Ahead of 2022 Budget: IEA calls for resource mobilisation

BY: News Desk Report
Dr John K. Kwakye
Dr John K. Kwakye

The Institute of Economic Affairs (IEA) has stressed the need for an ambitious resource-mobilisation drive to help stem the country’s huge annual revenue losses.

It noted that Ghana had a serious challenge with domestic resource mobilisation, saying that year after year, domestic revenue fell short of budget targets, while the revenue targets themselves were also not sufficiently ambitious, vis-à-vis the country’s needs.

That, it said, had resulted in constant borrowing, which had caused the country’s debt to continue to mount.

These were contained in a statement containing the IEA’s expectations of the 2022 Budget and Economic Policy (BEP) which is scheduled to be presented by the Minister of Finance next month.

The objective of the statement is to encourage the government to take bold and innovative measures to mobilise resources and allocate them judiciously to support long-term sustainable growth capable of delivering sufficiently high living standards to Ghanaians and moving Ghana out of poverty within a generation.

Key priorities

The statement, signed by the IEA’s Director of Research, Dr John K. Kwakye, named resource mobilisation, resource allocation, the public debt, industrialisation and economic transformation, natural resource management and unemployment as its key priorities.

Revenue loss

The IEA indicated that a substantial amount of revenue was lost to the state annually through illicit financial flows, such as trade mis-invoicing, transfer pricing and various forms of money laundering.

It, therefore, advised that a strong investigative and surveillance system be set up to detect and curb such practices, as well as a strong sanctions regime to punish and deter culprits.

Using the 2021 Budget as an example, it said tax revenue and total revenue were projected at GHc56 billion and GHc72 billion, respectively, but those figures were small when juxtaposed against Ghana’s huge economic and social needs.

“We must admit that COVID-19 has adversely affected revenue generation. However, even before COVID-19, our revenue performance was very much similar to that of 2021.

“When we compare our revenue performance with those of our middle-income peers (MIP), we see that we significantly fall short. The average tax revenue and total revenue ratios for Ghana compare unfavourably with our MIPs’ average of about 25 and 30 per cent, respectively,” the statement said.

It noted that Ghana’s personal income tax, corporate income tax and indirect tax rates were relatively high, and, therefore, the relatively low revenue effort could not be blamed on the tax rates.

It pointed out that that problem lay with the huge tax revenue losses that the country made through various channels, along with inadequate coverage of the tax system and administrative lapses.

Tax Exemption Bill

The IEA also urged the government to back its words with action and push for the passage of the Tax Exemption Bill to plug a big hole in the tax system.

It said the country reportedly lost revenue annually in excess of US$1 billion in the form of tax exemptions.

It indicated that tax exemptions granted in the form of investment incentives and to charity organisations were clearly justified; however, it was difficult to justify exemptions granted on political and protocol grounds, which were subject to considerable abuse.

Recognising the need to streamline the exemptions, it said the government submitted the bill to Parliament in 2019 but it lacked the required political will to pass it.

The institute also noted that inefficiencies persisted in the tax administration, including collection delays, inadequate taxpayer coverage and high collection costs, which resulted in revenue losses to the state.

For that reason, it asked the government to expand automation and digitalisation to help improve efficiency in tax administration and positively impact tax revenue.

Training programmes

The IEA further advised that state employment schemes must pay more attention to training programmes that capacitated beneficiaries to be employable and also to be able to establish their own businesses.

Additionally, it said the state must ensure balanced growth in the economy and support the private sector to grow to create more jobs by addressing the numerous obstacles facing the sector.

Although the government had introduced a number of employment schemes targeted at the youth, the institute noted that skills training components of the schemes were particularly important, as they promised to equip the youth to be more suited for the labour market, while they also increased their chances of securing jobs.

The training programmes, it said, should also equip the unemployed to be able to set up their own enterprises, as the labour market could not absorb them all.

“As we know, the COVID-19 pandemic has jolted the economy from its previous stability and growth path. Therefore, the 2022 BEP, just like that of 2021, is expected to continue the process of restoring the economy to the pre-pandemic path. However, beyond this objective, the budget must also deal with other policy priorities,” the IEA said.