IMANI’s comments on 5 key economic promises of the NPP


Pledge: Corporate taxes shall be reduced from 25% to 20% in an NPP administration. Capital equipment will be tax-free. VAT on imported medicines not produced in Ghana to be abolished. VAT on domestic airline tickets to be abolished. VAT on SMEs to come down from 17.5% to 3%.

Comment: The data generally show that lower taxes can spur greater productive investments and thereby help generate economic growth, which in turn can expand revenue intake overall.

The NPP, however, needs to clarify whether the proposed corporate income tax rate will be a flat tax rate that cuts across all sectors. Currently, there are sectors that enjoy lower tax rates than the 25%. Hotels, financial institutions, and companies listed on the stock exchange, for instance.

Does the NPP intend to remove the incentive differential and tax these companies at the flat rate of 20%? What about non-traditional exporters who are taxed at only 8%? In 2010, the government revised the mining tax rate back to 35% after the NPP had brought it down to 25% in 2006.

Will the mining sector be affected by the new flat tax rate? Whilst the data does show that lower company taxation is a growth pill, the argument that the NDC’s tax hikes have registered no revenue improvements is not entirely accurate. Direct taxes constituted 31.2% of total revenue over the 2001 to 2008 period but they now amount to 41.8%. What no one can dispute is that the burden on business is interfering with private sector growth. The question is whether there would be a short-term drop in revenue and what current government bills the NPP shall drop in the event of such a short-term drop.

Pledge: 70% of taxpayer-funded procurement shall be executed by local companies.

Comment: The NPP needs to explain how this local content policy will do better given the history of local content policies in this country. Sectoral schemes have so far not been very effective. On the whole, however, increasing the capacity of local businesses using the public procurement system has strong merits for further consideration.

Pledge: A ‘fiscal council’ will be set up and anchored in law to oversee medium-term fiscal accountability. The NPP shall assemble a team of experts with diverse experience and skills to address the issue of unemployment through superior economic management.

Comment: The fiscal authorities in Ghana are nominally regulated by Act 335 and Act 654 and their work is impacted by parliamentary oversight and various legal audit frameworks. Is the NPP promising to revive the fiscal responsibility law promised but not delivered in 2007? How will it enhance the Public Financial Management Bill passed in August 2016 by the current parliament? How will this assembly of experts outperform the old regimes of presidential advisory councils and economic management teams?

Pledge: $275M shall be taken from a projected $1.6BN capital expenditure budget to be handed over to constituencies. Furthermore, three authorities – Northern Development Authority, Middle Belt Development Authority, and Coastal Development Authority – shall be created to facilitate broad-based national development.

Comment: In the past, a number of these authorities have been created for Northern Ghana and parts of the coastal belt. Additional details are needed as to how this new idea will differ from previous ones. What administrative machinery will be put in place in constituencies to spend and oversee the allocated money? How does the NPP hope not to duplicate the activities of the district assemblies leading to additional overhead and operational friction, especially given their promise to see DCEs and MMCEs elected within their first term?

Pledge: A distributed solar programme will be put in place to convert all government facilities to use solar power.

Comment: This is another variant of the use of public expenditure to drive specific industrial outcomes, in this case by providing a shot in the arm to the local renewable energy industry. The Energy Commission has indeed been weighing the idea of making the installation of rooftop solar panels compulsory for all new buildings in Ghana, starting with public facilities.

Our position remains that the decision to opt for a particular energy source should be based on rigorous cost comparisons across all available sources. If gas-fired, grid power would be cheaper than solar over the medium-term, then that is what any government should favour.

Cost, at this stage of our national development, should be the primary driver of decision making. Consequently, we await further cost-benefit analysis on this idea.


Source: classfmonline