pollution Levy, Price Stabilization and Recovery Levy, Energy Sector Levy, Special Petroleum Tax, Road Fund Levy, Energy Debt Recovery Levy, all making up a sum of GHS2 ($0.40).

As an oil-producing country, anytime international oil prices go up by a dollar, we gain by way of revenue, unfortunately, Ghanaians have not really benefited from that.

Analysts like Amoah have criticised the imposition of some of the taxes on petroleum products, arguing that they ultimately are regressive and unduly burden the poor.

“Government must consider removing some of the taxes and levies,” says Nana Amoasi VII, the director for energy think tank Institute for Energy Securities.

He believes a short-term measure will be useful to tackle the abnormal increment. The high exposure of the country’s currency on the international market makes it highly vulnerable to volatilities on the international currency market.

Tackling this will have more to do with strengthening the economic fundamentals of the country. It is yet to be seen how Ghana’s status as an oil producer will have a positive bearing on the price of fuel in the country.

According to Amoah, the earnings from windfalls as a result of an increase in fuel prices on the global market must be used to cushion citizens at this critical moment.

“As an oil-producing country, anytime international oil prices go up by a dollar, we gain by way of revenue, unfortunately, Ghanaians have not really benefited from that,” he says.

Taxes imposed by the government on fuel prices are a major source of revenue and it is not ready to let them go any time soon. In making a little compromise, however, it has for November and December 2021 suspended the 16 pesewas ($0.4) per litre price stabilisation and recovery levy.

Nana Amoasi VII suggests that “the government could consider cushioning citizens with the windfall from the price stabilisation and recovery levy that have been suspended for two months. That levy has not been able to stabilise the price for all these years.”

For oil marketing companies in Ghana, the meat is down to the bone and there is nothing more they can give to suppress the price of fuel.

Kwaku Agyeman Duah, the CEO of the Association of Oil Marketing Companies, said on 22 November during an interview on Citi Breakfast show: “Anybody selling below GHS7 is really sacrificing heavily because if we are going with our 100% marketers margin and dealers margin, we should be selling for about GHS7.5 for petrol.”

The burden of a fuel price reprieve is on the government and anything short of complete scrapping some of the existing taxes will be unwelcoming.

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