In an attempt to recover quickly from the ruins brought by the coronavirus pandemic on economies, countries around the world – especially developing ones – may resort to increasing taxes to raise more domestic revenue; hence, individuals and businesses must condition their minds for this, professor of global economy Prof. Joe Nellis has said.
Given that the virus has dwindled revenues of all countries, Prof. Nellis foresees a situation where a number of countries, including Ghana, will use the tax system – specifically corporate and income taxes – as a means to reverse the damage caused by the pandemic.
However, he said, such moves should be targetted at companies that are still doing well in the midst of the pandemic. Prof Nellis, the Deputy Dean, School of Management, Cranfield University, UK, was speaking at a virtual event organised by the University of Ghana Business School on the theme: ‘Prospects for the global economy in the aftermath of the COVID-19 crisis’.
“We are going to see a number of countries around the world talk about special increases in taxes. A number of governments have no choice than to increase taxes. But I am hoping that they will be targetted at those companies which are doing well in this pandemic.
“For any government in the world to grow their economy, you need broader-based taxing. So tax collection and the breadth of the tax system is absolutely fundamental, especially in developing economies where that tax base may be narrow. So, I suspect that in all countries, including Ghana, governments are discussing which taxes can be raised to help in the recovery and which ones should not be raised.
“I know in the UK the most obvious thing that is going to happen in our budget and is the easiest way to raise tax revenue is to freeze tax thresholds; whereby, as incomes increase, people get pushed to higher tax brackets. Many governments around the world, including Ghana, may do this. Again, I believe corporate tax is going to increase,” he said.
The pandemic and its associated restrictions, including a lockdown imposed by government, led to decreased economic activity, with some businesses never getting back on their feet and thereby folding-up – leading to loss of jobs, reduction in incomes, among other inconveniences for households and businesses.
According to the COVID-19 Local Economies Tracker published by the Ghana Statistical Service (GSS), as a result of lockdown measures and other restrictions imposed by government to contain spread of the virus, about 72 percent of businesses experienced a decline in production – resulting in 90 percent of businesses also seeing drastic decline in sales. Furthermore, 41,952 workers lost their jobs in May/June 2020.
The professor is therefore advising that the Ghanaian government must put in place incentives which attract foreign direct investments to the economy and contribute to making the African Continental Free Trade Area (AfCFTA) strong, as these are ways of increasing economic activity in this period and striking better deals with the rest of the world.
“For Ghana in particular, I think attracting foreign investment is key. Investment is the engine of growth, and that is how you increase productivity. So, attracting foreign investment more than in the past is very important; and that will mean offering deals to companies which will attract them,” he said.
“Another important thing is to make the African trade bloc much stronger and more robust. In so doing, you can collectively negotiate better trade deals with the rest of the world and negotiate better terms of trade,” he said.