2020 Budget to reform tax structure

The much-anticipated 2020 Budget which will be laid before Parliament today is expected to be heavy on tax reforms meant to create the platform to further enhance private sector growth.

As a result, the budget will review the whole tax structure to create the right environment that will enable players within the private sector to thrive and create the needed jobs for the mass of the people.

The budget, the fourth under President Nana Addo Dankwa Akufo-Addo since he assumed the reins of government on January 7, 2017, will seek to consolidate the gains made in the last three years by his government.

A source close to the Finance Ministry explained the rationale for the new direction to the Daily Graphic, saying that the era when reforms of the tax structure were carried out in bits was over because that style did not yield the expected results.

Subsequently, it said, the new direction would help the government meet its objective of providing an improved environment for the private sector, the engine of growth.

The budget statement will also see the revision of the present tax exemptions regime, a regime which has cost the country about GH¢10 billion per annum averagely in the last few years.

Considering the loud noise surrounding the granting of tax exemptions to companies, mostly foreign, the Finance Minister is expected to review some of them in order to reduce the country’s  over-reliance on foreign support and give meaning to the President’s dream of a Ghana Beyond Aid.

Among the areas to be considered, according to the source, was a drastic review of the benchmark values policy which halved the base of taxation for importers.

The move is premised on the fact that the policy is not yielding the needed results. Domestic manufacturers have vehemently complained that the policy is counter-productive.

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Tax structure review

Giving further insights into the review of the entire tax structure, the source said the budget would be a complete overhaul of the country’s entire tax structure.

For many years, the government has not been able to meet its revenue targets. For instance, total revenue and grants in the first half of the year amounted to GH¢22.77 billion, compared with a programmed target of GH¢26.96 billion, resulting in a shortfall of 15.5 per cent.

The worrying phenomenon has sent shivers down the spine of many economic actors who fear that, from the trend, it is likely that the annual target of GH¢58.8 billion will be missed.

The tax measures are expected to enable the government to meet its revenue targets to help balance its expenditure for the year.

Election-year expenditure

The team from the IMF, during its last visit in September, told the government that maintaining fiscal discipline in the run-up to the 2020 elections would be critical to safeguarding the macroeconomic gains that had been achieved so far.

It advised the government to adopt an appropriately tight budget to limit financing needs, contain debt build-up and support the external position.

The 2020 Budget is, therefore, expected to focus on managing election-year expenditures and sustaining the macroeconomic gains that have been achieved, in fulfilment of the Finance Minister’s earlier hint that the 2020 Budget would focus on sustaining the gains that had been made over the last three years.

Update on revenue measures

The budget is also expected to give an update on the revenue measures that were introduced in the 2019 Mid Year budget review.

They include a review of the Energy Sector Levies Act, 2015 (Act 899) to consolidate all the revenue legislation relating to the energy sector into one law and the planned upward adjustment in the Road Fund Levy, the Energy Debt Recovery Levy and the Price Stabilisation and Recovery Levy to bring the ratios close to 21 per cent.

The budget is also expected to give an update on the upward adjustment in the Communication Service Tax to nine per cent, which took effect from October 1, this year.

What economists expect

In an interview with the Daily Graphic ahead of the budget presentation, a Professor of Economics at the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana, Professor Peter Quartey, said one area of great concern was the numerous tax exemptions in the country.

“I think the government could raise more revenues from that side because at the moment we are not meeting our revenue targets and so there is the need to take a critical look at the regime and make sure we rationalise the system.

“It is estimated that we lost about $2.4 billion in 2018, and that is about GH¢13 billion, through tax exemptions. Why do we give so much in tax exemptions and go and borrow to meet our revenue shortfalls?” he asked rhetorically.

Review of flagship programmes

There is strong suspicion that 2020 being an election year, the government will be tempted to beef up its social intervention programmes, a development which may create problems for the economy.

To avoid such a trap, Prof. Quartey called for a review of some of the government’s flagship programmes.

“We could take a critical look at them and see how much we are spending on them and whether we are getting value for money. If not, then some adjustment could be made in terms of how much we are spending on them.

“NABCO, for instance, is a good concept, but we are paying GH¢700 per trainee. If you multiply that by 100,000, we are close to GH¢8 billion a year. Are we getting the most out of that?” he asked.

Consolidating gains

For his part, an Associate Professor of Economics at the University of Ghana Business School, Professor Eric Osei Assibey, urged the government to deepen the macroeconomic gains and ensure that the country did not find itself in the political business cycle where the government spent without recourse to revenue.

“If there is the need to cut expenditure or do some expenditure re-allocation, it has to be done and the government must not spend just because it’s an election year, without being mindful of revenue,” he said, stressing that “expenditure must be matched with revenue”.

Roads, other areas

With many complaints about bad roads in the country, the Finance Minister is also expected to outline a comprehensive programme of action that will see many bad roads fixed and new ones constructed.

The large expenditure on roads may be borne by the first tranche of the Synohydro contract funds that have been released.

