IMF urges government to introduce more taxes to plug revenue shortfall

The International Monetary Fund (IMF) has stated that the government must reinstate some abolished taxes and expand some existing ones in other to meet its short-term revenue projections.

The Board of the Fund in its recent report on Ghana stated that the government must consider urgent tax measures like the reintroduction of the controversial 17.5 percent VAT on financial services to overcome perennial tax shortfalls.

“New taxes that can expand the taxable base include a VAT of 17.5 percent on financial services; a tax increase on communication services from 9 percent to 12 percent; the expansion of the national fiscal stabilization levy on all firms; the minimum chargeable income; and the reintroduction of the high-income tax rate of 35 percent,” the Fund stated.

Over the past two decades, Ghana’s tax ratio has remained around 13 percent which is below sub-Saharan Africa’s average of 15 percent. With the government targeting to raise the tax output to 18 percent of GDP by 2023, the Fund believes that certain measures would have to be taken.

One of the urgent measures includes a review of the import duty benchmark— which the Fund stated that has not generated the expected increase in imports through trade diversion to Ghana ports — and collect around half of the tax liability of around $800 million in the oil sector in 2020.

According to the Fund, the short term revenue measures could immediately yield up to 0.8 percent of GDP while the new taxes could yield 0.25 percent of GDP, while compliance could bring around 0.5 percent of GDP.

The Finance Minister last year announced that the government will mobilize at least GH¢65.8 billion in domestic revenue this year given the several reforms it has undertaken in the past 12 months.