The World Bank has highlighted that Ghana’s tax system underperforms in revenue generation due to numerous tax reliefs and exemptions that narrow the corporate income tax (CIT) base. According to the World Bank’s 8th Ghana Economic Update, Ghana missed out on an average of 1.3% of its Gross Domestic Product (GDP) in corporate tax revenue annually between 2015 and 2020.
One significant factor contributing to this shortfall is the existence of over two dozen different types of tax breaks for companies. These exemptions cost Ghana approximately 0.5% of its GDP in lost revenue each year. The World Bank suggests that by reducing or eliminating some of these generous tax breaks, Ghana could enhance its tax system and boost corporate tax revenue.
Personal Income Tax (PIT)
Personal income tax (PIT) in Ghana accounts for about 15% of the country’s total tax revenues, which is below the Sub-Saharan Africa (SSA) average of 18%. As of 2020, Ghana’s PIT revenue was equivalent to 2% of GDP, compared to the SSA average of 3.5%, leaving a gap between the actual and potential PIT revenue of more than 2% of GDP.
Payroll Taxes
Payroll taxes contribute to over 99% of total PIT proceeds, while other forms of PIT, such as taxes on capital gains, investment income, and business income of the self-employed, make up less than 1% of total PIT proceeds. In contrast, these other forms of PIT account for more than 30% in some lower-middle-income countries, such as India.
In 2022, less than 25% of Ghanaians of voting age (18 years and older) paid payroll taxes under the Pay-As-You-Earn (PAYE) scheme, and fewer than 0.2% declared any business income. By comparison, in countries with high PIT productivity like Norway, Sweden, and Canada, nearly 100% of the voting population files PIT returns.
