IEA backs govt’s decision to abolish nuisance taxes

The Institute of Economic Affairs (IEA) has backed government’s decision to abolish certain nuisance taxes in fulfilment of its promise to do so.

They are the electronic transaction levy (E-Levy), Emissions Tax and the Covid Tax.

However, “IEA notes that contrary to its suggestion for the Betting Tax to be maintained albeit at a reduced rate of five per cent instead of 10 per cent for both revenue and deterrence reasons, the minister decided to abolish it completely.”

In addition, it said: “While the IEA proposed that the Growth and Sustainability Tax (GST), which was first introduced in 2001 as the Fiscal Stability Tax, should be abolished for being obsolete, the minister decided to maintain it, while increasing the rate from one per cent to three per cent for extractive companies.”

This was contained in the IEA’s response to the 2025 Budget Statement presented by the Minister of Financial, Dr Cassiel Ato Forson, to Parliament last Tuesday.

Revenue

The IEA, it said, had argued for the country to demand more revenue from the extractives sector, including a Super-Profit or Windfall Tax.

“From that standpoint, the IEA does not believe that the GST of three per cent is high enough. The institute has consistently advocated Ghana to maximise its benefits from its extractives by reviewing the existing laws to enable the country to demand more favourable fiscal regimes.

“The IEA wishes to note that the projected revenue-to-GDP ratio of 16.1 per cent, which is only marginally higher than that of 15.9 per cent for 2024, is not ambitious enough.

As the institute indicated in its pre-Budget statement, plugging the several tax loopholes, in addition to other measures, could significantly increase Ghana’s revenue-to-GDP ratio, which falls far below its peer middle-income countries’ average of 25-30 per cent,” it said.

The IEA also supported cost-cutting initiatives in the budget, relating to the size of Government and associated spending on goods and services, among others.

Those, it said, resulted in a significant reduction in total expenditure (cash) as a ratio of GDP for 2025 to 19.2 per cent from 23.7 per cent for 2024.

However, it said capital expenditure (CAPEX) as a ratio of GDP remained relatively low at 2.4 per cent in 2025 (compared with 2.5 per cent for 2024).

“The IEA has consistently lamented the inadequacy of CAPEX in our budgets, a situation that continues to be a drag on growth. Indeed, the growth projection of 4.0 per cent of GDP for 2025, which is even lower than that of 5.7 per cent for 2024, is below the country’s potential, given the availability of excess resources and capacities waiting to be tapped,” it said.

The IEA said the announced decision to review the Fiscal Responsibility Act by tightening some of the responsibilities and the sanctions regime is in the right direction.

In particular, it said the Act should include a provision for limiting the period for which it could be suspended in case of emergency to avoid the possibility of indefinite suspension as had happened since 2020 and that the decision to legislate a debt ceiling of 60 per cent was particularly welcome, as it reflected IEA’s longstanding recommendation.

Moreover, the IEA welcomed the decision to uncap some of the statutory funds, including the Ghana Education Trust Fund (GETFund), Roads Fund and National Health Insurance Fund and that “This should make more money directly available to these funds to finance their activities.

Having said that, it does not seem certain that the extra funds would be allocated to development projects instead of recurrent spending within these sectors.” 

Allocation

He said a critical look at allocation of resources to MDAs seemed to suggest misplaced priorities in some cases.

“For instance, the Office of Government Machinery gets a relatively big share of GH¢3.8  billion, of which GH¢2.7 billion is for compensation of employees.

Agriculture and Roads, very important sectors, on the other hand, receive relatively small allocations of GH¢1.6 billion and GH¢ 2.4 billion respectively. 

“Then, education and health receive the lion’s share of GH¢28.4 billion and GH¢12.7 billion respectively.

However, most of their allocations go to compensation of employees, being GH¢ 27.1 billion and GH¢12.2 billion respectively, with only GH¢120 million and GH¢10 million going to CAPEX,” it said. 

Clearly, IEA said, the allocation of resources to ministries, departments and agencies (MDAs) showed misallocations in relation to the MDAs and in relation to compensation of employees and CAPEX.

A rebalancing of spending, it said, was required to ensure efficiency and optimal outcomes.

“The IEA notes that the budget is heavy on social interventions, which may have both positive and negative consequences.

While retaining the senior high school’s free benefits, free nursing trainee allowance, free teacher training allowance, free LEAP and free NHIS, the budget also proposes free first-year university fees, free primary health care and free sanitary pads for school girls, among others.

On the one hand, these free benefits are economically and socially beneficial,” it said.