‘Avoid Excessive Reliance on Taxes to Grow Revenue’
The Institute for Fiscal Studies (IFS) has cautioned the government against excessive reliance on taxes to mobilize revenue.
It said that a tax-centered approach to revenue mobilisation would hurt businesses and industries, and ultimately harm the economy’s competitiveness and long-term growth potential of the economy.
“Given the great potential for Ghana to expand revenue generation from the extractive sector through active state participation or the use of production sharing arrangement, the government should avoid the excessive reliance on taxes to grow revenue,” said Dr Said Boakye, the Acting Executive Director of IFS at a press conference.
He said that poor government expenditure management due to excessive revenue earmarking, high spending on compensation, and growing debt service expenditure has compounded the country’s fiscal situation.
“The government of Ghana’s budget had become increasingly inflexible or rigid, since, by their nature, these expenditure items are difficult to cut,” he said.
He highlighted that although about its peers, Ghana’s public revenue generation is low and should be expanded, a tax-centred approach is not the way to go.
According to the IFS, the revenue gap between Ghana and its peers is largely due to the country’s relatively poor revenue generation from the extractive sector.
The sector it noted was managed by multinationals through concession arrangements that yield paltry revenue to the state, while the multinationals repatriate billions of dollars in resource rents.
Dr. Boakye suggested that the medium-term revenue strategy which is to be prepared as part of the IMF programme should include plans to change from the present dominant royalty-tax revenue model under the concession regime in the extractive sector to one based on active state participation/ownership in the sector in the form of joint ventures, or one based on production sharing arrangements.
He said that greater state participation (or production sharing regime) in the extractive sector would not only greatly increase domestic revenue generation, bringing Ghana closer to the performance of its peers, but would also give the country greater control over earnings from extractive exports.