Ghana’s tax system is underperforming, leaving the country short of significant revenue, according to the World Bank’s latest economic analysis. The 8th Ghana Economic Update reveals that an overly generous regime of tax reliefs and exemptions is costing the government approximately 1.3% of its GDP annually in lost corporate income tax (CIT) revenue.
The Bretton Woods institution points out that Ghana’s CIT base is being undermined by more than two dozen different tax breaks for companies, translating into a revenue shortfall equivalent to 0.5% of GDP each year.
The World Bank’s report suggests that by scaling back or eliminating some of these tax breaks, the country could enhance its tax system’s efficiency and boost corporate tax collection.
The report also highlights inefficiencies in Ghana’s income tax (PIT) system, which generates just 15% of total tax revenues, falling below the Sub-Saharan Africa average of 18%. In 2020, PIT revenue was only 2% of GDP, compared to a regional average of 3.5%, revealing a potential revenue gap of over 2% of GDP.
Payroll taxes dominate Ghana’s PIT proceeds, accounting for more than 99%, while other forms of PIT—such as taxes on capital gains, investment income, and self-employed business income—contribute less than 1%.
This is in stark contrast to other low- and middle-income countries, such as India, where these sources can constitute more than 30% of PIT revenue.
The World Bank notes a concerning statistic: in 2022, less than 25% of Ghanaians of voting age paid payroll taxes under the Pay-As-You-Earn (PAYE) scheme, with fewer than 0.2% declaring any business income. This is a far cry from countries with high PIT productivity like Norway, Sweden, and Canada, where nearly the entire voting-age population files PIT returns.
The World Bank’s findings underscore the need for Ghana to reassess its tax policies, particularly by broadening the tax base and improving compliance. Such reforms could significantly bolster the country’s revenue, providing a much-needed boost to its fiscal stability.