As global economic recovery exhibits a bleak prospect, world economies are forced to devise alternative policies to avoid deeper economic recession. Now a global recession looms.
The global economy projects higher revenue generation and mobilisation, and tighter monetary policies (higher cost of borrowing for African economies) ahead, as inflation becomes more entrenched.
What revenue mobilisation sources are available to the Ghanaian economy, one may ask? The response, of course, would be “many sources”.
The Bank of Ghana (BoG) is playing its role in these trying times with rigorous monetary policy measures.
The fiscal regime, on the other hand, needs more swift and stringent policy measures beyond the expenditure cuts and other measures already implemented as economic woes keep soaring.
The revenue generation and mobilisation aspect of the fiscal regime have many loopholes that can be blocked and many prospects that can be capitalised on.
Turnover tax is a prospect for supplementary revenue generation and mobilisation for the economy.
For enlightenment, turnover tax is a simple tax (at a very low rate tax, compared to most taxes and without deductions) on the gross income of micro-businesses, precisely the informal sector of the economy, that taxes intermediate and capital goods – which makes it different from the Value Added Tax (VAT).
Businesses that pay turnover taxes enjoy exemptions from VAT.
About 80 per cent of the Ghanaian workforce represents the informal sector of the economy. Moreover, the size of Ghana’s informal economy is estimated to be 35.6 per cent, which represents approximately $63 billion in GDP Purchasing Power Parity levels.
What does this mean for Ghana? With the implementation and enforcement of turnover taxes, there is the potential to generate and mobilise more revenues from the informal sector, which adds to the widening the tax base of the economy.
With these statistics, the tax revenue to GDP ratio (14.1%) is expected to increase.
The economy experienced economic growth (5.4%) – in spite of the economic crises – meaning that some businesses (in the informal sector) also recorded some profits.
At the zenith of the coronavirus pandemic, gold prices experienced a persistent rise (an all-time high of $2,074.88) – leading to higher capital gains and supernormal profits.
Much revenue could have been mobilised from the gold supply chain in Ghana since much of the supply chain comes from small-scale miners and artisanal miners, who form part of the informal sector of the economy.
Therefore, roping in the remaining micro-businesses to turnover tax would mean higher revenue generation and mobilisation for the economy.
This will help policy makers provide pro-poor social interventions that will lessen the impact of the economic crisis on Ghanaians.
Delay is not denial, for the Ministry of Finance and the Ghana Revenue Authority to set in motion alternative homegrown policies that have the potential to yield higher revenues for the smooth running of the economy, not to run back to the IMF.
The writer is an MPhil Economics Student, University of Ghana.