President John Dramani Mahama’s recent policy pronouncements, promising to abolish the controversial E-Levy, Bet Tax, and Port Dues within the next 100 days, have ignited a fierce debate about their potential impact on Ghana’s economy. While these proposed reforms aim to ease the financial burden on citizens and businesses, a new analysis from the Ghana International Trad and Finance(GITFIC) reveals the significant trade-offs involved.
The E-Levy, a 1.75% tax on electronic transactions, has been a contentious issue since its implementation in 2022. While initially projected to generate GHS 6.9 billion annually, it yielded only around GHS 3 billion in its first year, representing approximately 2.5% of Ghana’s annual revenue. Abolishing it would create a substantial revenue gap, potentially hindering funding for essential public services. Mahama’s strategy hinges on the assumption that increased disposable income would stimulate consumer spending, generating more revenue through VAT and other indirect taxes. However, GITFIC’s analysis emphasizes the need for careful modeling to determine if this indirect revenue can offset the direct loss from the E-Levy. The report also raises questions about the applicability of the Laffer Curve theory in the Ghanaian context.
The Bet Tax, implemented in August 2023, is projected to generate GHS 1.7 billion annually. Its removal, while potentially aligning with a pro-youth agenda, raises concerns about increased gambling activity and its associated social problems. GITFIC recommends implementing stricter regulations and support services to mitigate these risks.
The abolition of Some Port Dues, which contribute GHS 4 billion to government revenue, is intended to boost Ghana’s competitiveness within the AfCFTA. GITFIC suggests a phased reduction of these dues to mitigate the immediate revenue shortfall and allow for careful assessment of the impact on port infrastructure and operations.
GIFTIC’s report highlights the potential benefits of these reforms, such as increased disposable income and enhanced competitiveness, but warns of the significant risks to fiscal sustainability. The report offers several policy recommendations to mitigate these risks:
- Improved Revenue Collection: Targeting untapped sectors like the informal economy through digitization and enhanced enforcement.
- Economic Diversification: Promoting growth in sectors like agriculture, manufacturing, and technology to create new revenue streams.
- Trade Facilitation: Implementing strategies to streamline customs processes and encourage private investment in port management.
- Fiscal Prudence: Seeking new revenue sources and rationalizing expenditure to offset revenue losses without exacerbating the fiscal deficit.
- Public-Private Partnerships: Leveraging PPPs to fund infrastructure projects and reduce reliance on direct government revenue.
- Stakeholder Engagement: Involving citizens, businesses, and international partners in the reform process to build trust and support.
GITFIC concludes that the success of Mahama’s proposed reforms depends on the government’s ability to implement effective complementary policies. A phased approach, combined with continuous monitoring and evaluation, will be crucial to ensuring sustainable and inclusive economic growth in Ghana. The report underscores that while the proposed tax cuts offer the potential for positive change, they represent a significant gamble that requires careful management to avoid unintended consequences.