Min Zhu speaks on the economy
The government is doing the right thing by introducing new tax measures to raise more revenue, the Deputy Managing Director of the International Monetary Fund (IMF), Mr Min Zhu, has told the GRAPHIC BUSINESS.
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He said the varied tax exemptions, subsidies and loopholes in the tax system had cost the economy dearly and the time was ripe to recover those lost opportunities.
“This is not bringing on more taxes, but to say the government is now collecting whatever they should have collected but did not in the past because of exemptions, and loopholes.
“This means they are trying to make the tax system more effective and we are trying to update the right tax system. In this sense, the government is doing the right thing.”
The IMF deputy managing director told the paper during a two-day working visit to Ghana that those tax measures were part of the broad actions under the fiscal consolidation package the Fund had agreed on with the government.
Mr Zhu was in Accra last Monday and met with President John Mahama and other senior leaders, along with business leaders, economists, and representatives of civil society. He also delivered a keynote address at a conference on the importance of Enhanced Data for Better Macro-Policies in Africa.
Tax measures
His visit also helped to deepen consultations and communications with economic actors and stakeholders at a time when the government has introduced a number of tax initiatives aimed at improving revenue mobilisation.
The Income Tax Act, 2015 (Act 896), which became effective on January 1, 2015, is a consolidation of a number of tax laws to remove ambiguities and loopholes in legislations that create unintended tax avoidance opportunities.
It also strengthens enforcement powers of the revenue authorities, reduces the discretion of revenue authorities, while strengthening the appellate system to improve equity of the tax system.
The Energy Sector Levies Act 2015 (Act 899) also went live in the last quarter of last year, with the ECOWAS Common External Tariffs also hitting importers this year. The net effect of these taxes has been increases in the tax incidence, which means the public have to pay more.
Strengthening fiscal regime
“They are few things. Fiscal consolidation is one thing, and a broad tax base, eliminating all the exemptions, increasing energy tariffs at a time when oil prices are way low is another thing. So it’s a good time to increase tariffs and not put too much burden on the consumer’s wealth (disposable income),” Mr Zhu said in an exclusive interview with the GRAPHIC BUSINESS.
The deputy IMF chief explained that many countries, which are Ghana’s peer, had adjusted their petroleum levies in times when prices were falling because the timing was such that the consumer would not feel the pain.
“And Ghana should do this because it needs the revenue and fiscal consolidation. This is the reason for the new tax instruments, which is not new,” he stated.
ECF-supported programme
The IMF has been assisting Ghana with a lot of technical assistance in the past 12 months and hopes to continue with that. This is part of the Extended Credit Facility-supported programme (2015-2017). The Fund is assisting Ghana to ensure fiscal consolidation, macroeconomic stability so as to achieve an overall credibility in the economy to boost investor confidence and donor support.
The programme allows Ghana to overdraw its quota of credit facilities with the IMF, up to US$918 million. Within a year, Ghana has drawn US$228 in two tranches to support its current account.
“We want to generate more revenues so that we can reduce the deficits further. At this stage, I will say we have used fiscal structural reforms which have worked well,” Mr Zhu said.
Market response
On why the IMF-backed programme was not eliciting the much-needed confidence of the market in Ghana’s favour, the IMF deputy chief said the three-year programme was still in the first year of implementation where a solid foundation was being laid for the dividends to start showing.
“This is a three-year programme which is roughly in its first year. We are building the base to move to a much better financial and fiscal outcomes. So if we can continue to do things according to plan and stick to the fiscal discipline, by the end of the year we would be able to stabilise debts. If we are able to stabilise the debts, we will see both inflation and the interest rates heading downwards,” he said.
