Efficient tax and  revenue system key
Prof John Gasti

2024 Budget Statement: Efficient tax and revenue system key

THE Dean of Business School of the University of Cape Coast (UCC), Professor John Gatsi, says the 2024 budget statement should clearly provide a road map of how government intends to mobilise and manage revenue efficiently as the country strives to overcome its current economic challenges.

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Prof. Gatsi, however, was of the opinion that such a policy should not impose additional taxes, suggesting that improving tax collections, reducing the incidence of tax evasion and promoting economic growth could help the country maximise its tax revenue.

Sharing his views on his expectations of the 2024 Budget statement in an interview with the Daily Graphic, the Economist lecturer, said “revenue mobilisation is a concern and one is expecting that all efforts will be put in place to come out with strategies that will enhance revenue. We may not need extra taxes but we need to make the revenue collection process more efficient and comfortable for people to enhance revenue,” he said. 

Following a significant cut in government expenditure and expected improvement in revenue, the International Monetary Fund (IMF) is projecting a significant reduction in Ghana’s fiscal deficit to Gross Domestic Product (GDP) in 2023 and the next five years.

According to its October 2023 Fiscal Monitor, the overall fiscal deficit is expected to take a nose dive in 2023, 2025, 2026, 2027 and 2028.

In 2023, the fiscal deficit-to-GDP ratio is estimated at 4.6 per cent as against 11.2 per cent in 2022.  Before then in 2020 and 2021, the fiscal deficit to GDP was pegged at 17.4 per cent and 12.0 per cent respectively.

It is expected to fall to 4.1 per cent of GDP in 2024 and subsequently to 3.5 per cent of GDP in 2025 and 3.0 per cent of GDP in 2026. It will again decline to 2.6 per cent of GDP in 2027 and 2.8 per cent of GDP in 2028.

The figures indicate that the government adopted a tight budget spending in 2023 as captured by the IMF Programme which stresses more on revenue mobilisation.

 
Collection efficiency

However, Prof. Gatsi explained that enhancing revenue mobilisation does not mean piling new taxes but enhancing the efficiency of the collection process. 

That, he said, was a crucial step to help increase revenue collection for the country’s developmental projects.

 
Prioritise commercial agriculture 

Additionally, he said exploring alternative sources of revenue, such as commercial agriculture, can also create employment and contribute to the country's financial stability.

Therefore, he said the budget should review agriculture policy to make commercial agriculture more viable to attract people to invest.

“Most of the food that we eat is imported, which affects our growth and currency, so we need to give priority to agriculture just as we give priority to other sectors. That is what we should be doing now, we need to look at our agriculture policy and review them. Those that are not effective, we must find strategies to make them more effective,” Prof. Gatsi said.

Enhancing tax revenue

In April this year, the government introduced three new taxes aimed at generating approximately 4 billion Ghana Cedis annually to boost domestic revenue mobilisation.

The bills, which include the Excise Duty Amendment Bill 2022, the Growth and Sustainability Levy Bill 2022, the Ghana Revenue Authority Bill 2022, and the Income Tax Amendment Bill 2022, are also essential for facilitating the Board Approval for the $3 billion International Monetary Fund (IMF) Programme staff-level agreement.

The measures were part of the government's efforts to meet the IMF's criteria to qualify for a bailout. They were passed by 136-137 majority decision.

However, industry players including Ghana Union of Traders Association (GUTA), Association of Ghana Industries (AGI) and the Ghana National Chamber of Commerce & Industry (GNCCI) called on the government to reconsider its decision to introduce three new taxes since they would bring more burden on the business community which is already in distress.

A pre-budget survey by auditing and accounting firm, KPMG, in collaboration with the United Nations Development Programme (UNDP) shows that businesses are of the view that abolishing some of these taxes or lowering the tax rates may initially reduce tax revenue, but likely to positively impact consumption and expenditure and thus, ultimately enhancing tax revenue. 

To help lessen the fiscal impact of reviewing some of these taxes, the businesses advised the government to put in much efforts in widening the tax net, rationalise its expenditure and review some of its flagship programmes such as the free SHS. 

Analysts also observed that government hands were tied as its programme with the IMF was heavily tilted towards revenue mobilisation as a key component in accessing the IMF bailout.

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IMF support

Ghana’s economy has been battling with some challenges in the last two years, a situation which prompted the government to approach the International Monetary Fund for a US$3 billion support programme. 

In May 2023, the IMF Executive Board approved a US$3 Billion Extended Credit Facility Arrangement for Ghana.

The programme, based on the government’s Post COVID-19 Programme for Economic Growth (PC-PEG), aims to restore macroeconomic stability and debt sustainability and includes wide-ranging reforms to build resilience and lay the foundation for stronger and more inclusive growth.

The programme also seeks to help Ghana overcome immediate policy and financing challenges, including through its catalytic effect in mobilising external financing from development partners and providing a framework for the successful completion of the ongoing debt restructuring.

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Background and context

Large external shocks in recent years have exacerbated Ghana’s pre-existing fiscal and debt vulnerabilities, resulting in a loss of international market access, increasingly constrained domestic financing, and reliance on monetary financing of the government. 

The decrease in international reserves, cedi depreciation, rising inflation and sinking domestic investor confidence, eventually triggered a severe crisis which led to the government taking bold steps to tackle these deep challenges, including accelerating fiscal adjustment. 

It also launched a comprehensive debt restructuring to address severe financing constraints and the unsustainable public debt. 

Key policies under the authorities’ programme include large and front loaded fiscal consolidation to bring public finances back on a sustainable path, complemented by efforts to protect the vulnerable. 

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The adjustment effort will be supported by ambitious structural reforms in the areas of tax policy, revenue administration, and public financial management, as well as steps to address weaknesses in the energy and cocoa sectors. 

Appropriately tight monetary and flexible exchange rate policies will help bring inflation back to single digits and rebuild international reserves. The programme also has a strong focus on preserving financial stability and encouraging private investment and growth.

Government is currently waiting for Executive approval from the IMF for the second tranche of US$ 600 million as part of the GH$3 billion bailout. Government has already received an initial US$ 900 million in the early parts of the year.

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