The much-anticipated 2020 Budget which will be laid before Parliament today is expected to be heavy on tax reforms meant to create the platform to further enhance private sector growth.

As a result, the budget will review the whole tax structure to create the right environment that will enable players within the private sector to thrive and create the needed jobs for the mass of the people.

The budget, the fourth under President Nana Addo Dankwa Akufo-Addo since he assumed the reins of government on January 7, 2017, will seek to consolidate the gains made in the last three years by his government.

A source close to the Finance Ministry explained the rationale for the new direction to the Daily Graphic, saying that the era when reforms of the tax structure were carried out in bits was over because that style did not yield the expected results.

Subsequently, it said, the new direction would help the government meet its objective of providing an improved environment for the private sector, the engine of growth.

The budget statement will also see the revision of the present tax exemptions regime, a regime which has cost the country about GH¢10 billion per annum averagely in the last few years.

Considering the loud noise surrounding the granting of tax exemptions to companies, mostly foreign, the Finance Minister is expected to review some of them in order to reduce the country’s  over-reliance on foreign support and give meaning to the President’s dream of a Ghana Beyond Aid.

Among the areas to be considered, according to the source, was a drastic review of the benchmark values policy which halved the base of taxation for importers.

The move is premised on the fact that the policy is not yielding the needed results. Domestic manufacturers have vehemently complained that the policy is counter-productive.

Tax structure review

Giving further insights into the review of the entire tax structure, the source said the budget would be a complete overhaul of the country’s entire tax structure.

For many years, the government has not been able to meet its revenue targets. For instance, total revenue and grants in the first half of the year amounted to GH¢22.77 billion, compared with a programmed target of GH¢26.96 billion, resulting in a shortfall of 15.5 per cent.

The worrying phenomenon has sent shivers down the spine of many economic actors who fear that, from the trend, it is likely that the annual target of GH¢58.8 billion will be missed.

The tax measures are expected to enable the government to meet its revenue targets to help balance its expenditure for the year.

Election-year expenditure

The team from the IMF, during its last visit in September, told the government that maintaining fiscal discipline in the run-up to the 2020 elections would be critical to safeguarding the macroeconomic gains that had been achieved so far.

It advised the government to adopt an appropriately tight budget to limit financing needs, contain debt build-up and support the external position.

The 2020 Budget is, therefore, expected to focus on managing election-year expenditures and sustaining the macroeconomic gains that have been achieved, in fulfilment of the Finance Minister’s earlier hint that the 2020 Budget would focus on sustaining the gains that had been made over the last three years.

Update on revenue measures

The budget is also expected to give an update on the revenue measures that were introduced in the 2019 Mid Year budget review.

They include a review of the Energy Sector Levies Act, 2015 (Act 899) to consolidate all the revenue legislation relating to the energy sector into one law and the planned upward adjustment in the Road Fund Levy, the Energy Debt Recovery Levy and the Price Stabilisation and Recovery Levy to bring the ratios close to 21 per cent.

The budget is also expected to give an update on the upward adjustment in the Communication Service Tax to nine per cent, which took effect from October 1, this year.

What economists expect

In an interview with the Daily Graphic ahead of the budget presentation, a Professor of Economics at the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana, Professor Peter Quartey, said one area of great concern was the numerous tax exemptions in the country.

“I think the government could raise more revenues from that side because at the moment we are not meeting our revenue targets and so there is the need to take a critical look at the regime and make sure we rationalise the system.

“It is estimated that we lost about $2.4 billion in 2018, and that is about GH¢13 billion, through tax exemptions. Why do we give so much in tax exemptions and go and borrow to meet our revenue shortfalls?” he asked rhetorically.

Review of flagship programmes

There is strong suspicion that 2020 being an election year, the government will be tempted to beef up its social intervention programmes, a development which may create problems for the economy.

To avoid such a trap, Prof. Quartey called for a review of some of the government’s flagship programmes.

“We could take a critical look at them and see how much we are spending on them and whether we are getting value for money. If not, then some adjustment could be made in terms of how much we are spending on them.

“NABCO, for instance, is a good concept, but we are paying GH¢700 per trainee. If you multiply that by 100,000, we are close to GH¢8 billion a year. Are we getting the most out of that?” he asked.

Consolidating gains

For his part, an Associate Professor of Economics at the University of Ghana Business School, Professor Eric Osei Assibey, urged the government to deepen the macroeconomic gains and ensure that the country did not find itself in the political business cycle where the government spent without recourse to revenue.

“If there is the need to cut expenditure or do some expenditure re-allocation, it has to be done and the government must not spend just because it’s an election year, without being mindful of revenue,” he said, stressing that “expenditure must be matched with revenue”.

Roads, other areas

With many complaints about bad roads in the country, the Finance Minister is also expected to outline a comprehensive programme of action that will see many bad roads fixed and new ones constructed.

The large expenditure on roads may be borne by the first tranche of the Synohydro contract funds that have been released.