Ghana’s tax structure distorted and exaggerated – Terkper

Former Finance Minister, Seth Terkper, has described Ghana’s tax structure as getting increasingly distorted and exaggerated in terms of its potential to contribute towards resolving the current critical fiscal solutions.

According to him, the phenomenon has bedeviled the country, thus pushing the Ghanaian economy into difficult situation.

He therefore called for a streamlining of the tax structure in the country to ensure its objectives is achieved.

Speaking at the recent PFM Tax Africa dialogue on Ghana’s Economic Outlook for 2022, Mr. Terkper also said the 2022 revenue target of about ¢100.5 billion is overambitious, adding “the overstatement of revenue and understatement of expenditure implies that the deficit, borrowing and debt could be higher than shown in the budget.”

He also said borrowing to repay debt means net increase in debt accumulation as a result of a lack of commitment to using the Sinking Fund mechanism established by the previous administration to slow down the debt rate, adding “it seems “rate of change” of debt accumulation will not tapper and start declining soon”.

Further, as happened with the non-issuance of the planned $2 billion in 2021, the government is unlikely to access the international bond market in 2022. This is because of the perceived risk about the Ghanaian economy which has seen recent downgrades and triggered high premium demand from investors.

Due to this, the government had increased its borrowing on the domestic market.

The former Finance Minister said “reliance on a relatively shallow domestic market will be costly as high interest rate and crowding are inevitable”.

Again, he expressed unhappiness that the government debt may weigh heavily on the Central Bank’s balance sheet, which, in essence, is “living the irony of government fiscal bailout” with a loose monetary policy or deficit financing, as happened in 2020.

He further noted that there is hard times ahead as lack of market access with fiscal pressure from the high levels of compensation, interest payment (debt service), deficit, borrowing and debt, pointing to general rise in interest rate rise from the crowding out effect.

 E-Levy will not address revenue shortfalls

 The projected revenue from the Electronic Transaction Levy is ¢6.96 billion, representing 7% of the projected total revenue of over ¢100 billion.

Mr. Terkper described the situation as disturbing, the extent to which the levy could be imposed on savings, loans and other non-conventional sources of taxation that are merely placed in e-wallets and bank accounts—and without recourse to an offset mechanism for businesses that could lead to extreme “cascading”.

Mr. Terkper said 2022 will be the 3rd year running that despite this ambitious revenue target, total revenue does not fully cover compensation and interest.

He emphasized the urgency of working expeditiously on a comprehensive fiscal strategy