Economist Talks On Revenue Agencies

...Are their targets realistic?

Despite the all too often celebrations by revenue collecting agencies that they have met their revenue targets, questions are being asked whether the revenue targets set appropriately reflect the nation's macro-economic framework.

This has come at a time the three revenue collecting agencies: Customs Excise and Preventive Service (CEPS), Value Added Tax (VAT) Service and the Internal Revenue Service (IRS), are celebrating their success in meeting revenue targets for the fiscal year ending 2002.

But these acclamations, according to Prof. Bartholomew Armah, a senior economist at the Institute of Economic Affairs (IEA), on the surface appear even more impressive given the agencies' complaints about poor conditions of service and lack of in adequate logistical support to facilitate their work.

Prof. Armah said this when he delivered a paper on Ghana's revenue targets at the Institute of Ecoonomic Affairs on Wednesday.

He described as flawed the revenue setting mechanism saying it "is flawed not because the method is necessarily poor but because the forecasting mechanism is poor."

"Without an improvement in our ability to more accurately forecast inflation and exchange rates and the rate of expansion in the tax base in particular, revenue targets will not provide realistic indicators of revenue generating potentials of the economy."

According to Prof. Armah, nominal Gross Domestic Product (GDP) was fundamental, and real GDP, which equals exchange rate/inflation, are all-important variables used for the targets.

Taking participants through the variables used in estimating the revenue targets, Prof. Armah noted that even though the targets are as good as the projections of real Gross Domestic Products (GDP) growth rates, inflation rates, imports, the exchange rate and other variables, inflation has always been underestimated.

He recommended that in order to have a realistic indicator of revenue generating potential, the revenue agencies should base targets in foreign currencies, improved inflation, exchange rates and real GDP and used a range of targets set on best and worse cases.

The Ministry of Finance sets the targets in collaboration with the revenue agencies: IRS, CEPS and VAT Service.

The targets are set by each agency based on a specific formula or method." Although each agency plays a lead role in setting their targets, Prof. Armah said, the Ministry of Finance has the ultimate authority in determining the final targets of a revenue agency.

The concern is that if the agencies are so ill-equipped as they say they are, how come they are able to always exceed their targets.

But this was defended by the IRS boss, Mrs. Janet Opoku Acheampong She argued that despite the numerous logistical challenges faced by the three agencies, they are able to exceed their revenue targets. because they put up good strategies.

Mrs. Opoku-Acheampong said unlike the VAT Service, which has computers, IRS, had no computer. She said it was until recently that they took delivery of 10 computers from the Ministry of Finance.