World Bank Warns of Revenue Loss in Ghana. The World Bank has expressed serious concerns about the detrimental effects of tax exemptions on Ghana’s ability to generate revenue.
The institution highlighted that the country’s tax system is significantly underperforming, primarily due to a myriad of tax reliefs that have considerably narrowed the Corporate Income Tax (CIT) base.
Between 2015 and 2020, Ghana missed out on an estimated average of 1.3% of its Gross Domestic Product (GDP) annually in potential corporate tax revenue.
This shortfall is largely attributed to the proliferation of over two dozen types of tax breaks available to companies, which have eroded the CIT base and hampered revenue collection.
World Bank Warns of Revenue Loss in Ghana: Key Findings from the World Bank’s Analysis
The 8th Ghana Economic Update by the World Bank underscores that these tax exemptions cost the country approximately 0.5% of its GDP in lost revenue each year.
This has severely impacted Ghana’s overall tax revenue, particularly in the area of personal income tax (PIT).
According to the report, personal income tax constitutes only about 15% of Ghana’s total tax revenue, which is below the Sub-Saharan Africa (SSA) average of 18%.
In 2020, Ghana’s PIT revenue was equivalent to just 2% of GDP, compared to the SSA average of 3.5%, resulting in a significant revenue gap of over 2% of GDP.
Payroll taxes account for over 99% of total PIT proceeds in Ghana, while other forms of PIT—such as taxes on capital gains, investment income, and the business income of the self-employed—make up less than 1% of total PIT revenue.
This is in stark contrast to other lower-middle-income countries (LMICs) like India, where such taxes constitute more than 30% of PIT proceeds.
Calls for Corporate Tax Relief to Strengthen Rural Banking in Ghana
Challenges in PIT Productivity
The report further revealed that in 2022, fewer than 25% of Ghanaians of voting age (18 and older) paid payroll taxes under the Pay-As-You-Earn (PAYE) scheme, and less than 0.2% reported any business income.
This contrasts sharply with high PIT productivity countries such as Norway, Sweden, and Canada, where nearly 100% of the voting population files PIT returns.
The World Bank’s findings indicate that the low productivity of PIT in Ghana, combined with the extensive tax exemptions for corporations, is a significant barrier to enhancing the country’s revenue generation capabilities.
The institution has called for a comprehensive review of these tax policies to broaden the tax base and improve revenue collection.
Conclusion
The World Bank’s concerns about Ghana’s tax system highlight a critical need for reform.
The proliferation of tax exemptions has significantly weakened the country’s revenue base, leading to substantial losses in potential tax income.
To address this issue, Ghana must consider revising its tax policies to reduce exemptions, broaden the CIT and PIT bases, and enhance compliance to ensure sustainable revenue generation.
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