Eliminating the E-Levy and COVID-19 tax is anticipated to lead to a revenue deficit of GHS 6.4 billion in 2025 alone.
The ambitious initiative proposed by President-elect John Dramani Mahama to abolish these tax measures has raised concerns regarding its practicality, especially in light of Ghana’s current IMF-supported program.
The proposed removal of these two tax sources, as indicated by the incoming National Democratic Congress (NDC) administration, could result in a substantial revenue gap in Ghana’s budget for the upcoming year.
This situation presents significant risks to fiscal sustainability, as the levies are expected to reach their peak in 2025, aimed at stabilizing government finances amid economic challenges.
Government projections indicate that the E-Levy is expected to yield GHS 2.4 billion in 2025, an increase from the GHS 2.1 billion allocated for this year.
Likewise, the COVID-19 Levy is forecasted to generate GHS 3.97 billion next year, up from GHS 3.1 billion in 2024.
According to these estimates, the two tax streams are expected to provide an additional GHS 1.2 billion in 2025 compared to the figures for 2024.
This GHS 6.4 billion deficit could jeopardize funding for essential sectors of the economy.
The revenue shortfall may force the government to increase borrowing, thereby worsening the nation’s already unsustainable debt levels and heightening Ghana’s vulnerability to economic risks.
Analysts warn that abolishing these taxes without implementing clear alternative revenue strategies could threaten fiscal stability and hinder the country’s delicate economic recovery efforts.
Some industry stakeholders suggest that the solution may lie in reducing import exemptions, estimating potential tax savings of around GHS 9 billion in this area.
Direct tax exemptions at the ports reached approximately GHS 3.5 billion, with the government approving around GHS 1.7 billion of that total. Furthermore, certain imported items are classified as zero-rated. A review of these items could potentially yield substantial revenue. In total, it is estimated that nearly GHS 9 billion could be generated from port exemptions and zero-rated imports. Consequently, reducing these exemptions could allow for the recovery of revenue lost from the elimination of the two levies, according to tax consultant Francis Timore-Boi.
While the suggested repeal is in line with the NDC’s objective to ease the tax burden on households and businesses, it is essential to conduct a thorough analysis of the economic trade-offs, particularly in addressing the revenue shortfall during a period of ongoing economic recovery efforts.
