By: Emmanuel Amoah
The World Bank has highlighted that Ghana’s tax revenue is being significantly undermined by numerous tax exemptions, which are constricting the corporate income tax (CIT) base.
From 2015 to 2020, Ghana lost an average of approximately 1.3% of its Gross Domestic Product (GDP) annually in potential corporate tax revenue. This shortfall is partly due to the existence of over two dozen different types of tax reliefs for companies.
The World Bank estimates that these tax breaks result in a loss of around 0.5% of GDP in revenue each year. Reducing or eliminating some of these tax incentives could enhance Ghana’s tax system and increase corporate tax revenue, according to the World Bank’s 8th Ghana Economic Update.
Personal Income Tax (PIT):
Personal income tax (PIT) constitutes about 15.0% of Ghana’s total tax revenue, which is below the Sub-Saharan Africa (SSA) average of 18.0%. As of 2020, Ghana’s PIT represented 2.0% of GDP, compared to the SSA average of 3.5%, indicating a revenue gap exceeding 2.0% of GDP.
Payroll Taxes:
Payroll taxes make up more than 99.0% of total PIT revenue. Other forms of PIT, such as taxes on capital gains, investment income, and self-employed business income, contribute less than 1.0% of total PIT revenue. This contrasts sharply with other lower-middle-income countries (LMICs), like India, where such taxes account for over 30.0%.
In 2022, fewer than 25% of eligible Ghanaians paid payroll taxes under the Pay-As-You-Earn (PAYE) scheme, and less than 0.2% reported any business income. In contrast, countries with high PIT productivity, such as Norway, Sweden, and Canada, see nearly 100% of the eligible population filing PIT returns.
