Revenue reforms not enough to meet target – IFS

The Institute for Fiscal Studies (IFS) has stated that the measures outlined in the 2019 budget to boost domestic revenue will do little to help government achieve its target of realising GH¢57.8billion in 2019.

The domestic revenue target for next year is about GH¢12billion more than government will be able to collect domestically in tax and non-tax revenues.

The Finance Minister, Ken Ofori-Atta, expressed confidence while presenting the 2019 budget that domestic revenue, which has fallen short of target over the past few years, will be met when a raft of reforms he highlighted are pursued.

The reforms mentioned by the minister include restructuring the Ghana Revenue Authority to make it more efficient and effective; revision of tax exemptions; more emphasis on compliance, as well as plugging revenue leakages, among other measures.

In its analysis of the budget, the policy think-tank however stated that while it commends government for the measures announced to shore-up revenue, given the quantum of domestic revenue government is seeking to raise, the reforms are inadequate.

Addressing the media, Research Fellow at IFS – Leslie Dwight Mensah, said in the light of all the measures to boost taxes, the tax/GDP ratio for 2019 is projected to be 13.1 percent, which is 0.5 percentage points above the projected 2018 figure of 12.6 percent.

“The 2019 ratio is still nowhere near Ghana’s potential or that of its peers. Even more disappointing is the fact that over the medium-term, the tax/GDP ratio is projected to rise marginally to only 13.3 percent in 2020 – and then thereafter retrogress to 12.9 percent in 2021 and further to 11.9 percent in 2022.”

These figures, he said, suggest that Ghana is still not getting it right when it comes to tax collection and that more innovative measures are needed.

“Without sustained effort to this end, not only will long-term fiscal sustainability be elusive, but also economic growth will be seriously compromised while the vision of ‘Ghana beyond aid’ will remain a dream,” Mr. Mensah added.

One of the areas where government needs to turn its attention is the mining sector, an area IFS believes is undertaxed as a result of the overly-generous rebates offered to mining companies in the original tax agreements signed with them.

“The institute is calling for a review of these agreements to bring taxes paid by the companies in line with the current high profits being generated in the industry, and with international standards and practices,” the Research Fellow said.

According to the IFS, the Finance Minister only indicated government’s intention to aggressively enforce existing legislations and regulations to improve tax compliance, as well as plans to capitalise the exemptions granted them into additional government equity in the concessions.

“While these steps are welcome, they still fall short of what IFS has been calling for – viz a complete overhaul of the existing agreements,” Mr. Mensah noted.

From consolidation to expansion

According to IFS, the 2019 budget indicates a policy change from fiscal consolidation to fiscal expansion, which is reflected in the projected increase in the budget deficit to 4.2 percent of GDP from 3.7 percent of GDP in 2018, and follows a period of consolidation in which the deficit was also reduced from 6.5 percent of GDP in 2016 to 4.8 percent in 2017.

“It is important to point out that fiscal expansion has been a common characteristic of the country’s fiscal policy whenever the country leaves an IMF programme, which has normally led to high fiscal deficits and macroeconomic instability.

“The IFS therefore cautions government that it has to be careful not to derail the fiscal gains made in the past two years, since the consequences would be unpalatable.

“In this regard, the IFS recommends that in 2019 government should continue to pursue the expenditure policy it pursued in 2017 and 2018 – i.e. aligning expenditures with actual revenue collections so as to avoid fiscal overruns.”