By Bernard L. TETTEH-DUMANYA (Dr)
Tax amnesty, often touted as a quick fix for revenue shortfalls and non-compliance issues, presents a double-edged sword for developing economies. While it promises immediate gains in tax revenue and compliance rates, its long-term repercussions on economic growth can be profound and adverse. My write-up delves into the dangers of tax amnesty on Ghana’s economic growth, highlighting its potential to breed moral hazard, undermine the rule of law, distort resource allocation, erode fiscal discipline, lead to long-term revenue loss, and exacerbate inequality.
Tax amnesty sends a signal that the government is willing to forgive past non-compliance with taxes. This can create a moral hazard problem, where individuals or businesses may adopt a “wait-and-see” attitude, expecting future amnesties instead of complying with tax laws from the outset.
As a result, tax compliance may decline over time, eroding the government’s revenue base. So promising Tax amnesty in Ghana at this time of economic hardships and where tax compliance is already a challenge will be something economists will recommend as it will exacerbate the problem by fostering a culture of tax evasion.
Furthermore, tax amnesty distorts resource allocation by encouraging capital flight and deterring productive investments. For instance, where investment in critical sectors is crucial for sustainable development, the diversion of resources due to tax evasion hampers economic progress and perpetuates underdevelopment cycles.
Ghana has grappled with persistent economic challenges, including revenue shortfalls and fiscal imbalances. While tax amnesty may provide a reprieve, it fails to address the underlying issues plaguing the Ghanaian economy, such as weak tax administration, corruption, failed leadership, and good corporate governance.
It is the spirit of the governance that baffles me why the head of the economic team for seven years will now say the Ghana Revenue Authority (GRA) staff does not understand the tax system in Ghana. Such rhetoric can undermine the rule of law by as such pronouncement will lead people and businesses to evaded taxes and penalize those who have been compliant. It may erode trust in the tax system and the government’s ability to enforce laws fairly, which can lead to a decrease in voluntary compliance in the future.
Tax amnesty can distort resource allocation by encouraging capital flight and discouraging productive investments. Individuals and businesses may shift their assets abroad or invest in non-productive assets to avoid future taxation. This can hinder long-term economic growth by reducing investment in productive sectors of the economy.
The reliance on tax amnesty means revenue-generating measures perpetuate a cycle of fiscal indiscipline, hindering the government’s ability to invest in essential public services and infrastructure. This will exacerbate poverty and inequality, further stifling economic growth and exacerbating Ghana’s economic woes.
In seeking financial assistance, Ghana has often turned to the International Monetary Fund (IMF) for support. However, IMF loans come with stringent conditionalities, including austerity measures and structural reforms aimed at fiscal consolidation and economic stabilization. While these conditionalities may offer short-term relief, they often exacerbate socio-economic challenges for ordinary Ghanaians.
For example, IMF-mandated austerity measures, such as cuts to public spending and social services, disproportionately affect vulnerable populations, exacerbating poverty and widening income inequality. Examples of IMF conditionalities and tax amnesty impact Ghanaian citizens directly.
For instance, austerity measures imposed as part of IMF programmes have led to cuts in public spending on healthcare and education, resulting in reduced access to essential services for ordinary Ghanaians. Therefore, for a proud nation like Ghanan to stand on its feet doesn’t require amnesty and even when needed it is necessary to address the underlying issues of tax administration inefficiency, corruption, and weak governance.
The complacency among Ghanaian politicians in saying whatever they want without subjecting it to thorough scientific data must be stopped in this country. While in principle tax amnesty may generate short-term revenue gains, it is now accepted by several researchers that, can lead to long-term revenue losses and encourage tax evasion and non-compliance.
Without structural reforms to improve tax administration and enforcement, the benefits of tax amnesty are often short-lived, and governments may struggle to meet their revenue targets in the future. As a result, it gives disproportionately benefits to wealthy individuals and large corporations who have the resources to engage in tax evasion.
This exacerbates income inequality by allowing the wealthy to avoid paying their fair share of taxes, which can have negative social and economic consequences in the long run. Thus, it is ordinary Ghanaians bear the brunt of tax shortfalls, limiting the government’s capacity to invest in public goods and services that benefit society as a whole.
Tax amnesty poses significant dangers to economic growth in developing countries like Ghana. By fostering moral hazards, distorting resource allocation, and perpetuating fiscal indiscipline, tax amnesty undermines long-term development objectives.
Moreover, IMF conditionalities exacerbate socio-economic challenges, further impacting the lives of ordinary Ghanaians. To foster sustainable economic growth and development, policymakers in Ghana must prioritize structural reforms aimed at enhancing tax compliance, improving governance, and addressing systemic issues of inequality and poverty.
>>>the writer is a seasoned InvestBankpreneur with an illustrious career spanning 29 years across academic, corporate, and agribusiness sectors. His extensive professional journey includes pivotal roles at esteemed institutions such as UBA Ghana, SIC Financial Services, Empretec Ghana, and the Swiss International Finance Group, reflecting his profound understanding of global finance.
Renowned as a pioneer in risk management, compliance, and corporate strategy, Dr. Tetteh-Dumanya has made significant contributions to the Ghanaian financial landscape. He has been instrumental in spearheading initiatives in Venture Capital, business/financial reengineering, and fundraising, thereby playing a pivotal role in the growth and development of numerous entities.
Driven by a fervent dedication to capacity development, Dr. Tetteh-Dumanya has offered consultancy services to a diverse array of local and multinational organizations notably GIZ, AGRA, SNV, DANIDA, and USAID among others. His expertise in financial and business domains is multifaceted, showcased through his adept navigation of complex challenges and his commitment to driving sustainable growth in every endeavor. For inquiries, Dr. Tetteh-Dumanya can be reached at: [email protected]
