Simplifying Ghana's Tax System: A Call for VAT Rationalization

Strategic Insights -

Ghana's tax system is plagued by distortions, with multiple levies and taxes creating compliance and revenue challenges. Mr. Seth Terkper, Advisor on the Economy to the President, has proposed a simplified tax system, including a Value Added Tax (VAT) that would consolidate the country's four main tax pillars: income tax, excise tax, import duty, and VAT. He argues that a broad and simple tax system would increase compliance and revenue, despite the country's current VAT rate of approximately 22 percent being distorted by levies. A 2024 survey by the Ministry of Finance found that Ghana's tax-to-GDP ratio was 13.8 percent in 2022, below the government's target of 18-20 percent by 2027.

Key Takeaways:

  • Ghana's tax system is complex, with multiple levies and taxes creating compliance and revenue challenges.
  • Mr. Seth Terkper proposes a simplified tax system, consolidating the four main tax pillars into a broad and simple VAT system.
  • The current VAT rate of approximately 22 percent is distorted by levies, undermining its integrity and contributing to Ghana's inability to increase its tax-to-GDP ratio.
  • A 2024 survey by the Ministry of Finance found that Ghana's tax-to-GDP ratio was 13.8 percent in 2022, below the government's target of 18-20 percent by 2027.
  • Mr. Terkper suggests that the country should allow its tax system pillars to work without introducing new taxes or levies, which can distort revenue and lead to borrowing and debt.
  • The Ghana Revenue Authority (GRA) is encouraged to intensify public education to engender tax compliance.
  • The book "Value Added Tax in Africa: The Ghana Experience" provides valuable lessons not only for Ghana but for Africa, encouraging bold steps to reform VAT sustainability.

Statistics:

  • Ghana's tax-to-GDP ratio was 13.8 percent in 2022 (Ministry of Finance, 2024).
  • The government's target tax-to-GDP ratio is 18-20 percent by 2027.
  • The current effective VAT rate in Ghana is approximately 22 percent.
  • Ghana's tax system has four main pillars: income tax, excise tax, import duty, and VAT.

Sources:

  • Seth Terkper, Advisor on the Economy to the President (speech at the launch of "Value Added Tax in Africa: The Ghana Experience" in Accra).
  • Ministry of Finance (2024). Survey on the effectiveness of VAT in Ghana.
  • Julius Debrah, Chief of Staff (speech at the launch of "Value Added Tax in Africa: The Ghana Experience" in Accra).
  • Abeku Gyan-Quansah, Partner, Tax Services, PricewaterhouseCoopers (speech at the launch of "Value Added Tax in Africa: The Ghana Experience" in Accra).