Increase VAT by 1% for free SHS project – IEA

The Institute of Economic Affairs (IEA) has made a recommendation to government to increase the 17.5% VAT by 1 percent to cater for the free Senior High School (SHS) project.

According to the institute, the move will provide a sustainable source of funding for the project internally. The implementation of free SHS is expected to cost Ghana about 400 million Ghana cedis for the first year.

Speaking at post mid-year budget press conference, a Senior Adjunct Research Fellow of the IEA, Dr. Eric Osei-Assibey warned that the project will suffer a major setback if it is not anchored on a reliable funding scheme.

“Just as we did for the NHIS, increasing the VAT rate by say 1% and ringfencing it for exclusive funding of the Free SHS will be very ideal. Domestic tax revenue provides a more stable and predictable source of financing expenditure for important public programmes such as free education,” he said.

Dr. Osei-Assibey proposed the need for a national forum or stakeholder workshop to design a sustainable financing for the Free SHS programme as a matter of urgency.

“We believe that a more sustainable funding should be pursued domestically,” he said, explaining that the traditional source of revenue generation in the budget may not be sufficient for the project.

Dr. Osei-Assibey argued that the decision to rely on funds from oil and gas may also not be sustainable due to uncertainties surrounding the world prices of the commodity.

“This is due to dynamics in the oil and gas industry; specifically relating to fluctuating oil prices which pose risk to sustainable funding for this initiative. Given the important nature of this initiative for our country’s sustainable development, we are therefore calling on government to revisit its funding arrangement for this important initiative,” he stressed.

Breaking down the budget for the project, Dr. Osei-Assibey stated that the 47% support of GHC188.28 million from government , as well as the GHC 211.72 million (53%) from the Annual Budget Funding Amount(ABFA) are not sustainable.

“While this funding arrangement could introduce another level of rigidity in the budgeting system, the ABFA source of funding which contributes the major part of the total amount as we know is not stable but highly volatile,” he warned.

“We believe that free and all inclusive educational system is a major driver and indeed a catalyst for sustainable growth and development. Successful implementation of this initiative will not only ensure equity in the educational system but also have positive multiplier effect in all sectors of the economy through a skilled and competent work-force,” he appealed.