The World Bank has revealed that Ghana’s tax system does not generate as much revenue as it could because of the many tax reliefs or exemptions that narrows the corporate income tax (CIT) base.
Between 2015 and 2020, the Bretton Wood institution pointed out that, Ghana missed out on an average of about 1.3% of its Gross Domestic Product (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.
According to the World Bank’ 8th Ghana EConomic Update, these tax breaks cost Ghana around 0.5% of its GDP in lost revenue each year.
By reducing or eliminating some of these generous tax breaks, Ghana could improve its tax system and collect more revenue from corporate taxes”, it noted in its 8th Ghana Economic Update.
Personal income tax
Personal income tax (PIT) accounts for about 15.0% of Ghana’s total tax revenues, below the 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 percent), leaving a gap between the country’s actual and potential PIT revenue equal to more than 2.0 of GDP.
Payroll taxes
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 files PIT returns.