25% tax-to-GDP needed to create ‘fiscal comfort’ for government – Dr Opoku-Afari
First Deputy Governor of the Central Bank, Dr Maxwell Opoku-Afari has opined that a tax revenue to Gross Domestic Product (GDP) ratio of 25 percent is needed to give fiscal comfort to government to be able to undertake development projects in the country, particularly development projects under the Sustainable Development Goals (SDGs).
According to the First Deputy Governor, Ghana’s tax revenue to GDP ratio which has averaged 12 percent over the last 2 decades clearly highlights the many inadequacies in the country’s tax mobilisation efforts calling for new domestic revenue mobilisation measures.
“The tax to GDP ratio for Ghana has averaged 12 percent over the past two decades, and is lower than Africa’s average of about 17 percent in 2017. This also falls short of the 25 percent of GDP needed to give fiscal comfort and to finance development projects under the SDGs. This clearly highlights the inadequacy in our tax effort, calling for new measures, in particular, targeting broadening the tax base, upgrading tax policies, and revenue administration systems to mobilize more domestic revenue,” stated Dr Opoku-Afari.
“As our tax to GDP ratio increases towards the Africa average and eventually to the 25 percent, the needed fiscal space to finance our infrastructural deficit will be created. And, this is one of the most sustainable (non-debt-creating) way of financing and closing our infrastructure gap,” he added.
The First Deputy Governor made the above assertion delivering a public lecture at the University of Ghana’s Business School (UGBS) on the topic Re-thinking Development Financing: Macroeconomic management when the Love is gone.
The First Deputy Governor call for an increase in the country’s tax revenue to GDP to 25 percent follows an earlier call made by Economist and Professor of Finance, Godfred Bokpin, who has said Ghana has the potential to raise its tax revenues to as high as 25 percent of GDP.
According to him, this is due to the country’s theoretical tax frontier or tax potential across the various tax handles which is estimated to be between 24 and 25 percent of GDP – approximately Ghs 104 billion.
“Ghana’s theoretical tax frontier or tax potential across the various tax handles is estimated to be between 24-25% approximately Ghs 104 billion instead of the current Ghs 54 billion or 14.3 percent of GDP,” stated Prof. Bokpin at the IMANI-GIZ Dialogue Series themed Business Taxation and the Road to Ghana’s Post-COVID Economic Recovery, some months ago.
Presently, government, according to the Minister for Finance, Ken Ofori-Atta, is seeking to increase tax revenue to GDP from the average figure of between 12-13 percent to 20 percent in the next 2-3 years on the back of government’s aggressive digitalization drive to formalize the economy and increase revenue mobilization.
“So really I know there will be issues of efficiency with regards to tax revenue mobilization, but the pace at which we are going with the digitalization agenda, I think we have these numbers at the right places and within 2 years or so we should be able to raise our tax revenue to 20% of GDP as we want,” said the Finance Minister in a media engagement.
Ghana’s tax revenue to GDP performance in 2020 according to data released by government was 14.7 per cent, this is however, lower than the average tax revenue to GDP rate of 17 per cent on the continent.
Government in the 2021 Budget Statement revealed plans to increase tax revenue as a proportion of GDP to 16.7 per cent this year..
