The Ghana Revenue Authority (GRA) is navigating a complex fiscal landscape shaped by the recent, rapid appreciation of the Ghanaian cedi. While the strengthening currency is generally seen as a positive economic indicator, it has presented a short-term challenge to government revenue collection, particularly in sectors heavily reliant on foreign currency transactions. The GRA Commissioner-General, Anthony Kwasi Sarpong, explained that the cedi’s significant appreciation, from approximately GH¢15 to GH¢10.5 against the US dollar within a mere three months, has translated into a 30% reduction in cedi-denominated receipts. This decline stems primarily from the fact that import duties and taxes from the extractive sector are typically denominated in foreign currencies, predominantly the US dollar. As the cedi gains strength, the equivalent cedi value of these dollar-denominated revenues decreases.
This phenomenon is particularly impactful at the ports, where import duties, calculated in US dollars, now translate into fewer cedis for the government. The extractive and petroleum sectors, also major contributors to government revenue, face a similar predicament. With their tax remittances primarily in dollars, the cedi’s appreciation means a substantial reduction in their cedi equivalent, impacting the overall revenue stream. This 30% drop in cedi terms effectively represents a significant and almost immediate reduction in the government’s revenue base, requiring adjustments and strategic interventions to mitigate the impact.
However, Mr. Sarpong expresses optimism that the short-term revenue decline is a temporary setback on the path to longer-term gains. The strengthened cedi is expected to lower import costs, making goods more affordable and potentially stimulating increased trade volumes. This, in turn, is projected to lead to higher overall tax collections as businesses import more and economic activity picks up. The GRA anticipates that as existing inventories are depleted and businesses restock at the lower prices enabled by the stronger cedi, import volumes will surge, bolstering revenue collection and offsetting the initial losses.
To further enhance revenue generation and cushion government finances, the GRA is embarking on structural reforms, specifically targeting the Micro, Small and Medium Enterprises (MSMEs) sector. Recognizing this sector’s significant economic contribution and its potential as a substantial revenue source, the GRA is introducing a modified taxation regime aimed at simplifying tax compliance and broadening the tax base. This streamlined system aims to establish minimum base taxes for different categories of MSMEs, making it easier for them to understand and fulfill their tax obligations.
The proposed plan envisages a 3% tax rate for MSMEs with an annual turnover of approximately GH¢200,000, translating to roughly GH¢3,000 to GH¢5,000 annually. With an estimated 5 million MSMEs operating in Ghana, the GRA’s ambition is to bring at least 2 million of these businesses into the formal tax net. This initiative, if successful, has the potential to generate GH¢10 billion in annual revenue, significantly boosting government coffers and promoting greater fiscal stability. This approach is seen as a way to tap into a large, currently under-taxed segment of the economy and create a more predictable and sustainable revenue stream.
In addition to the MSME-focused reforms, the GRA is actively embracing digitalization as a cornerstone of its strategy to enhance tax compliance and revenue collection. Recognizing the growing prevalence of online transactions, the Authority is developing a digital system to monitor online activity and deduct taxes directly at the point of payment. This system, expected to be operational by the end of the year, is touted as a “game changer” in tax administration. It aims to provide greater transparency and efficiency in tax collection, minimizing opportunities for tax evasion and ensuring a more accurate and timely flow of revenue to the government.
Complementing its technological advancements, the GRA is committed to intensifying nationwide tax education campaigns. These campaigns aim to increase public awareness of tax obligations, promote voluntary compliance, and foster a culture of responsible tax citizenship. By educating the public about the importance of taxes in funding essential public services and national development, the GRA seeks to build trust and cooperation, ultimately strengthening the tax system and maximizing revenue collection. This holistic approach, combining technology with educational outreach, is deemed crucial for achieving sustained improvements in tax compliance and achieving the GRA’s revenue targets.
