SMEs Fear Collapse Under IMF Bailout Programme

Some Small and Medium Scale Enterprises (SMEs) in the country feel threatened by some of the conditionalities under the IMF bailout programme.

The bailout programme, among its conditionalities, requires that a new tax policy be enacted for SMEs -- and the SMEs fear this will increase their tax obligations.

Speaking to the B&FT, some SMEs said any attempts to increase taxes for businesses in the sector will have negative consequences for all, especially coming at a time firms are going through serious economic challenges including erratic power supply.

Yaganoma Baatuolkuu, Manager of Wanjo -- an SME that produces beverages from indigenous non-cash crops -- told the B&FT that any tax increment will come as a big blow to her business, considering the power challenges she is already grappling with.

“The power crisis has reduced my revenue drastically. People who used to buy four gallons of my drink are now buying one because they complain it gets spoiled when they store it in the fridge because of ‘dumsor’.

“So should taxes be increased further, then it is going to be a big blow to my business because I cannot readily increase the prices of my drinks. The customers will not patronise because of our current economic situation. People do not buy as they should,” she said.

The CEO of Booomers International Ltd., a manufacturer of bamboo bicycles, also shared his sentiments with the B&FT and described the move as a disaster.

“I think this is going to create a lot of problems in the economy. Government is supposed to cut down on direct employment under the bailout programme, so government should rather be supporting SMEs to employ people. The increment in taxes for SMEs will cripple and suffocate us. This will be a disaster for the economy,” he said.

 “I think government should rather give us tax exemptions instead of increasing our taxes,” he said.
Ms. Francesca Brenda Opoku, CEO of Solutions Oasis, an SME that is into making beauty products, said that any tax policy that brings about tax increases for SMEs will eventually lead to the collapse of such companies.

“Conditions in the country are currently bad for us. On an average day you can hardly make profit after taking care of your expenses. If increasing the tax will eventually work to our benefit, then that will be fine. However, knowing our country very well, that will not be the case. So the tax net should be rather widened instead of being increased,” she said.

Meanwhile, expert opinion on the bailout programme affirms what the SMEs are saying.
GN Research in its 2015 first-quarter economic report said the central bank’s pursuit of a tight monetary policy as prescribed by the Fund, as well as increasing interest rates, will stifle productive investments and make saving into short-run financial assets preferable to long-term productive assets.

According to the forecast in the 15-page document, “The cost of credit to the private sector will increase and attract mostly risky borrowers with an equally high probability of default.  Many businesses are likely to shut down due to low demand for goods and services, and some workers will lose their jobs in both the private and public sectors”.

Source: B&FT