The International Monetary Fund (IMF) has expressed its full support for tax increments introduced by government in the 2021 Budget Statement.
According to the Bretton Wood Institution, increased revenues obtained through tax increments by government will serve as an alternative to borrowing funds from international debt markets to be used in the fight against the Covid-19 pandemic and facilitate the quick recovery of the economy.
A move away from taking on more loans, the Fund further noted will prevent Ghana’s debt stock-to-GDP from further rising and eventually plunging into debt-distress given the fact that the country is already at risk of high-debt-distress.
The IMF, according to its April 2021 Regional Economic Outlook report, revealed that 17 countries on the Continent are either at high risk of debt distress or already in debt distress as of the end of 2020, a situation that will be further exacerbated with the continuous lingering of the deadly coronavirus pandemic.
“Depending on country circumstances, authorities looking to expand their fiscal space can look to tax policies that increase the progressivity and coverage of personal income taxes; eliminate distortionary corporate income tax exemptions and incentives; increase the role of property and environmental taxes; and broaden the value-added tax (VAT) base.”
“The last may offer significant scope for improvement in sub-Saharan Africa’s case, as the region’s VAT efficiency (the ratio between actual VAT revenues and theoretical revenue received if all consumption were charged at the standard rate) is only about 35 percent, compared with a global average of more than 50 percent. Increasing regional efficiency to the global average would boost revenues by about 2 percent of GDP,” stated the IMF in the report.
Government, on the back of widening budget fiscal deficits (11.7 percent at end-2020) and growing public debt (76 percent of GDP), in the 2021 Budget Statement introduced some new taxes aimed at correcting or closing the existing fiscal deficit gap.
Government, with the introduction of the new taxes – 1% COVID-19 Health Levy, Ghs 0.10p Sanitation and Pollution Levy (SPL), Ghs 0.20 Energy Sector Levies Act (ESLA), additional 5% National Fiscal Stabilisation Levy – is seeking to raise some Ghs 72 billion in revenue this year.
Despite the projected increment in total revenue on the back of increased taxes, revenue mobilised by government will still be insufficient to significantly bridge the deficit gap and cover fully, government’s expenditure totalling Ghs 113 billion for this year.
In view of that, government intends to borrow the difference of Ghs 41 billion this year to support the budget.
