Tax cuts alone won’t fix Ghana’s revenue problem; focus on compliance – Economist

The Manager of Macroeconomic Research at Ghana Commercial Bank (GCB) PLC, Courage Boti, has made a strong case for focusing on tax compliance enforcement rather than just slashing tax rates.

While acknowledging the appeal of tax cuts, Mr Boti cautioned that simply lowering taxes would not automatically lead to increased compliance among taxpayers.

“We all like tax cuts, right? It makes life easier for businesses and allows you to reinvest more into your company for growth and expansion. But, we need to tread carefully,” he added. “

Human nature is inherently selfish. If you cut taxes on VAT, E-Levy, or other taxes, it does not automatically translate into compliance.”

According to Mr Boti, while tax cuts are attractive, the real issue lies in ensuring that the tax system is enforced properly.

“The problem is in compliance enforcement,” he stressed.

“If we cut tax rates, there’s a loss of revenue, and that needs to be compensated for by enforcing compliance to make sure that those who are underreporting or avoiding taxes are properly brought to account.”

He further explained, “Those who are greedy and inherently want more will still not pay. Until we break that code and focus on compliance enforcement, reducing tax rates will not change much in terms of compliance. It may increase slightly, but the real impact is not guaranteed.”

Boti also highlighted the government’s efforts to expand the tax net, mentioning the current administration’s focus on moving from taxation to production.

“This government has been vocal about broadening the tax net, and we’ve seen programs like the Revenue Assurance and Compliance Enforcement Initiative,” he said.

However, he raised concerns about the actual impact of these initiatives on the revenue basket.

“Can we boldly say that we have achieved the desired results?” he questioned.

He referred to the first term of the government, during which a series of tax cuts were introduced but later reversed due to revenue shortfalls.

“There were tax cuts in the first term, but some were eventually brought back because of the revenue problem,” Boti noted.

“This shows that we need to focus on maximizing revenue generation. Cutting taxes without fixing the compliance problem is a temporary solution that doesn’t address the underlying issues.”

Courage Boti also stated the need to balance revenue generation and expenditure management.

“In the sub-region, Ghana generates the most in domestic revenue, but it does not amount to much when you look at key expenditure items—goods and services, interest payments, and wages,” he explained.

“These take up all the revenue collected in a year, leaving little room for investment in growth. We are not generating enough to cover our basic needs, let alone cut taxes significantly.”

He continued, “The biggest problem financial sector players like myself have faced in the last two or three years has been the Domestic Debt Exchange Programme (DDEP) and its affiliated programs.

“While we are getting out of the woods, the capital impairment still lingers. If the situation is not properly managed, the recovery we’re seeing may not be sustainable.”

Mr Boti stressed the importance of having a solid plan in place, particularly regarding upcoming debt obligations.

“In the 2027/28 period, the leading bonds will start to fall due,” he said.

“There needs to be a proper plan to pay those coupons. If not, another round of restructuring could have a significant negative impact on banks, and that would jeopardize the recovery.”

He concluded by urging caution in tax policy decisions.

“We need to be cautious. If we rush to cut taxes, we may create imbalances in many sectors, which will require compensation in the future. We should avoid hasty decisions and focus on building the necessary funds to close the revenue gap over time,” Boti said.

“A balance between growth, revenue generation, and tax cuts is key.”