Domestic tax revenue hits GH¢31bn in first 10 mths of pandemic year

Aggrieved customers of First Fund demand locked up funds

Even though emergence of the coronavirus pandemic impacted every productive sector of the country’s economy, data show revenue generated from domestic taxes (non-oil) from January to October 2019 performed better than same period the previous year when there was no pandemic.

The Statistical Bulletin report (October 2020) shows that domestic tax revenue (non-oil) – which includes revenue generated from Customs (CEPS), direct taxes (IRS) and indirect taxes (VAT) – recorded more than GH¢31.3billion in October 2020, compared with the GH¢29.3billion recorded same period last year – representing a 6.6 percentage points increase.

When the analysis is narrowed down to capture effects of the pandemic, it is observed that with the exception of VAT the other two domestic tax revenue generation activities – Customs and direct tax – saw increases in their values during the second quarter when restrictions on movement of persons and closure of some businesses were partially lifted.

To be specific, Customs receipts recorded GH¢2.6billion in second-quarter 2020 compared with GH¢1.7billion in first-quarter; and direct taxes also recorded GH¢4.4-billion in seconded-quarter compared with GH¢3.7bn the previous quarter. However, that could not be said of indirect taxes (VAT), as revenue declined to GH¢1.9billion from the GH¢2.1billion recorded in first-quarter.

But in the third-quarter VAT receipts bounced back to record GH¢2.2-billion, obviously due to increased economic activity in the country following the lifting of all restrictions. However, direct tax revenue saw a marginal decline in the third-quarter, recording GH¢4.3billion. With regard to receipts from Customs, they recorded increments in revenue for all three quarters under discussion.

This takes domestic tax revenue generated from all three sectors to GH¢27.1billion as of third-quarter 2020, with the October 2020 figure taking the total to GH¢31.3billion for the first 10 months of the pandemic year.

Revenue forecast and the pandemic

Government, in the mid-year budget, revised total non-oil tax revenue to GH¢40.7billion (10.6 percent of GDP), which is GH¢4.3billion lower than the pre-pandemic budget target of GH¢45billion. The revision, according to the budget, was on account of a significant shortfall in import duties as well as shortfalls in both the domestic direct and indirect taxes.

Total revenue and grants have also been revised to GH¢53.7billion (13.9 percent of GDP) in 2020, representing a 20 percent decrease over the original 2020 Budget target of GH¢67.1billion.

All these point to the impact the pandemic had on economic activities during the first wave, which subsequently sent the country into its first recession in nearly four decades.

According to GSS latest GDP data, the economy contracted again in the third quarter by 1.1 percent, from the -3.2 percent recorded in second-quarter 2020; thereby sending it into recession and breaking a 37 year-long growth cycle – as the last recession was recorded in 1983, a year mainly characterised by political instability, hunger and other economic unrest.

The third quarter’s contraction is attributed largely to the hospitality sector, as the hotel and restaurants industry saw a contraction of 62.1 percent. This was followed by a 16.9 percent contraction in the mining and quarrying sector.

The COVID-19 Local Economies Tracker, published by the Ghana Statistical Service, also reveals that about 72 percent of businesses experienced a decline in production in May/June 2020; resulting in nine out of ten of those businesses seeing a drastic decline in sales.

The GDP release published by the same organisation said that more than 161,066 businesses were closed as of June 2020.  Businesses in the services sector recorded the highest number of closures, as more than 96,200 businesses were not operating within the period under discussion. Trade followed with more than 27,200 business closures, with accommodation and food also seeing more than 16,900 businesses closed in the period.

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