Ghana’s 2025 Budget: A Critical Analysis of Revenue Projections and Tax Policies
The Institute of Economic Affairs (IEA) Ghana has expressed serious reservations regarding the revenue projections and tax policies outlined in the 2025 budget presented by the finance minister. The IEA’s primary concern revolves around the projected revenue-to-GDP ratio of 16.1%, a figure they deem unambitious and insufficient for Ghana’s developmental needs. This projection represents only a marginal increase from the 15.9% ratio estimated for 2024 and falls significantly short of the 25-30% average observed among comparable middle-income countries. The IEA argues that the government has the potential to significantly bolster revenue collection by addressing tax loopholes and implementing more robust revenue mobilization strategies. This critique highlights a fundamental disagreement between the government’s fiscal approach and the IEA’s recommendations for a more proactive and impactful revenue generation framework.
Central to the IEA’s critique is the government’s decision to retain the Growth and Sustainability Tax (GST), a levy initially introduced in 2001 as the Fiscal Stability Tax. The IEA had previously advocated for the abolition of the GST, considering it obsolete and ineffective. Despite this recommendation, the government not only maintained the GST but also increased its rate for extractive companies from 1% to 3%. While acknowledging the need for increased revenue from the extractives sector, the IEA contends that the 3% GST rate remains inadequate. They propose more assertive measures, such as implementing a Super-Profit or Windfall Tax, and advocate for a comprehensive review of existing laws governing the extractives sector to ensure Ghana receives a more equitable share of the benefits from its natural resources. This underscores the IEA’s belief that Ghana’s fiscal regime for the extractives sector requires substantial reform to optimize revenue generation and national development.
The IEA welcomes the government’s decision to eliminate certain nuisance taxes, including the E-Levy, Emissions Tax, and COVID Tax, aligning with its own recommendations for simplifying the tax system. However, the IEA expresses disappointment over the complete abolition of the Betting Tax. They had proposed retaining the tax at a reduced rate of 5%, down from the original 10%, arguing that it could serve both revenue generation and deterrence purposes. This divergence in opinion regarding the Betting Tax highlights the nuanced debate surrounding the balance between revenue collection, social impact, and the potential for unintended consequences from specific tax policies.
The finance minister, in presenting the 2025 budget, outlined various measures intended to enhance revenue generation and achieve the government’s fiscal targets. These measures included streamlining tax administration, broadening the tax base, and improving tax compliance. The removal of the aforementioned nuisance taxes was also highlighted as a key element of the government’s strategy, aimed at alleviating the tax burden on households, stimulating business growth, and promoting investment. This demonstrates the government’s focus on creating a more conducive economic environment through tax reforms, while also seeking to balance revenue needs with public welfare considerations.
However, the IEA’s critique suggests that the government’s approach, while well-intentioned, may not be sufficiently ambitious to address Ghana’s fiscal challenges effectively. The IEA’s call for a more robust revenue mobilization strategy, particularly within the extractives sector, underscores their belief that Ghana possesses untapped revenue potential that could be leveraged for greater economic development. The debate between the government’s proposed measures and the IEA’s recommendations highlights the complexities of fiscal policy and the need for a comprehensive and evidence-based approach to revenue generation.
In conclusion, the IEA’s analysis of the 2025 budget raises important questions about the adequacy of the government’s revenue projections and the effectiveness of its proposed tax policies. The IEA’s emphasis on maximizing revenue from the extractives sector, coupled with its concerns about the modest increase in the revenue-to-GDP ratio, underscores the need for a more proactive and strategic approach to fiscal management. This ongoing dialogue between the IEA and the government is crucial for shaping a more robust and sustainable fiscal framework that can support Ghana’s long-term economic development goals. The ultimate success of the 2025 budget will depend on the government’s ability to address these concerns and implement effective measures to enhance revenue mobilization and ensure fiscal stability.
