Tax Reforms & Revenue Mobilisation: A Case Study of the Mining Sector of Ghana

Abstract

A strong and efficient tax system provides the basis for enhanced economic growth and development. Ghana‘s fiscal structure prior to 1983 had generally been characterized by low revenue. As a result, Ghana undertook a number of reforms prescribed by the International Monetary Fund (IMF) and the World Bank under the Economic Recovery Programme (ERP) and the Structural Adjustment Programme (SAP). Under the programmes, numerous policies were amended to establish a more attractive investment climate for foreign-owned mineral-exploration and extraction companies. The country‘s mining industry has since expanded rapidly experiencing, by 2004, a fivefold increase in annual gold output and big rises in bauxite, diamond, and manganese production. However, at the same time, there is an on-going debate as to whether the country is benefiting from mining operations in terms of tax revenue mobilization. The purpose of this study is to assess the impact of fiscal regimes in the mining sector in Ghana on revenue mobilization in the sector using tax elasticity and buoyancy ratios. The Singer method of dummy variables was employed in order to make adjustment for the effect of discretionary tax measures so as to compute and then compare buoyancy and elasticity measures. The empirical results indicated that buoyancy estimates were higher than elasticity estimates; and the short-run elasticities were lower than the static long-run elasticities. Estimation results further showed that discretionary tax measures were effective in mobilizing additional tax revenues and that the tax system was inelastic during the period. The study recommends that there is the need to reduce capital consumption allowances, a holistic review of the principle of ring-fencing and identifying new sources of taxation that are elastic.