World Bank Report Identifies Areas Where Ghana Can Enhance Domestic Revenue Mobilisation
The World Bank, in its 8th Economic Update for Ghana, titled “Strengthening Domestic Revenue Systems for Fiscal Sustainability,” has delineated key areas where Ghana can bolster its domestic revenue mobilization.
The report, unveiled by Stefano Ciurto, Lead Economist for the World Bank in Ghana, Liberia, and Sierra Leone, underscores Personal Income Tax, VAT and Excise Duty, Corporate Income Tax, and Tax Expenditures and Rationalization as pivotal avenues for enhancing the country’s tax revenue.
The World Bank report highlights significant issues within the Personal Income Tax (PIT) framework. Per the report, complex tax administration and inadequate enforcement have resulted in low compliance as revenue growth has not kept pace with GDP, primarily due to an over-reliance on payroll taxes, which account for over 99 percent of PIT revenue.
Adding that, PIT contributes a mere 15 percent of total tax revenue and 2 percent of GDP, falling short of the Sub-Saharan Africa (SSA) averages. Despite its progressive nature, the PIT system is undermined by numerous exemptions, including those for retirement funds, which diminish the tax base.
VAT and Excise Duty also present challenges as VAT’s share of total tax revenue plummeted from 34 percent in 2015 to 17 percent in 2021, partly due to reduced rates and exemptions. Excise duties, the report also revealed, contribute 1.8 percent of GDP, below the regional average, with over 90 percent derived from petroleum products, noting that the absence of a robust tracking system for excise duties further exacerbates non-compliance.
Another area of concern pointed out by the report was Ghana’s Corporate Income Tax (CIT) revenue which averaged 2.2 percent of GDP from 2015-2021, lagging behind regional peers. The report points out that the complex CIT regime, featuring 22 reduced rates, diminishes the effective tax rate and complicates tax administration.
Tax Expenditures and Rationalization, the report further revealed, presents another area of concern as it costs the country 3.9 percent of GDP and creates complexity and revenue distortions. VAT exemptions alone account for 1.9 percent of GDP, with significant losses stemming from exemptions on dwellings and land. PIT exemptions also cost an estimated 1.4 percent of GDP, notably affecting cocoa farmers and pension contributions. Additionally, import duty exemptions amount to 0.2 percent of GDP, with significant costs arising from parliamentary exemptions.
Mr. Ciurto, speaking at the report’s launch, emphasized that enhancing tax revenue mobilization is crucial for Ghana to achieve sustainable fiscal stability. He noted that improving tax efforts is not only a financial necessity but a cornerstone for sustaining economic development.
“High and sustainable revenue mobilization enables better management of public finances, ensures adequate investments in critical infrastructure projects, and supports social programs aimed at reducing poverty and fostering inclusive growth. Presently, Ghana’s tax revenue is significantly lower compared to Sub-Saharan African peers and countries with similar income levels, indicating deep-rooted challenges within the tax policy and compliance mechanisms,” he stated.
This year’s report, entitled ‘Strengthening Domestic Revenue Systems for Fiscal Sustainability’, focuses on Ghana’s domestic revenue mobilization, identifying potential policy measures within Ghana’s tax policy framework and compliance mechanisms, which could not only help macroeconomic stability but also generate the necessary resources to support sustainable long-term growth and poverty reduction efforts.
The report offers a thorough analysis of Ghana’s tax policy and administration, identifying key areas for reform. The adoption of an ambitious Medium Term Revenue Strategy for 2024-2027, further lays a foundation for even more robust reforms towards fiscal stability and economic prosperity.
