Where to revenue is to come from….
For the 2020 fiscal year, government projects to achieve total revenue and grants of GHc 67.1 billion (16.9 percent of GDP), up from a projected outturn for 2019 of GHc 54.6 billion (15.8 percent of GDP).
Of the amount, domestic revenue is estimated at GHc 65.8 billion, representing an annual growth of 22.5 percent over the projected outturn for 2019.
Out of the total Domestic Revenue amount of GHc 65.8 billion, Non-oil Tax Revenue is expected to constitute about 68.3 percent, this amounting to GHC 45.0 billion (11.3 percent of GDP), reflecting the impact of expected improvements in tax compliance and reforms in revenue administration resulting from the 2019 midyear revenue measures.
Non-Tax Revenue (excluding oil) is projected to amount to GH¢8.5 billion (2.1 percent of GDP) and constitutes 12.9 percent of Total Domestic Revenue. Of this amount, GHc 5.0 billion will be retained by Internally Generated Fund (IGF) generating institutions with a potential yield of GHc 174.3 million from IGF capping.
Total receipts from Other Revenue (comprising of Energy Sector Levies and SSNIT Contribution to NHIL) are forecast to amount to GHc 3.4 billion (0.9 percent of GDP), indicating a growth of 39.4 percent over the projected outturn for 2019.
Grants disbursement from Development Partners is estimated at GHc 1.2 billion (0.3 percent of GDP) and a nominal growth of 48.8 percent over the projected outturn of GHc 833.2 million in 2019.
Over the medium-term (2020-2023), total revenue and grants are projected to grow at an average of 14.8 percent. Of this, the average medium-term non-oil Tax Revenue growth is estimated at 15.9 percent.
As has become usual however, these targets are very ambitious. Over the first nine months of the 2019 fiscal year, total revenue and grants amounted to GHc 36.3 billion (10.5 percent of GDP) well short of the original target for the first three quarters of 2019 of GHc 41.96 billion.
That outturn represents a per annum growth of 9.2 percent, despite it representing a 13.6 percent shortfall relative to the target of GHc 42.0 billion (12.1 percent of GDP).
Consequent to this, provisional fiscal data indicates that the fiscal deficit arising from Government’s fiscal operations, for the first three quarters of 2019, was 4.5 percent of GDP on cash basis.
Petroleum revenue for 2020
As part of the revenue mobilization, the total petroleum revenue for 2020 is projected at US$1,150.84 million.
Receipts from upstream petroleum activities are projected at GHc 8.9 billion (2.2 percent of GDP), representing a 185.1 percent growth over the projected outturn for 2019 mainly on the back of anticipated major increased production from the Sankofa GyaName Field.
In line with the Petroleum Revenue Management Act, government proposes the allocation of the petroleum revenue as follows:
The first is to allocate US$332.16 million to GNPC for its Equity Financing Cost (US$218.10 million) and share of the net Carried and Participating Interest (US$114.02 million);
Further to this, there will be an allocation of 70 percent of the Benchmark Revenue of US$818.68 million (representing US$573.08 million) to the Annual Budget Funding Amount;
Government will also allocate 30 percent of the Benchmark revenue (i.e. US$245.60 million) to the Ghana Petroleum Funds; comprising an allocation of US$171.92 million to the Ghana Stabilisation Fund and US$73.68 million to the Ghana Heritage Fund.
In view of this, government intends to maintain the cap on the Ghana Stabilisation Fund at US$300 million, in line with Section 23(3) of the PRMA.
2020 Revenue Measures
To meet its ambitious revenue targets, the Finance Minister stated that government will continue to provide the necessary support to the Ghana Revenue Authority (GRA) in their ongoing reforms for 2020 and the medium term to optimize revenue collection. The full year yield from the 2019 midyear revenue measures are expected to be robust in 2020 to complement tax compliance efforts.
In addition to this, government will pursue some revenue measures to boost domestic revenue.
To this end, government expects to renew and extend the National Fiscal Stabilisation Levy and Special Import Levies (SIL) for five more years to support the Budget; but in line with its policy of supporting the poor, the personal income tax band will be adjusted and the necessary Parliamentary approval sought to ensure that the 12 percent minimum wage increase for 2020 is tax-exempt.
Further to this, Personal Reliefs such as marriage relief, child education relief and old age relief which were last adjusted in 2015 will also be reviewed upwards, consistent with government commitment to support families.
To address the challenges of revenue mobilisation, Government is expected to restructure the tax system and develop a comprehensive revenue policy and strategy.
After 10 years of integration, the Minister for Finance, Ken Ofori Atta noted that government is ready to carry out the next generation of reforms in revenue administration, since the Ghana Revenue Authority (GRA) occupies a critical position in the economy and is responsible for approximately 70 percent of domestic revenues.
