In view of the country’s rising debt mostly on the back of borrowings from the international capital market (ICM), it has become critical for the government to consider diversifying its borrowing sources, Deloitte, Ghana, has advised.
Subsequently, the international accounting and audit firm has described as laudable, the government’s decision to temporarily suspend access to debt from ICMs and resort to domestic borrowing through syndicated loans from commercial banks in the country.
In doing so, Deloitte urged the government to work at ensuring that the loans taken came at competitive interest rates in order not to aggravate the rising interest payment.
The country’s debt is almost at GH¢400 billion (78 per cent of Gross Domestic Product). Government interest expenses are forecast to account for about 37.3 per cent of revenue in 2022. The rising interest payment has the potential of limiting funds for other critical sectors such as capital expenditure for infrastructure.
Deloitte made the suggestion in its annual report released late last month on the 2022 Budget and Economic Policy of the government.
“Borrowing from the ICMs is relatively expensive and has led to increases in government expenditure on interest payments.
The government interest expenses are forecast to account for about 37.3 per cent of revenue in 2022. The rising interest payment has the potential of limiting funds for other critical sectors such as capital expenditure for infrastructure,” it said in the report.
Against this background, Deloitte, therefore, said “the decision by the government to diversify the debt portfolio and access syndicated loans from commercial banks is laudable. However, the government should negotiate competitive interest rate on these facilities in order to reduce the rising interest payment.
With regard to the country’s revenue mobilisation efforts, particularly concerning the electronic levy (E-Levy), Deloitte in its report said: “This policy proposal, we believe, is driven by the increase in the volume of financial transactions conducted through digital platforms, especially mobile money services which has enhanced the financial inclusion drive.
Notwithstanding the opportunities this sub-sector presents for the government to rake in the much-needed revenue, it is imperative for it to assess the impact, both intended and unintended, of implementing the E-levy on retail electronic payments and overall financial inclusion in the country.”
The audit firm said studies had shown that the implementation of similar digital tax schemes in other countries, for instance Kenya, might not widen the tax base significantly but rather “reverse the gains on retail electronic payments and financial inclusion”.
It cautioned that the imposition of the E-levy has the potential of discouraging the use of electronic payment systems while encouraging a cash preference and financial exclusion, especially for low income earners.
“We recommend that as government works on designing an implementation framework for the E-levy, it also draws on lessons from the challenges other countries have encountered with the imposition of similar digital levies.
More importantly, it is our view that the government explores other means of roping in the informal sector into the tax net which targets actual income generated by the informal sector players.”
It said if at all the E-levy was implemented, the government could consider making the policy a temporary measure to avoid the erosion of gains made in the financial inclusion policy.
No concensus on E-levy
The issue about the E-levy since the budget was laid before Parliament on November 17, has generated a lot of mixed reactions albeit many prefer it scrapped.
In the House, members are sharply divided creating leadership crisis in the lawmaking body.
As of today, it is still not clear whether the 2022 Budget has been passed or rejected because the two opposing groups in the House have taken very entrenched positions.
Last Monday, the Finance Minister, at a news conference, said the government had not taken any decision yet on the revision of the 1.75 per cent E-levy.
Responding to media speculations on a review of the E-levy, Mr Ken Ofori-Atta, said the government was still engaging the Minority and other relevant stakeholders and had not yet made a decision on reviewing the levy.
“The E-levy is still 1.75 per cent. We are in serious consultation, keeping clear about the fiscal implications of what it will mean if we should reduce it.
Having regard to its serious fiscal implications, we will continue our consultations with the Minority and other relevant stakeholders with the view to achieving consensus and reverting to Parliament in the shortest possible time,” he stated.