Erstwhile Minister for Finance, Seth Terkper, has said Ghana needs a programme to aggressively grow its tax revenues as a proportion of Gross Domestic Product (GDP) to able to service its debts as well as have adequate revenues to grow the economy.
According to Mr Terkper, the programme, be a homegrown one or a forced one – referring to a programme from the IMF – ought to be able to grow Ghana’s tax revenues to a minimum of 19 percent or 20 percent of GDP.
Growth in tax revenues he opines, must be coupled with declining government expenditures to help create the needed fiscal space.
“To get out of the current difficulties and for the burden to be lifted, tax revenue ratios should be going up but when you compare tax revenue ratios to expenditures, expenditures never goes down, so the question is are we ever going to get out of this situation and this is why some are saying that there is the need for a programme whether it is homegrown or it is forced on us. We need a programme to address this, because tax revenues shouldn’t be 16 percent of GDP, it should be at least 19 percent or 20 percent.”
“Having a programme to increase tax revenues is the only way to get the additional 3 percent to add to tax revenues so that by keeping expenditure down or lowering expenditure we are able to use revenues to service debts and grow rather than resort to borrowing all the time,” averred Mr Terkper.
According to Finance Minister, Ken Ofori-Atta, Ghana currently, around 52 percent of its total revenues on servicing debts. Close to 100 percent of the country’s tax revenues are used in interest and compensation payments. Ghana’s present total debt stock stands at 76.1 percent of GDP, which translates into Ghs 291 billion in monetary terms.
Tax revenues as a percentage of GDP currently stands at 14.3 percent.
Making the assertions at the IMANI-GIZ Reform Dialogue Series themed Business Taxation and the Road to Ghana’s Post-COVID Economic Recovery, on Wednesday, May 12, Mr Terkper who is the Executive Director of PFM Tax Africa Network, posited that distortions to major tax handles such as the Value Added Tax (VAT) and Corporate Income Tax (CIT) in the coutry’s tax structure should be rectified to revive the buoyancy of the two taxes which would result in increased tax revenues.
“Temporary taxes such as the National Fiscal Stabilisation Levy, ESLA and others have not been repealed because the major tax handles in the country’s tax structure which have not been buoyant and so are not bringing in the revenues they ought to and that is because of some distortions to the tax handles which need to be removed,” he stated.
“Government needs to focus more on its major handles which are VAT and CIT if it wants to immediately raise revenues, others like excise, tariffs, CST do not come in when you want to raise revenue immediately. I am not saying they are not important but when you quickly want to raise revenues say in two years, you focus on the two and correct the distortions to make them more buoyant and the rest of the tax handles you look at them later because as it stands now, they are the lesser components of the tax structure and contribute very little to the tax revenues,” he added.
Speaking further, Mr Terkper advised government against tinkering with tax policies and instruments as doing so usually results in problems for government and also affects revenues to be generated through tax instruments.
He cited the reduction in payable import duties – which is to serve as a protectionist mechanism for local producers – on imported goods as an instance stating that it makes such businesses more competitive.
IMANI-GIZ Reform Dialogue Series focused on how to lessen the total burden of business taxation across multiple sectors, rationalise the tax exemptions regime, and use digitalisation and other initiatives to improve tax compliance.
The dialogue also sought to discuss how Ghana’s theoretical tax frontier can be used as a proper benchmark for evaluating the performance of Ghana’s revenue collection agencies going forward.
