Flaws in Ghana's Tax System Undermine Revenue Collection

Ghana's tax system is fraught with distortions and complexities that have significantly undermined revenue collection, forcing the government into an unsustainable borrowing cycle, according to Seth Terkper, former finance minister and current Special Presidential Advisor on the Economy. Terkper warned that the proliferation of levies has created a web of administrative complexities and compliance challenges, encouraging avoidance and evasion, and further reducing government revenue. As a result, Terkper advocates for a simplified tax framework based on two core taxes: one on income and another on expenditure, a structure that reflects international best practices adopted by advanced economies.

Key Takeaways:

• The current tax system in Ghana is characterized by distortions and complexities that undermine revenue collection, leading to increased government borrowing.
• The proliferation of levies has created administrative complexities and compliance challenges, encouraging avoidance and evasion.
• Ghana's tax system relies heavily on trade taxes and Customs duties, unlike advanced countries that adopt a simplified structure based on two core taxes: one on income and another on expenditure.
• Effective tax administration, rather than new taxes, should be the focus for improving revenue collection.
• The public debt in Ghana has emerged as a major challenge, with debt restructuring being part of a US$3 billion International Monetary Fund programme agreed in 2023.
• Seth Terkper, former finance minister, has identified a simplified tax framework as essential for improving revenue collection and fiscal sustainability.
• Terkper highlighted the importance of maintaining the "pillars of the fiscal system" established during the 2013-2016 reform period.
• The income tax and expenditure tax should be the core of Ghana's tax system to reflect international best practices.

Statistics:

• Ghana's public debt has emerged as a major challenge, with debt restructuring being part of a US$3 billion International Monetary Fund programme agreed in 2023.
• The current tax system has led to a significant decline in government revenue, prompting the government to pursue unsustainable borrowing.
• The use of levies has increased administrative complexities and compliance challenges, further reducing government revenue.
• Ghana's tax system relies heavily on trade taxes and Customs duties, accounting for a significant proportion of revenue collection.
• The public debt poses a significant threat to Ghana's economic sustainability, with a focus on effective tax administration necessary for improvement.

Sources:

• Seth Terkper's book 'VAT in Africa The Ghanaian Experience'
• The Business and Financial Times report, "Editorial: Effective tax administration rather than new taxes!"
• 2023 International Monetary Fund programme agreement with the Government of Ghana.