Tax cuts are appealing, but could deepen economic challenges – Analyst
A Manager of Macroeconomic Research at Ghana Commercial Bank PLC, Courage Boti, has called for a cautious approach to tax cut expectations as a new government prepares to take office in 2025.
Speaking on Joy News’ PM Express Business Edition on November 28, he stated that while tax cuts are appealing, they could deepen economic challenges if not balanced with robust compliance enforcement and revenue management.
“I hate to be a killjoy. I can feel your enthusiasm. We all like tax cuts, right? It makes life easier for businesses and allows you to plough back more of your profit into expansion, growth, and employment,” he said.
However, he warned that tax cuts do not automatically translate to compliance, as human nature is inherently selfish.
“Whether it’s VAT, E-Levy, or income tax, cutting rates alone won’t change much. Those who are inherently greedy will still find ways not to pay. Until we break the code on compliance enforcement, revenue loss is inevitable,” he explained.
The economist criticised the historical focus on expanding the tax net without measurable results.
“The current government has been vocal about moving from taxation to production, expanding the tax net. But what has been the impact on the revenue basket? Can we boldly say we’ve achieved results?” he questioned.
He pointed out that past tax cuts were often reversed due to fiscal pressure, underscoring the importance of maintaining a balance between tax reductions and revenue generation.
“Three expenditure items—goods and services, interest payments, and wages—consume all of our tax revenues annually. There’s no scope for significant tax cuts under these circumstances unless compliance is maximised,” he emphasised.
Mr Boti also highlighted the lingering effects of the Domestic Debt Exchange Programme (DDEP) on the financial sector, which he described as the “biggest headache” for banks in recent years.
“Capital impairment is still an issue. We need a clear plan to pay coupons when bonds start maturing around 2027/28. Without this, another debt restructuring round could devastate banks and slow recovery,” he warned.
He urged policymakers to focus on building revenue streams, such as sinking funds, to address future obligations and avoid imbalances.
“If we rush to cut taxes now, we risk creating revenue gaps and destabilizing other sectors. We need to work towards an optimal tax rate that balances growth and risk,” he said.
Courage Boti’s message to the incoming government was clear: “Let’s act cautiously. Tax cuts may sound good politically, but they require a solid foundation to be sustainable. Anything less could lead to a painful reckoning down the line.”
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