The World Bank has expressed serious concerns about the adverse effects of tax exemptions on Ghana’s ability to generate revenue.
The institution’s analysis reveals that Ghana’s tax system is underperforming, primarily due to a wide array of tax reliefs that significantly reduce the corporate income tax (CIT) base.
Between 2015 and 2020, Ghana forfeited an average of 1.3% of its Gross Domestic Product (GDP) each year in potential corporate tax revenue. The World Bank’s 8th Ghana Economic Update attributes this revenue loss to the existence of over two dozen different tax breaks for companies, which have greatly contributed to the shortfall.
The report also highlights that these exemptions cost the country approximately 0.5% of its GDP annually in lost revenue.
Moreover, personal income tax (PIT) in Ghana contributes about 15% of the nation’s total tax revenues, which is below the Sub-Saharan Africa (SSA) average of 18%. In 2020, Ghana’s PIT collection was only 2% of GDP, compared to the SSA average of 3.5%, indicating a significant gap between the country’s actual and potential PIT revenue, equating to more than 2% of GDP.
The report also reveals that payroll taxes accounted for over 99% of total PIT proceeds, while other forms of PIT, such as taxes on capital gains, investment income, and the business income of the self-employed, made up less than 1% of total PIT proceeds. This is in stark contrast to some other lower-middle-income countries (LMICs) like India, where these sources contribute more than 30%.
In 2022, fewer than 25% of Ghanaians of voting age paid payroll taxes under the Pay-As-You-Earn (PAYE) scheme, and less than 0.2% declared any business income. This contrasts sharply with countries with high PIT productivity like Norway, Sweden, and Canada, where almost 100% of the voting population files PIT returns.
