Tax cuts and levy abolishing could harm revenues in short term

The International Monetary Fund has warned that the recent round of tax cuts and levy abolitions could hurt the economy in the short term as the government must absorb an estimated multi-billion-cedi revenue hit.

It however projected that administrative reforms and improved compliance will boost revenue mobilization over time.

During an appearance on Joy News’ Business Live, Tuesday, IMF Resident Representative to Ghana, Dr. Adrian Alter explained that the immediate fiscal effects of the reforms may not translate into quick revenue gains, despite medium-term expectations tied to improved tax administration and digital systems.

He also warned that while the reforms may broaden the tax base and strengthen performance in the long run, the “near-term impact could be disruptive,” pointing to the headline tax rate revisions and removals.

“For instance, the impact on the revenues from the VAT reform, if you put in place everything both on the removal and the reduction of the effective VAT rate from 21.9 to 20% plus the other measures that compensate, they are eventually going to lead to a minimal increase in revenues,” he said.

“However, the tax administration reforms and the digital systems are going to lead to more revenue over the medium term. So, we shouldn’t expect an immediate impact on the revenue envelope in terms of government meeting his target, these reforms are good but it’s more of a medium-term impact than an immediate impact,” he added.

In November last year, the government announced a series of tax reforms in the 2026 budget, cutting some rates and removing certain levies in what Finance Minister Dr. Cassiel Ato Forson described as an “attempt to unlock private investment, diversify the economy, and deliver inclusive growth.”

The Fund pointed out that these tax reforms could result in Ghana losing more than GHC6 billion in a year, but shared that effective tax administration and the proposed digital reforms in revenue mobilization could begin to yield some positive results by end-2026.