The government of Ghana is expected to raise not less than GHȼ 44.15 billion in the second half of the year (H2), between July and December, to be able to meet its revenue target for the 2021 fiscal year.
The government expects to mobilize total revenues including grants of GHȼ72.45 billion from January to December this year, yet revenue at the end of the first half of the year (H1) amounted to GHȼ 28.3 billion. This represents only 39% of the target revenue for the year with two quarters remaining to ramp up tax collection efforts.
In other words, the government is expected to raise 61% of its target revenues in the second half of the year to ensure that it remains on its fiscal consolidation path. This could be very difficult for the government because currently, there is low demand amid resurging uncertainty due to the emergence of new delta variant of the COVID-19 in the country. The government’s ability to mobilize tax revenue will be greatly hampered unless there is faster turnaround in the country’s pace of recovery.
Meanwhile, the same reasons that hindered the government’s ability to secure grants from various development partners in H1, are likely to continue in the second half as the COVID-19 continue to impact on donors’ national economies.
Government misses revenue target in H1
Whilst it may be too early to conclude that it’s not possible for the government to meet its revenue targets for the year, the performance in the first six months of the year could provide some basis for some inferences to be made. Even in H1, government missed its revenue targets by GHȼ4.1 billion, representing 12.7%.
Total Revenue and Grants amounted to GHȼ 28.3billion, equivalent to 6.5% of GDP, against an estimated target of GHȼ 32.4billion or 7.5% of GDP in H1 2021. This means that the government must be more creative in its fund-raising efforts and more importantly, diversifying the funding sources from mainly taxation.
In line with this, government needs to encourage its agencies to explore innovative sources of funding projects including public private partnerships, municipal bonds and other non-sovereign off-balance sheet funding options. This will ultimately reduce the rate of sovereign debt accumulation and lessen concerns of the country’s unsustainable debt levels currently standing at GHȼ334.6 billion at End-June 2021.
Need for greater tax compliance
Meanwhile, the government is counting on its digitization and the merging of its databases which increased the tax net to do the trick. But, an increase in the tax net will not necessarily translate into increased revenues when such individuals and businesses are not able to engage in any meaningful economic activity to generate incomes which will ultimately be taxed by the government.
Nevertheless, clamping down on tax evasion whilst blocking revenue leakages in the tax administration will be much needed at this crucial time. There is the need to improve taxpayer compliance and adherence to set procedures and processes to improve revenue mobilization.
Here, the government’s Revenue Assurance, Compliance and Enforcement (RACE) established within the Ministry of Finance in addition to the tax courts will play a major role. Policy should therefore, be targeted at reviving businesses so as to catalyze the recovery processes through employment creation and increase income to drive up consumer demand.
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