Have the generous tax incentives in the natural resource sector been commensurate with FDI flows? A critical analysis from an emerging economy

Abstract

Even though Ghana is well endowed with many natural resources, the country's economy is characterised by high budget deficits, rising debt-to-gross domestic product (GDP) ratios, persistent trade and current account deficits, and unemployment. Consequently, the country continues to rely on foreign direct investment (FDI) to drive economic growth. The paper sought to examine whether the generous tax incentives have been commensurate with FDI flows. The study relied on data from world development indicators (WDI) and Ghana Revenue Authority (GRA) to justify the need to relook at the commensurate gains of FDI flows in response to tax incentives. The paper found that despite numerous justifications for a tax incentive policy to attract FDI flows, their efficacy to attract commensurate with FDI flows is doubtful. We conclude that tax incentives to multinational companies (MNCs) have not had their desired impact; hence, policy makers should rather create the enabling investment environment to attract FDIs.