Courage Boti, Manager of Macroeconomic Research at Ghana Commercial Bank PLC, has advised caution regarding expectations of tax cuts as Ghana prepares for a change in government in 2025. Speaking on Joy News’ PM Express Business Edition on November 28, he stressed that while tax reductions are appealing, they could exacerbate the country’s economic challenges if not paired with stronger compliance measures and effective revenue management strategies.

“I don’t mean to dampen the excitement—tax cuts are attractive to everyone,” he noted. “They ease the burden on businesses, allowing profits to be reinvested into expansion, job creation, and growth.” However, he cautioned that lowering tax rates alone will not resolve issues of non-compliance, as human tendencies often lean towards avoiding taxes.

“Whether it’s VAT, E-Levy, or income tax, simply cutting rates doesn’t guarantee compliance. Those determined to evade taxes will still find ways to do so. Without strong compliance mechanisms, tax cuts could lead to significant revenue losses,” Boti explained.

He criticized the long-standing emphasis on broadening the tax base, which he argued has not yielded measurable outcomes. “The current government’s agenda to shift focus from taxation to production and expand the tax net is commendable in theory. But where are the tangible results in revenue collection? Can we confidently say we’ve made progress?” he questioned.

Boti pointed out that previous tax cuts often had to be reversed due to fiscal pressures, highlighting the need to strike a balance between reducing taxes and maintaining revenue levels. He explained that Ghana’s tax revenue is almost entirely consumed by three key expenses—goods and services, wages, and interest payments—leaving little room for significant tax reductions unless compliance is significantly improved.

Turning to the financial sector, Boti described the lingering effects of the Domestic Debt Exchange Programme (DDEP) as a major challenge for banks. “Capital impairment remains a pressing issue. With bonds maturing around 2027/28, we need a clear strategy to pay coupons. If this is not addressed, another round of debt restructuring could severely impact banks and hinder economic recovery,” he warned.

To address these concerns, Boti urged policymakers to focus on strengthening revenue streams, such as creating sinking funds, to meet future obligations and prevent financial imbalances. “Rushing into tax cuts without a strong foundation could lead to revenue gaps and destabilize other sectors. Instead, we should aim for an optimal tax rate that promotes growth while managing risks,” he advised.

In conclusion, Boti urged the incoming government to adopt a prudent approach. “While tax cuts may be politically appealing, they must be backed by sustainable policies. Otherwise, we risk facing severe consequences in the future,” he said.

Source: TheDotNews