There are ongoing debates regarding the feasibility of the proposed tax reforms of Dr. Mahamudu Bawumia, flagbearer of NPP.
The global economy is going through a lot of challenges post Covid-19. As such, for Ghana’s economy to continue to recover, and for more jobs to be created, there is a need for creative, innovative and bold decisions as well as decisive fiscal and monetary reforms. I think this is how we need to assess the proposals offered by the NPP flagbearer.
The argument presented against the reforms is centered on its negative impact on government revenue and, hence, economic growth.
However, as this article would reveal, broadening the tax base and encouraging more private sector partnerships in the provision of critical infrastructure such as roads, hospitals and schools would indeed enhance government revenue and reduce the government’s financial burden and spur growth, making the tax reforms possible.
Below are some of the rationale behind the tax reforms proposed by Dr. Bawumia:
1.Public-Private Partnerships (PPPs) and its impact on fiscal space:
Embracing more PPPs can significantly reduce the government’s financial burden in infrastructure development, creating fiscal space for reallocating resources. It can mitigate the need for controversial taxes such as betting tax, emissions tax, among others. This approach not only fosters development but also ensures fiscal sustainability.
For instance, let’s consider a hypothetical PPP project for a toll road in Ghana. Assume the project’s total capital expenditure is GH¢500 million. Traditionally, such a project financed entirely by the government would require upfront capital expenditure, impacting the national budget and possibly necessitating taxes to raise more revenue to fund the development. Under a PPP arrangement, the private sector could finance the upfront construction costs, significantly reducing the government’s immediate fiscal burden (As is done in advanced countries like China and USA). Also, suppose the private sector’s efficiency and innovation in construction and operation, lower the project’s lifecycle costs by 10-20% compared to traditional public sector execution, this would result in savings of GH¢50- 100 million over the project’s lifespan.
Moreover, if the toll road generates annual revenues of GH¢50 million under a revenue-sharing agreement, the government could receive a portion of this income without having incurred the initial capital expenditure. If the government’s share of revenue is 40%, this translates to GH¢ 20 million per year, contributing to the national budget without imposing additional taxes on citizens. It is estimated that the private sector taking over some of the government expenditures, will save it a minimum of 3% of GDP.
2. Broadening the Tax Base:
Once the tax system is simplified to ensure compliance through a flat rate regime and the process of paying taxes is digitized to make it easy to file your taxes, it is estimated that Ghana Revenue Authority can widen the tax base as there is still approximately 13% of GDP outside the tax net. Research shows that out of the 13% of GDP outside the tax net, a flat rate and a digitized tax filing process could result into the GRA increasing total revenue by at least 2% of GDP initially.
3. Projected Revenue losses:
It is estimated that the 3 taxes to be abolished amount to a combined total of only 0.29% of GDP in revenue.
4. Economic Diversification and Employment:
By stimulating private sector investment and engagement in diverse economic activities, Ghana can enhance its economic resilience, reduce reliance on volatile sectors, and spur job creation.(In developed countries, the private sector employs majority of the citizens).This diversification is essential for sustained economic growth and stability.
Conclusion
In light of the PPP strategy (GDP savings of 3% of GDP), projected revenue increases (2% of GDP) and also projected revenue losses from the tax reforms (0.29% of GDP), there is a compelling case for re-evaluating the role of these taxes in the country’s fiscal strategy in 2025. Eliminating these taxes, coupled with bolstering private sector participation, offers a pathway to stimulating economic efficiency, innovation, and growth. This balanced approach aligns with harnessing the digital economy’s potential and ensuring inclusive, sustainable development in Ghana.
Indeed, Dr. Bawumia’s proposed policies or reforms are possible from my perspective. Let us embrace the mindset of possibilities!!!!