Ghana’s upcoming 2025 budget, under the newly returned Mahama administration, is poised to be a pivotal moment for the nation’s economic trajectory. The government’s anticipated removal of the contentious E-Levy, the COVID-19 levy, and the betting tax signals a shift in its revenue generation strategy. While these removals are likely to be welcomed by many, they create a substantial fiscal gap that needs to be addressed. Economist Professor Godfred Bokpin predicts a significant increase in the Value Added Tax (VAT) as the primary mechanism to offset this anticipated revenue shortfall. This increase, potentially reaching up to 18%, represents a significant adjustment to the current tax regime and will likely have far-reaching consequences for businesses and consumers alike. The move highlights the delicate balancing act the government faces in stimulating economic activity while simultaneously ensuring sufficient revenue for public spending.
Professor Bokpin’s analysis centers around the government’s need to find alternative revenue streams. The scrapping of three key taxes necessitates a robust strategy to replace the lost income. He suggests that the government will not only increase the VAT rate but also broaden its scope to include financial services, a sector currently exempt. This expansion of the VAT base, coupled with the projected rate increase, would represent a considerable shift in the tax burden. He also anticipates a streamlining of the existing VAT structure, merging the current standard levies with the standard VAT rate, simplifying the system while maximizing revenue collection. This restructuring aims to create a more coherent and efficient VAT system, addressing the current complexity of multiple levies.
The proposition of an 18% VAT rate is not without its caveats. Professor Bokpin warns that exceeding this threshold could be counterproductive, potentially dampening economic productivity and disproportionately affecting low-income earners. This concern underscores the delicate balance the government must strike between raising necessary funds and mitigating the potential negative impact on vulnerable populations. An excessively high VAT rate could reduce consumer spending, slow down economic growth, and exacerbate existing inequalities. The government, therefore, needs to carefully consider the social and economic ramifications of a significant VAT hike. Finding the optimal rate that maximizes revenue without stifling economic activity will be a central challenge.
Beyond the VAT, the upcoming budget is expected to address a broader range of economic concerns. The Mahama administration faces high expectations from both the private and public sectors, each anticipating reforms tailored to their specific needs. The private sector is looking for measures that stimulate investment and growth, while the public sector anticipates improvements in service delivery and procurement processes. President Mahama’s pledge to cut wasteful spending and enforce fiscal discipline suggests a focus on improving efficiency and transparency in government operations. These commitments, alongside the proposed tax reforms, form a crucial part of the administration’s plan to “reset” the economy and address pressing economic challenges.
The success of the government’s economic strategy will depend on its ability to effectively implement the proposed reforms and manage the complex interplay between revenue generation and economic growth. Increasing the VAT, while potentially effective in raising revenue, carries the risk of impacting consumer spending and business investment. The government will need to carefully consider the potential consequences of these changes and implement mitigation strategies to minimize any negative impacts. This includes ensuring that social safety nets are in place to protect vulnerable populations from the increased cost of goods and services.
Ultimately, the 2025 budget represents a critical juncture for Ghana’s economy. The decisions made by the Mahama administration will have far-reaching implications for businesses, consumers, and the overall economic outlook. Balancing the need for increased revenue with the imperative of promoting economic growth and protecting vulnerable populations will require careful planning, effective implementation, and ongoing evaluation of the impact of these policy changes. The government’s ability to navigate these complex challenges will be crucial in determining the success of its economic “reset” and shaping the future economic landscape of Ghana.
