Revenue Forecasting Using Trend Analysis

Abstract

Given the inadequacy of the revenue base to cope with the targeted level of economic activities due to the ever-increasing demands of the populace, governments of developing countries (including Ghana) often engage in deficit financing. There is now a consensus among interested parties on the need to address the problem effectively. An appraisal of the budgetary process in Ghana shows that annual expenditure proposals are always anchored on projected revenue, thus the accuracy of revenue projection is a necessary condition for devising an appropriate framework for fiscal deficit management in Ghana.

This study, therefore, analyses the revenue collection of the Customs, Excise and Preventive Service (CEPS) for the period 2008-2012 to devise a reasonably accurate projection for the individual tax components. This will assist in the design of an appropriate expenditure profile as a means of averting any future fiscal deficit in the country.

The data were sourced from the Research and Monitoring Department of CEPS and was analyzed using time series analysis. Overall, the study reports a satisfactory level of revenue performance of the three tax heads; Import Duty, Import VAT and Petroleum Tax. The study concludes that the current revenue profile of CEPS is sustainable with prospect for significant improvement in subsequent years.

The accuracy measures were employed on the various tax inputs and their mean percentage errors, mean absolute deviation and mean squared deviations were compared to decide on which method will be the pest model for revenue projection. As regard to the results obtained the growth curve model will be the preferred method in forecasting revenues in the Customs Excise and Preventive Service in Ghana.

Keywords: import duty, import vat, petroleum tax national health insurance levy (NHIL)