09 Mar

Ghana Wants to Shake Up the Way It Collects Taxes

Ghana wants to shake up the way it collects tax with the International Monetary Fund telling the government that it’s not raising sufficient income.

The West African nation needs to increase revenue as it plans to raise spending and reduce debts, which the IMF said to remain at risk of distress.

At the same time, Ghana is finalizing a $1-billion bailout program it entered with the Washington-based lender in April 2015 and has to meet targets for fiscal consolidation after years of chronic overspending.

Ghana should pursue its fiscal goals by raising collections as spending on fixed investments, such as infrastructure, are already too low, according to the IMF.

More than two-thirds of businesses in the nation are in the informal sector and will be brought into the tax net, said Kwasi Bobie-Ansa, an acting assistant commissioner at the Ghana Revenue Authority.

“Ghana does not necessarily need to legislate new taxes, but must find ways of widening the net,” Edem Harrison, a research analyst at Frontline Capital Advisors in Accra, the capital, said by phone. “The government needs to block revenue leakages and stop the wastage at revenue collection points, such as the ports.”

Ghana collected 27.4 billion cedis ($6.2 billion) in taxes in the first 11 months of last year, or the equivalent of 13.4 percent of the gross domestic product, against a target of 29.4 billion cedis, according to data from the finance ministry.

This compares with average tax collections as a percentage of GDP of 19.1 percent for 16 African countries in 2015, according to the Organization for Economic Co-Operation and Development.

Ghana needs tax revenue of at least 15 percent of the $45 billion economies, Joe Abbey, an economist at the Accra-based Centre for Policy Analysis, said by phone. This is the minimum requirement to meet the nation’s debt obligations and to avoid the need for the central bank to finance the budget, said Abbey.

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