In thinking through which commodity to tax consumers on, it is not erroneous to consider commodities that are widely used, not a complete necessity, does not take significant proportion of the consumers’ real income and also may not have perfect substitute. It is therefore not specious to consider taxing commodity like condom which conforms to the above principles of taxation.
As a matter of fact, taxing a commodity that is widely used widens the tax net which presupposes that tax revenue would increase as a result. With commodities that are not completely necessities, its economic burden on consumers when taxes are introduced on them may not be as severe as necessary amenities like water and the like. That is, the consumer may choose to consume more of it or reduce consumption drastically.
More so, when a commodity takes only insignificant proportion of the consumers disposable income, price increase due to taxes are ignored since it may not have substantial effect on the consumers disposable income. Another germane principle to consider is the effect of substitutes. When a commodity has no direct substitute, imposing tax on it could have positive effect to the government.
However, it would be entirely problematic to consider these and therefore introduce tax on condom in Ghana. This is because the commodity (condom) was introduced in Ghana’s economy to serve certain purposes which include curbing of sexually transmitted diseases, unwanted pregnancies which result in illegal abortion, population growth and others. Hence, it would be prudent to ruminate over it to ascertain whether those purposes are fully served.
One does not need to strain the eyes to see in Ghana the rampant teenage pregnancies, high rate of sexually transmitted diseases and many illegal abortions which are causing a lot of deaths. Even where there was no tax on condoms, the government spent huge sums of monies to import drugs and medical equipment for the treatment and curbing of these anomalies.
It is relevant to notice that the introduction of tax on condom in Ghana would not only reduce the consumers’ disposable income by the direct cost burden but would rather have huge welfare cost (excess burden of taxation) in terms of administrative cost and compliance cost
The government may engage in what is termed as Balanced-Budget incidence of taxation which simply means the distributional effects of tax combined with the expenditure programme it finances. For instance, it could be assumed that the revenue accumulated from the taxing of condom would be used to finance the health sector which could always be a controversial issue to discuss. This is because a small fall in the consumption of condom would result in a large increase in sexually transmitted diseases, unwanted/teenage pregnancies, population growth and many more. In such situations, the government would adversely need more money than the one accrued from taxing that commodity (condom) to rectify that.
Truly it is baffling to notice that the very commodities government is to encourage people to consume are those ones that more taxes are put on them which could rather reduce its consumption. It must be pointed out that widening the tax net does not necessarily mean putting taxes on basic agricultural inputs and condoms but could be done by filling of loopholes in the tax system and reducing taxes on heavily taxed commodities to bring on board tax invaders for that reason.
The government should therefore be very careful of how to go about this because as far as I am concerned, it is just going to aggravate the economic hardship instead of generating more revenue to the government.