Source: newsthemegh.com
The 3 billion bailout agreement between the international monetary fund IMF and the Government of Ghana has drawn criticism from the Institute of Fiscal Studies (IFS) for what it sees as an excessive reliance on taxation for revenue mobilization.
On May 17, Ghana gained executive board clearance from the IMF for a three-year, $3 billion extended loan facility.
According to the IMF, a program is expected to provide the groundwork for faster and more inclusive growth while reestablishing macroeconomic stability and debt sustainability.
Speaking to the media about the program review, Acting Executive Director and Senior Research Fellow of the Institute of Fiscal Studies, Dr. Said Boakye, says that while the institute supports fiscal reforms like the review and subsequent streamlining of statutory funds and a thorough review of the government’s flagship program, the excessive reliance on taxes harms growth and businesses in the long run.
Dr. Boakye emphasized that many of the structural budgetary reforms the program suggests are in line with the suggestions IFS has made to the government over the years.
“We are pleased that the government should perform a thorough evaluation of statutory funds to determine their relevance and streamline them, as this is one of the program’s important structural reform benchmarks. We additionally support the proposed comprehensive evaluation of the government’s flagship programs, he continued, citing several program strengths the Institute had identified.
But the Institute took issue with what it saw as an excessive dependence on taxes to raise money.
Taxes are used excessively in the program’s attempt to improve government revenue mobilization. Numerous taxes were first implemented as part of the program in the 2023 budget, and more are likely to be added as part of the tax-centered revenue plan. IFS cautions that an over reliance on taxes will undoubtedly undermine businesses and industries as well as the economy’s competitiveness and long-term growth potential.
As an alternative to taxation, IFS is advising the government to take action to raise extractive industry revenue.
Given the significant opportunity for Ghana to increase revenue from the extractive sector through active state intervention through the production-sharing system. Dr. Boakye suggested that the medium-term revenue strategy that would be developed as part of the program with the IMF “should include plans to shift from the current predominant royalty-tax revenue model under concession regime in the extractive sector to one based on active state participated/ownership in the sector in the form of joint ventures, or one based on production sharing arrangements.”
According to IFS, more engagement in the extractive industry could improve foreign exchange inflows to stabilize the cedi in addition to raising domestic revenue.