The World Bank has noted that Ghana's tax system has too many tax reliefs that are inherently stifling the country’s revenue.

It said the country missed out on an average of about 1.3% of its Gross Domestic Product each year since 2015.

It added that this narrows the corporate income tax base.
“Between 2015 and 2020, Ghana missed out on an average of about 1.3 percent of its GDP in corporate tax revenue each year. Part of the reason for this is that there are more than two dozen different types of tax breaks for companies,” the 8th Ghana Economic Update noted.

According to the World Bank, these tax breaks cost Ghana around 0.5 percent of its GDP in lost revenue each year.

The World Bank recommended that “By reducing or eliminating some of these generous tax breaks, Ghana could improve its tax system and collect more revenue from corporate taxes.”

The analysis further noted that Personal income tax (PIT) accounts for about 15 percent of Ghana’s total tax revenues, below the SSA average of 18 percent.

As of 2020, Ghana’s PIT take was equivalent to 2 percent of GDP (against the SSA average of 3.5 percent), leaving a gap between the country’s actual and potential PIT revenue equal to more than 2 percent of GDP. Payroll taxes account for more than 99 percent of total PIT proceeds.

“All other forms of PIT (e.g., taxes on capital gains, investment income, and business income of the self-employed) make up less than 1 percent of total PIT proceeds—versus more than 30 percent in certain other LMICs, such as India.

“In 2022, less than 25 percent of Ghanaians of voting age (i.e., aged 18 and older) paid payroll taxes under the Pay-As-You-Earn (PAYE) scheme, and less than 0.2 percent declared any business income. In comparison, in countries with high PIT productivity such as Norway, Sweden, and Canada, almost 100 percent of the voting population files PIT returns. A deep dive into the key issues facing the PIT regime,” the report noted.

SSD/NOQ

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