A transformation program centered around the three main themes of People, Technology, and Service will be structured with the new leadership of the GRA to create a ‘NEW GRA’ that will reflect the very best of efficiency and productivity, he stated.
To ensure that, the country realizes the due revenue from the digital economy, government intends to review the current legislation to strengthen the relevant laws and provide additional regulations and administrative guidelines for the taxation of e-services.
In 2020, government is expected to review and incorporate in legislation the outstanding relevant actions, including requiring taxpayers to disclose their aggressive tax planning arrangements, under the relevant Base Erosion and Profit Shifting (BEPS) action points in existing legislation.
The major revenue legislations will be reviewed to remove conflicts and fill in gaps, and the relevant amendments submitted to Parliament for passage.
The Revenue Administration Regulations and the updated Transfer Pricing Regulations will also be submitted for passage.
To make revenue legislation more user friendly, the GRA will make abridged versions of the major revenue laws Act easily available to the public. These include the Customs Act, Excise Duty Act, Income Tax Act and the Value-Added Tax.
…and how it is to be spent
As earlier predicted by international bodies and various technocrats about government’s increasing spending during election years, the 2020 fiscal year is no exception as the targeted domestic revenue, ambitiously projected at GHc 65.8 billion, is still significantly lower than government’s planned expenditure of GHc 85.9 billion.
Despite this, government has promised that it shall remain vigilant in the areas that have often derailed fiscal programmes during election years, insisting that it will not hesitate to initiate the sanctions under the Public Financial Management Act, 2016 against any line ministry that does not comply with the established commitment control systems by processing transactions only through the Government Integrated Financial Management Information System (GIFMIS). Reading the 2020 budget last Wednesday, Finance Minister, Ken Ofori Atta said government shall consolidate existing and on-going flagship programmes to deliver desired results.
Government’s total expenditure for the next fiscal year is projected at GHc 85.9 billion, including clearance of arrears. This represents 21.6 per cent of the country’s Gross Domestic Product (GDP) in 2020. The expenditure estimate for 2020 represents a growth of 21.2 percent above the projected outturn for 2019.
The key drivers of expenditure growth include: the wage bill, interest payments, one-off costs associated with the 2020 Presidential and Parliamentary elections, full funding of Government flagship programmes, and security.
First and foremost, expenditure for wages and salaries are projected to reach GHc 22.9 billion. This constitutes 26.7 percent of the total expenditure which include arrears clearance. As a percentage of GDP, the wage bill is projected to increase to 5.8 percent of GDP from the 5.7 percent of GDP projected outturn for 2019.
The use of goods and services is also projected at GHc 8.3 billion this being 2.1 percent of GDP. This represents 9.7 percent of the projected total expenditure (including arrears clearance). The per annum growth of 20.3 percent reflects full provision for the Government’s flagship programmes.
Interest payments are projected at GHc 21.7 billion, representing 5.4 percent of GDP. Of this amount, domestic interest payments will constitute about 76.3 percent and amount to GHc 16.6 billion.
Again, capital expenditure is projected at GHc 9.3 billion, this being 2.3 percent of GDP and a growth of 53.5 percent over the 2019 projected outturn. Of this amount, Domestic financed Capital Expenditure is estimated at GHc 3.8 billion which represents 0.9 percent of GDP. An amount of GHc 5.5 billion has been estimated for Foreign Financed Capital Expenditure and this will be funded by a combination of Project Grants and Loans.
Furthermore, transfers to statutory funds as well as all other earmarked funds are estimated at GHc 15.6 billion being 3.9 percent of GDP in 2020. This represents 19.6 percent growth over the projected outturn for 2019.
Based on the estimates for total revenue and grants as well as total expenditure, the Finance Minister said that the 2020 fiscal operations shall result in a cash deficit of GHc 18.9 billion equivalent to 4.7 percent of GDP.
According to him, financing of the fiscal deficit from domestic sources will amount to GHc 8.2 billion, representing 2.0 percent of GDP. Foreign financing of the deficit will amount to GH¢10.6 billion (2.7 percent of GDP). This will include a planned international capital market programme to raise up to US$3 billion, of which US$2 billion will be used to support the implementation of the 2020 budget and the rest will be for domestic debt liability management.
Also, a primary surplus equivalent to 0.7 percent of GDP, that is GHc 2.8 billion, is estimated for the 2020 fiscal year.
Mr. Ofori Atta insisted that government remains committed to safeguarding the macro-fiscal gains that it has achieved over the last three years, adding that with the implementation of the Fiscal Responsibility Act, the establishment and operationalisation of the Fiscal Responsibility Advisory and Financial Stability Councils, have complemented several other institutional and structural reforms to strengthen fiscal discipline and ensure irreversibility of policies.