Several new tax compliance initiatives are to be announced by Finance Minister, Ken Ofori Atta at the mid-year review of the 2018 budget, scheduled for July. The new initiatives will particularly seek to tighten tax administration and increase tax compliance with regards to personal income tax in both the formal and the informal sectors.
Government has committed to the new measures as part of the overall fiscal framework reforms agreed with the International Monetary Fund in order to secure the requisite positive combined 5th and 6th reviews by the IMF’s Executive Board of Ghana’s progress under the Extended Credit Facility programme being undertaken by the country with a view to restoring debt sustainability and macroeconomic stability and returning it to a high economic growth trajectory.
The latest IMF Executive Board endorsement has come after widespread fears that the Fund would find fault with government’s decision to aim for a 4.5% of Gross Domestic Product fiscal deficit for 2018, which is significantly higher than the 3.9% deficit called by the programme. The targeted deviation is particularly important as it is coming during the last full year of the programme, which means the ECF will end with a fiscal deficit significantly higher than targeted at its commencement.
However government has convinced the IMF that a higher than originally planned deficit target that is actually achieved is better than a tighter target that is completely missed as happened in 2016 during the last year of the Mahama administration when a 5.4% target ended up with an actual deficit out turn of close to 9%. Instructively, in 2017, the first year of the President Nana Akufo-Addo administration the 6.3% of GDP fiscal deficit target was bettered by the 5.9% actual out turn. This was achieved by ruthless public expenditure cuts, as tax revenues of GHc32.32 billion fell GHc1.1 billion, or 3.4%, short of the GHc33.4 billion target.
But economists and public policy analysts and commentators have pointed out that such expenditure costs will be much harder to implement from a political perspective this year. Last year, capital expenditure was very low and the electorate is already protesting the resultant lack of development projects. Besides, social spending such as the flagship free Senior High School policy will require much higher spending this year and there is very little room for cuts.
Consequently, government has turned its attention to expanding the tax net and improving tax compliance in order to generate significantly higher tax revenues needed to stay within the 2018 fiscal deficit target without having to cut planned expenditures as it did last year. The tax revenue target for 2018 is GHc39.8 billion, which is 25% higher than 2017’s tax revenues and the IMF has publicly doubted that it will be met.
To convince the IMF, government has therefore promised several new tax initiatives from the second half of this year, most of which will aim at enhancing personal income tax revenue since government is still trying to fend off public dissatisfaction over new business tax initiatives such as the recently introduced tax stamp initiative.