Comprehensive policies required in post coronavirus recovery - IEA

The Institute of Economic Affairs (IEA) says well-coordinated and comprehensive policies are required to ensure a post-COVID-19 pandemic recovery.

It said the recovery would be difficult and protracted as the pandemic had caused extensive disruption to Ghana’s economy, severely affecting businesses, jobs and livelihoods.

The IEA, in its summary of policy initiatives to government, including fiscal policy, monetary policy, natural resource policy, agricultural policy and industrial policy, said believed that these policies were key to achieving the immediate recovery and long-term growth.

On fiscal Policy, the institute said revenue mobilisation must be at the forefront of recovery efforts, saying persistent rigidities in both revenue and expenditure must be addressed.

It said there was a long-standing problem with revenue mobilisation.

Currently, the country's tax revenue/GDP ratio is 12-13 per cent which compares unfavourably with the average of 25 per cent for middle income countries and the minimum threshold of 20 per cent under the proposed eco- currency system of the Economic Community of West African States.

"Ghana’s situation of low tax revenues does not arise from the fact that it has low tax rates. On the contrary, Ghana’s personal income, corporate income and VAT rates are relatively high," it said.

The institute said the problem of low tax revenues was rather due to tax losses, which experts estimate to be around 10-12 per cent of GDP.

The IEA said the informal sector remained almost entirely outside the tax net and the activities in the sector were largely small in scale, but on aggregate the sector accounts for nearly 30 per cent of GDP.

"It cannot be completely ignored when it comes to taxation," it added.

"We should be taxing the mechanics, hairdressers, tailors and other artisans, who employ at least a few people, rather than the tiny fish like kayayei, kenkey, waakye and ice-water sellers, who have tiny net incomes.

The IEA said to ensure that adequate taxes were collected from the informal sector, it must be integrated into the tax system through formalisation.

It said government’s initiative to digitise the economy was well-directed to bringing the informal sector into the tax net but this effort should be supplemented by leveraging new information and communication technologies, such as mobile money and other tech platforms.

The institute said tax evasion was pervasive in Ghana and the act was often perpetrated through connivance between taxpayers and tax officials.

It said the way to deal with the problem was to institute a strict surveillance system backed by a strong sanctions regime for offenders under the aegis of the commercial courts.

It said property taxes had huge potential for the country, given the sprawling mansions in urban centres, but they were barely collected.

It said collection of property tax should be made the responsibility of Metropolitan, Municipal and District Assemblies, which should be incentivised to collect and retain part as internally generated funds.

They should also be authorised to use those funds at their discretion to finance development projects.