Economist at the University of Ghana Business School, Prof. Agyapoma Gyeke-Dako has described the government‘s decision to fund the revenue shortfall emanating from the various tax cuts from the tax refund account as very ingenious but not sustainable way going into the future.
In an attempt to bring relief to businesses and individuals, the government through the Minister of Finance announced the elimination of some key taxes and levies. About six taxes and levies have been slated for abolition as announced in the 2025 Budget Statement including the controversial E-levy, 10% Withholding Tax on Lottery Winnings, Emissions Levy, VAT on Motor Vehicle Insurance policy, 1.5% Withholding Tax on Unprocessed gold by Small-scale miners.
In addition, VAT is set for massive reforms which will also lead to the abolishing of the COVID-19 levy.
The question many analysts and economists were asking was how the government was going to make up for the revenue shortfalls from scrapping these taxes.
Luckily, the answer was found in the same budget as the Minister for Finance, Dr. Cassiel Ato Forson disclosed that the government will fund the revenue shortfall from the tax refund account.
He explained that the government has decided to reduce the threshold on the account from 6% to 4% to make some savings supplement the government’s revenue.But the economist who was speaking at the recent Deloitte Economic Dialogue on the 2025 Budget admitted hat the strategy adopted by the government is commendable describing it as ingenious.
Prof. Agyapomaa however raised concerns about the long-term sustainability of the approach. Despite the creativity of the strategy, she explained that the tax refund account is inherently dependent on the government’s ability to mobilize adequate revenue.
She explained that in times of lower-than-expected revenue collection, reliance on this account could create significant fiscal gaps, undermining the stability of the country’s finances.
“I was wondering how the minister is going to make up for the shortfalls that we are going to be experiencing in our revenue basket. But he demonstrated a nice way of making up for the revenue shortfalls,” the economist admitted.
While the initiative may work for now, she urged policymakers to explore more sustainable revenue-generation strategies.
“I think that we have to be looking at a more sustainable of making up for these shortfalls. You think about the tax refund account that is going to make up for these shortfalls, in my opinion, I think that the account itself is a function of how much revenue we are going to be mobilizing. In times when are not able to mobilize the right amount of revenues, it is going to be creating some gap. I’m thinking that, yes it’s an ingenious way of making up for it this year but we need to look for more sustainable ways,” Prof. Agyapomaa suggested.
The views of the economist reveals that if the government revenue generation does not keep pace with expenditure demands, over-reliance on short-term fixes could exacerbate existing economic vulnerabilities.
The onus, therefore, lies on policymakers to develop robust, long-term solutions that ensure fiscal balance without resorting to temporary measures that may not withstand future economic shocks.
Source Fredrick Addai Kwarteng || The High Street Journal
March 19, 2025