The government is likely to fall short of its 2025 target to raise GH¢ 4.5 billion from the Growth and Sustainability Levy due to past performance issues and resistance from certain institutions required to pay the levy. Since its introduction in 2023, the levy has consistently underperformed, raising concerns about the feasibility of meeting this year’s ambitious goal.
The Growth and Sustainability Levy was introduced in 2023 to boost government revenue. In its first year, the government set a target to raise GH¢ 1.1 billion but only managed to collect about GH¢ 500 million. In 2024, the target was initially GH¢ 1.1 billion, but it was revised to GH¢ 2.1 billion during the mid-year budget. However, the government only managed to collect GH¢ 821 million by the end of the year.
Given this trend, the 2025 target of GH¢ 4.5 billion seems overly optimistic. The significant increase in this year’s target is mainly due to a rise in the levy for mining companies, which went from 1% of their gross production to 3%.
Who Pays the Levy?
The Growth and Sustainability Levy is paid by nearly all corporate organizations, categorized into three groups:
- Group One: Financial institutions, oil companies, telecom companies, breweries, inspection and valuation companies, shipping lines, and maritime and airport terminals. These entities are required to pay 5% of their profits before tax.
- Group Two: Mining companies are required to pay the levy based on their gross production, regardless of whether they make a profit.
- Group Three: All other companies not covered by the first two groups, which must pay 2.5% of their profit before tax.
Challenges in Meeting the Target
Several factors are expected to hinder the government from meeting its 2025 target. For one, most companies outside of the mining sector are only required to pay the levy if they make a profit. This means that if a company does not make a profit, it is exempt from paying the levy.
However, the biggest challenge comes from the mining sector, which is required to pay the levy on gross production. Many mining companies have agreements with the government that protect them from paying taxes not included in their original contracts. These are known as stability clauses, which ensure that major provisions affecting the companies’ financial standing cannot be changed after the agreement is signed. As a result, many mining companies have resisted paying the levy.
Sources confirm that not all mining companies have complied with the Growth and Sustainability Levy due to their stability clauses. Furthermore, the increase in the levy from 1% to 3% for mining companies has sparked discontent within the industry, with strong indications that compliance will remain low. There are even suggestions that compliance may worsen this year, as mining companies feel unfairly targeted by the government’s push for higher contributions.
Impact of Missing the Target
Failing to meet the GH¢ 4.5 billion target will put additional strain on the government’s finances, especially with the planned withdrawal of other revenue streams such as the e-levy, betting tax, and COVID levy. This shortfall may force the government to abandon some of its planned projects for the year in order to stay within budget. The consequences of such a move could be significant, affecting economic growth, job creation, and overall living standards.
Alternatively, the government may resort to borrowing more money, which could exacerbate the country’s debt situation and lead to higher interest rates for businesses, further complicating the economic outlook.
Calls for a Different Approach
Industry experts are urging the government to reconsider its approach to the mining companies and engage them through moral persuasion. A well-handled dialogue could encourage mining companies to comply with the levy, helping the government achieve a better outcome than in previous years.
Without proper engagement and compliance, the government may experience an even worse performance for the Growth and Sustainability Levy in 2025, which would further complicate its fiscal challenges.
