Mr Sebastian James, Senior Economist in charge of Tax Policy, World Bank, who was speaking at the validation workshop on the Ghana Public Expenditure Review (PER) report in Accra, said goods that were clearly intended for final consumption should not receive duty exemption.

The report covers areas that reflect and complement government’s commitment to strengthening public financial management in preparation for the anticipated increase in oil revenues.

Speaking on; “Boosting Domestic Revenue Mobilization,” Mr James said instead exemptions should be reserved for goods that generated positive externalities such as medical supplies. He said granting preferential tax incentives to certain economic sectors could distort the allocation of productive factors and create opportunities for firms to exploit tax advantages without generating a net increase in investment or job creation.

Mr James said free zones and special economic zones were inherently vulnerable to misuse and although tax holidays had shown to increase foreign direct investment, there was evidence that they did not boost total investment but discouraged long-term venture in favour of “race-to bottom” among investors seeking short-term returns.

He said systematic improvements in data collection would strengthen the analytical basis for reforming tax expenditure. Mr James said Ghana’s system of location-based tax incentives was structurally inefficient and prone to leakage. “Government should explore alternative strategies for achieving the policy objectives of the tax expenditure regime,” he added.