As the International Monetary Fund (IMF) prepares to meet the Nana Akufo-Addo government for its first review, discussions are rife on how the government’s tax cut programmes will fit into the External Credit Facility of the Fund.
The government has promised a number of tax cuts, such as reducing corporate income tax from 25 to 20 percent while the 17.5 percent VAT on financial services and domestic air tickets would be scrapped, among others.
The erstwhile John Mahama administration went to the IMF for a bailout for a credit facility of about 918 million dollars.
As part of the conditions, government is expected to remove subsidies on some items and also ensure zero financing from the central bank.
Speaking to Citi Business News, Economist at the University of Ghana Business School, Dr. Lord Mensah was of the view that, Akufo-Addo’s tax cut promises are not far from the IMF’s ultimate goal, which is economic growth.
“There is a way of justifying and proving it to the IMF. The tax cut does not necessarily mean that tax off the system. So instead of targeting the taxes at the corporate level, you can bring it down,” he said.
He explained that corporate entities will pay taxes if their operations expand and they generate more come due reduction of taxes in some critical areas.
“At the end, the businesses will pay taxes when they expand. Once you earn you have to pay taxes. So it is a way of shifting the taxes from the top and then bringing it down to a level that’s more or less bottom up approach,” he said.
Looking at the philosophy of the New Patriotic Party (NPP), Dr. Mensah was of the view that it will be in line for the government to pursue expansion of the private sector.
“The government must prove to the IMF that for a government that believes and encourages private sector development this is how you want to approach your taxes,” he said.