Introduction of new tax measures causing some anxiety

The soon-to-be presented mid-year budget is contemplating introducing some new tax measures, Deputy Finance Minister Kweku Kwarteng has hinted – though he clarified that the measures will not deviate essentially from the core economic management strategy which basically is a move away from taxation to production.

However, government’s avowed objective of moving Ghana beyond aid entails mobilising revenue domestically to undertake the numerous development plans it has to execute. This is how the Deputy Finance Minister’s thoughts were interpreted.

His statement seemed not to go down too well in certain quarters. For instance, the Head of the Department of Economics at the University of Ghana, Professor Peter Quartey, believes the focus rather should be on widening the tax net to capture the huge informal sector instead of introducing more tax measures.

Although Professor Quartey recognises that revenue shortfalls remain a challenge, he believes it is an area to be tackled by the budge t- but without necessarily raising taxes too high to bridge the revenue deficit. He argues that government will have to pursue broadening the tax net to get more and more people to honour their tax obligations.

To be fair to government, measures are being taken to broaden the net by introducing measures such as the recently-introduced tax stamp and ensuring that every Ghanaian has a tax identification number-TIN. We concede that more needs to be done, since these measures alone will not get us to the utopia we seek.

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As an economist, Professor Quartey argues – and rightfully so – that if taxes are increased, invariably people’s real income will be reduced and their take-home salaries greatly be affected by the measure.

However, government appears to find itself between the devil and the deep blue sea in this situation, since it is purposed to wean the country off foreign donor support and at the same time needs to move the country forward. It has to bridge the infrastructure deficit that we are currently facing, create an enabling environment for the manufacturing sector to thrive – and a host of other challenges that the country is facing today. And to achieve this feat, it needs to raise domestic revenue to meet these expenses without borrowing and increasing the country’s debt profile.

This is where the economic management team’s creativity will be tested. In principle, it is desirable to reduce the tax burden so as to unleash the entrepreneurial class’s creative energy – but then again, revenue needs to be mobilised domestically to undertake development projects. It seems this all about a matter of priority!

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