2020 revenue target over-projected – IFS

The Institute of Fiscal Studies (IFS) has said that government’s targeted revenue for 2020 is likely not to be achieved, as it argues the figure is over-projected given the historical performance of revenue under the current administration.

Government has targeted to raise GH¢67.1 billion in total revenue and grants for 2020, which represents 16.8 percent of GDP – up from a projected out-turn of GH¢54.6billion, 15.8 percent of GDP for 2019. In nominal terms, government expects to raise an extra GH¢12.5billion next year.

This is what the IFS, in its post-2020 Budget analysis, says government is being overoptimistic about; taking into consideration the fact that revenue has been increased on average by GH¢7.4billion in the past three years – putting the 2020 target 68 percent higher than the actual performance.

According to the policy think-tank, what makes the situation a serious matter of concern is the fact that government is not sure how it will do this, but is rather banking its hopes on vague non-tax revenue items.

“For the fourth straight year, government’s revenue projections are overoptimistic; and it appears the lessons from the last few years have not been learnt…Moreover, the revenue forecast is predicated mostly on certain one-off but vague non-tax revenue items and repeated promises to pursue efficiency in revenue collection, which did not make a significant impact on revenue mobilisation in the past,” the IFS said.

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The IFS added that with revenue and grants over-projected, coupled with the fact that fiscal policy is now constrained by a deficit rule of 5 percent of GDP which government has pledged to adhere to, capital spending may be sacrificed; thereby slowing growth.

Recommendations

To address the predicted shortfall in revenue, the policy think-tank says the imminent passage of the Tax Exemptions bill will be helpful to address the excesses of the country’s overgenerous exemptions regime.

Also, improving tax compliance by using taxpayer information, integration of data and analytical reporting; reviewing the natural resources fiscal regime to broaden the revenue base; and undertaking a comprehensive review of the tax system to identify the strong and weak segments of the system – in terms of the design, bases, rates, revenue potential relative to actual receipts, and pursuing corrective measures to strengthen tax mobilisation – are key to tackling the revenue shortfalls.

It also called for policy decisions to be made based on research and analysis, as rushed implementation of policies such as slashing benchmark values has negatively impacted revenue generation at the ports.

“The strong negative impact of reducing benchmark import value on international trade taxes, and the recently aborted luxury vehicle levy, expose weaknesses in revenue policy impact analysis by government. We recommend that revenue policy decisions be informed by rigorous cost-benefit analyses to ensure better policymaking and achieve positive results,” the IFS said.

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