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Gov’t Tax cuts have achieved nothing – ILAPI

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Gov’t Tax cuts have achieved nothing – ILAPI
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A free market civil society organisation, Institute for Liberty and Policy Innovation (ILAPI) has called on the government to stop singing celebratory songs over the supposed impacts of tax cuts introduced in 2017. ILAPI, in its estimation, contends the tax cuts are yet to achieve its goal of stimulating growth within Ghana’s private sector.

The NPP government in 2017 introduced a raft of tax cuts aimed at stimulating private-sector growth and investment which were to engender job creation. During the presentation of the 2017 budget statement on the floor of parliament, Finance minister, Ken Ofori Atta, announced the revision and the removal as well as the abolishing of what the government described as nuisance taxes.

Some of these taxes included 17.5 percent VAT on imported medicines not produced in Ghana, 17.5 percent VAT on financial services, 5 percent VAT on Real Estate Sales, VAT for micro and small scale enterprises from 17.5 percent to 3 percent flat rate, etc. These cuts were welcomed by a cross-section of the Ghanaian populace.

As contended by ILAPI, such tax reforms are expected to increase interest in private sector investment, hence growth. However, the effect of these cuts are largely contingent on the existence of demand-constraints or otherwise. Peter Bismark explains that and aggregate demand economy where spending is low may not allow for these tax cuts to have the desired effects they purposed for.
These tax cuts tend to favour, however, big corporations which are, in most cases owned by party stalwarts, he further explained, rather than impacting the entire private sector ecosystem.

What is worse, as claimed by ILAPI, is that government fund deficit created by these gaps by resorting to borrowing which tends to increase the country’s debt stock and leaves the government with little or no fiscal space to embark on developmental projects. Mr. Bismark avers this could be a contributory factor to Ghana’s rising debt stock, from GHc 120 billion in 2016 to GHc236.1 billion in the first quarter of 2020.
The quest of increasing the public sector investment and hence improving on job creation by the private sector, to a larger extent, has not been achieved, ILAPI suggests.

According to the Executive Director of ILAPI, Peter Bismark, it is too early for the government to sing praises of its tax-cut reforms. He argues that the impact of the tax cut reforms on private sector growth and capital investment for job creation will need more data and time.

Mr. Bismark suggests government obtains more data from the appropriate sectors of the economy affected by the tax cuts to avoid a blanket declaration of tax cuts achieving their intended purposes.

By Sefah-Danquah S.

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