By: Emmanuel Dartey Sogah
Ghana’s tax system has seen several reforms aimed at boosting revenue collection, improving compliance, and ensuring a fair and equitable system. Despite these efforts, Ghana’s tax-to-GDP ratio stood at 13.8% in 2022, lower than the 18-20% target set by the government for 2027. This raises concerns about revenue mobilization, compliance, and structural inefficiencies within the tax system.
But beyond the numbers, Ghana’s tax history, challenges, and evolving policies present a fascinating story worth exploring. Could better tax policies be the key to Ghana’s economic recovery and fiscal sustainability? Let’s take a closer look.
1. The Tax Mix: What Are Ghanaians Really Paying?
Over the past two decades, Ghana’s tax revenue structure has shifted significantly.
- Corporate and Personal Income Tax + VAT Dominate: In 2000, these taxes made up 57% of total tax revenue, but by 2022, they contributed nearly 70% of collections.
- Decline of Trade Taxes: Revenues from international trade have significantly reduced, with collections from imported goods dropping from 54% of total tax revenue in 2000 to 33% in 2022.
- Excise Duties and New Tax Laws (2023): To make up for declining trade taxes, Parliament introduced new levies, including revised excise duties on alcohol, sweetened beverages, and tobacco, aligning with ECOWAS protocols.
Fun Fact:
Did you know that in some countries, digital influencers are taxed? Ghana may soon follow suit! The Ghana Revenue Authority (GRA) has started considering taxation for digital businesses, including YouTubers, TikTokers, and online traders. The question is: How will Ghana tax content creators when many do not have formal businesses?
2. The Progressive Tax System: Who Pays What?
Ghana operates a progressive tax system, meaning higher earners contribute a larger percentage of their income. The current personal income tax structure is as follows:
- 0% for those earning below GH¢4,380 per year
- 5% to 30% for incomes above GH¢4,380, with the highest rate applicable to earnings exceeding GH¢240,000 per annum
This means the top 10% of earners contribute nearly 80 times more in income taxes than the poorest 10%.
Fun Fact:
Ever wondered about the weirdest taxes in history? In medieval Ghana (before colonial rule), kings and chiefs levied taxes on rainfall, palm wine tapping, and even shadows! If your shadow was cast in the king’s courtyard, you had to pay a fee.
3. Ghana’s Tax Compliance Struggles: The Informal Sector Puzzle
One of Ghana’s biggest tax challenges is compliance—particularly in the informal sector, which accounts for 80% of the workforce. Many businesses operate without proper tax registrations, leading to huge revenue losses for the government.
Why is it so hard to tax the informal sector?
- Cash-based transactions make tracking difficult.
- Lack of tax education results in many entrepreneurs not even knowing they should pay.
- Trust in the system is low—people fear taxes will not be used effectively.
Interesting Tidbit:
To boost compliance, the Ghana Revenue Authority (GRA) has introduced electronic invoicing (E-VAT) to track business transactions in real-time. However, many small businesses have found loopholes, such as operating without receipts or underreporting sales.
4. Tax Evasion and Corruption: The Big Leak
Ghana loses billions in potential revenue due to tax evasion and corruption. In 2021, it was estimated that Ghana lost over GH¢5 billion due to tax avoidance schemes, including smuggling, underreporting, and bribery.
A famous case involved foreign companies engaging in illicit financial flows—using transfer pricing to shift profits to low-tax jurisdictions. Multinational corporations in mining, telecom, and oil sectors have underreported earnings, avoiding millions in taxes.
Fun Fact:
Did you know that the Ghana Revenue Authority once put handcuffs on a luxury car for unpaid taxes? In 2018, the GRA clamped a Rolls Royce belonging to a well-known businessman, demanding over GH¢6 million in unpaid duties.
5. Digital Taxation: The Future of Revenue Mobilization
Ghana is catching up with the digital age by introducing electronic taxation:
- E-VAT implementation to ensure proper revenue tracking.
- Taxation of digital transactions and e-commerce platforms.
- New policies for taxing cryptocurrency and online forex trading.
However, many digital businesses operate offshore, making tax enforcement difficult.
Interesting Tidbit:
Kenya’s digital tax law requires even foreign streaming services like Netflix to pay a 1.5% tax! Ghana could adopt similar measures to tax online services.
6. The History of Taxes in Ghana: A Colonial Legacy
Ghana’s tax system dates back to British colonial rule, where the first official tax law was the Poll Tax Ordinance of 1852.
- It imposed a one-shilling annual tax on every person under British rule.
- The tax was meant to fund schools, roads, and infrastructure.
- However, poor enforcement, corruption, and resistance from locals led to its failure.
Fun Fact:
In the 1940s, cocoa farmers protested against high export taxes, refusing to sell their beans for months! This was known as the Cocoa Hold-Up Strike, and it forced the British government to lower cocoa taxes.
7. What Can the New Government Do? Recommendations for Reform
If the incoming administration wants to make real impact in tax policy, here are key areas to focus on:
1. Expand the Tax Net to the Informal Sector
- Simplify registration for small businesses.
- Encourage digital payments to track income.
- Provide tax incentives for compliance.
2. Strengthen Tax Compliance Measures
- Improve electronic monitoring systems (e.g., E-VAT).
- Tighten customs controls to prevent smuggling.
- Introduce AI-driven tax audits to detect fraud.
3. Incentivize Foreign Investment While Ensuring Fair Taxation
- Review tax exemptions to reduce unnecessary giveaways.
- Enforce fair taxation of multinationals.
- Encourage local production to reduce reliance on imports.
Final Thoughts: The Road to a Stronger Tax System
Ghana has a fascinating tax history, filled with colonial legacies, resistance, corruption, and innovation. Today, the country faces serious fiscal challenges, but with bold reforms, better compliance, and digital transformation, tax revenue can significantly improve.
As the new government prepares its agenda, tax policy should be a top priority—not just for revenue generation, but for ensuring equitable growth and national development.
One Last Fun Fact:
In Ancient Ghana, if you failed to pay taxes, your punishment wasn’t just a fine—you could be sold into slavery or forced to work on the king’s farms! Thankfully, today’s tax penalties aren’t that extreme.
What are your thoughts? Should Ghana introduce new taxes, or focus on enforcing existing ones more efficiently?
Author: Emmanuel Sogah – Expert in Financial Technology, Operations & Market Strategy
As a senior member of JS Morlu Ghana Limited, Emmanuel Sogah is a key member of the FinovatePro (www.finovatepro.com), Fixaars (www.fixaars.com) and Recksoft (www.recksoft.com) development teams, where he provides data-driven marketing insights that fuel strategic growth and innovation. With a strong background in accounting and finance, he possesses deep expertise in the economic, financial, and regulatory landscape of Ghana and Africa, ensuring that our solutions align with evolving business and market needs.
His ability to analyze financial ecosystems and translate insights into actionable strategies makes him a valuable asset in driving financial innovation and market expansion. By bridging financial technology, market trends, and enterprise solutions, Emmanuel helps shape scalable, cutting-edge products. For inquiries or collaborations, he can be reached at sogah.emmanuel@jsmorlu.com or +233 244 197 841.