EFFECTS OF IMPORT TAX EXPENDITURE ON REVENUE MOBILISATION IN GHANA

Abstract

This study examines the effect of tax expenditure on import tax revenue mobilization in Ghana by using the Autoregressive distributed lagged model (ARDL) model with structural breaks on a monthly time series data from January 2012 to June 2019. The innovational outlier model was applied to determine the structural breaks in the data series within the bounds testing cointegration model. The findings indicate that expenditure on interest payment, compensation of employees, and grants to other government units have a negative significant effect on import tax revenue in the long run. In addition, the results also revealed that macroeconomic variables such as inflation rate and exchange rate have a negative effect on import tax revenue in the long run. Therefore, the study concludes that tax expenditure have inverse relationship with tax revenue mobilization in Ghana. Therefore, it is recommended that government should put in place financing measures to effectively manage wage bills in order to ensure that the desired public services are delivered in most efficient and fiscally sustainable manner. Furthermore, government should be mindful of the macroeconomic environment and the various tax incentives when mobilizing import tax revenue.