A leading banking expert from the UK has put forward a proposal for a new tax on banks in Ghana. Dr. Sajid M Chaudhry of Aston University stated that banks in Ghana are making very high profits. These profits are significantly higher than those in other industries. Much of this profit comes from investing in government treasury securities, which are loans to the government.
Dr. Chaudhry believes this 'bank tax' is crucial for developing nations like Ghana. He explained at an event organised by the Institute of Economic Affairs (IEA) that the tax would provide a steady flow of money for Ghana. This revenue could help achieve important United Nations Sustainable Development Goals (SDGs). Goals such as reducing poverty, hunger, and improving health and education could benefit.
The expert further suggested that the tax revenue could also fund important green projects. This includes investments in renewable energy sources. It could also support projects that fight climate change. Sustainable infrastructure development would also be a beneficiary. For example, a 5% tax on the profits of the 10 largest banks before tax could bring in an estimated GHS 264 million. A 1% tax on treasury security investments could earn GHS 577 million in the short term.
Many countries around the world have already introduced forms of bank taxation. Australia, for instance, introduced a bank tax in May 2017. Its Treasurer at the time explained it was to help reduce the country's budget deficit. Dr. Chaudhry also suggested a tax on a bank's total liabilities. This would be after subtracting equity and insured deposits. Such a tax could encourage banks to rely less on short-term borrowing. It could also help reduce the risks banks take over time.
He specifically proposed a 2% tax on total liabilities, excluding equity and insured deposits. This would be for the long term. Alternatively, a 10% tax on profit before tax if that amount is higher. For the short term, he recommended a 1.0% tax on investments in treasury securities. The rate could change based on interest rate movements. The tax on liabilities would be especially useful when banks grow larger and take on more risk.
Dr. Chaudhry noted that Ghanaian banks' investments in treasury securities seem to reduce their apparent riskiness. This observation aligns with predictions made by economic theories. The Institute of Economic Affairs (IEA) frequently organises discussions on economic policy in Ghana. Experts often present data and analyses to inform public debate and government decisions.
The implications of such a tax could be far-reaching for Ghana's financial sector. It could lead to increased public funds for essential services and development. However, banks might pass on some of the tax costs to consumers through higher fees or interest rates. Regulators and policymakers will need to carefully study the potential impact. They will also consider the balance between revenue generation and financial sector stability. Decisions on implementing such a tax would require thorough economic modelling and public consultation.