The World Bank has raised concerns over the significant impact of tax exemptions on Ghana’s revenue generation capabilities.
According to the institution, the country’s tax system is underperforming due to a multitude of tax reliefs that substantially narrow the corporate income tax (CIT) base.
From 2015 to 2020, Ghana forfeited an estimated average of 1.3% of its Gross Domestic Product (GDP) annually in potential corporate tax revenue. The World Bank’s analysis highlights that the proliferation of over two dozen different types of tax breaks for companies is a major contributor to this shortfall.
The 8th Ghana Economic Update by the World Bank further underscores the fiscal implications, revealing that these exemptions cost the country approximately 0.5% of its GDP in lost revenue every year.
Personal income tax (PIT) accounts for about 15.0% of Ghana’s total tax revenues, below Sub-Saharan Africa’s (SSA) average of 18.0%).
As of 2020, Ghana’s PIT take was equivalent to 2.0% of GDP (against the SSA average of 3.5 per cent), leaving a gap between the country’s actual and potential PIT revenue equal to more than 2.0 of GDP.
Payroll taxes also accounted for more than 99.0% of total PIT proceeds.
All other forms of PIT (taxes on capital gains, investment income, and business income of the self-employed) make up less than 1.0% of total PIT proceeds—versus more than 30.0 in certain other LMICs, such as India.
In 2022, less than 25 percent of Ghanaians of voting age (aged 18 and older) paid payroll taxes under the Pay-As-You-Earn (PAYE) scheme, and less than 0.2% declared any business income.
In comparison, in countries with high PIT productivity such as Norway, Sweden, and Canada, almost 100% of the voting population file PIT returns.
