The proposed cancellation of the E-Levy and COVID-19 tax by President-elect John Dramani Mahama is projected to lead to a GHS 6.4 billion revenue loss in 2025 alone, raising significant concerns regarding its economic implications, especially under Ghana’s ongoing IMF-supported program.
Revenue Loss Breakdown
- E-Levy: The E-Levy is expected to generate GHS 2.4 billion in 2025, an increase from GHS 2.1 billion in 2024.
- COVID-19 Levy: Similarly, the COVID-19 Levy is projected to bring in GHS 3.97 billion in 2025, up from GHS 3.1 billion in 2024.
Combined, these taxes are expected to contribute an additional GHS 1.2 billion in 2025 compared to 2024, resulting in a total loss of GHS 6.4 billion.
Economic Impact
- Fiscal Sustainability: The GHS 6.4 billion loss could create a significant revenue shortfall, placing pressure on Ghana’s fiscal sustainability. This could undermine the government’s ability to fund critical sectors and services.
- Borrowing Risks: In the face of the revenue shortfall, the government may be forced to borrow more, which could exacerbate the country’s already high debt levels and increase its exposure to economic risks.
- IMF Program Concerns: The proposed tax cancellations come amid Ghana’s ongoing IMF-backed economic recovery program, making it difficult to balance economic stability with the promise of tax relief.
Alternative Revenue Measures
- Reducing Import Exemptions: Some analysts suggest that reducing import exemptions could offset the revenue loss. The tax savings from import exemptions and zero-rated imports are estimated to be around GHS 9 billion. This could potentially cover the revenue gap left by scrapping the two taxes.
- Tax Consultant’s Recommendation: According to Francis Timore-Boi, a tax consultant, direct tax exemptions at the ports alone amounted to GHS 3.5 billion, with approximately GHS 1.7 billion being approved by the government. Reviewing the zero-rated items for imports could generate significant revenue, helping to recover the loss from the scrapped taxes.
Political and Economic Trade-Offs
- Tax Burden Relief: The proposed cancellation of these taxes aligns with the NDC’s goal to ease the tax burden on households and businesses. However, it poses challenges for fiscal management, as it could undermine the country’s fragile economic recovery.
- Strategic Review Needed: While alleviating the tax burden is a key promise, careful analysis is needed to balance the revenue gap with the broader goal of economic stability. The potential impact of the tax shortfall needs to be weighed against the need for fiscal discipline and economic recovery.
The proposed scrapping of the E-Levy and COVID-19 tax raises significant concerns about Ghana’s ability to maintain fiscal stability and meet its economic recovery targets. The GHS 6.4 billion revenue loss could have serious consequences for funding essential government programs and managing the country’s debt. As alternative revenue sources, such as reducing import exemptions, are explored, the trade-offs between easing the tax burden and maintaining economic stability must be carefully considered.
