Ghana collected just US$25 million of an estimated US$82 million in potential tax revenue during 2018, leaving a gap of nearly US$57 million, according to a new study presented at a tax dialogue workshop in Accra this week.
The research, titled Illicit Financial Flows and Revenue Mobilisation in Ghana, was presented by Dr. Gloria Afful-Mensah of the University of Ghana at an event organised by the Media Foundation for West Africa and Oxfam in Ghana. The findings expose a severe domestic revenue mobilisation crisis that is fueling debt accumulation, widening inequality and undermining economic stability across the country.
Ghana’s tax-to-GDP ratio stands at 16 percent, significantly below regional peers including Cameroon, Kenya and Senegal, which average around 30 percent. The research reveals that corporate income tax and VAT show the most alarming leakages, with CIT losses estimated at 86 percent and VAT gaps exceeding 60 percent, particularly within services and agriculture sectors.
The study also uncovers stark inequalities, with female-owned and small firms recording disproportionately large tax gaps compared to larger enterprises. Key drivers of underperformance include tax system complexity, widespread exemptions, a large shadow economy, weak compliance and corruption.
VAT exemptions alone cost 1.85 percent of GDP, equivalent to 72 percent of all VAT collected. Exemptions covering local foodstuffs, road passenger transport, pharmaceuticals and agricultural inputs, though socially driven, have created wide loopholes with a combined fiscal cost of roughly two percent of GDP. These exemptions, together with complex withholding tax rates, complicate compliance and open avenues for abuse.
Ghana’s debt has risen by an average of 11 percent annually between 2006 and 2023. The study warns that closing the tax gap is essential for restoring fiscal stability and reducing reliance on borrowing and donor support.
Dr. Afful-Mensah emphasized the need for improved assessment methods. “A shift from relying on the usual Ghana Revenue Authority revenue targets to tax gap analysis would provide clearer assessment of administrative effectiveness,” she stated.
The report calls for fundamental reforms to improve revenue mobilisation, including a full review of corporate tax incentives and exemptions supported by strong cost-benefit analyses. While recent changes to the VAT law represent progress, the report warns the VAT gap will remain wide unless government revisits broad exemptions, especially in services and agriculture sectors, to promote commercialisation and formalisation.
Experts are calling for stricter administration and a shift to tax gap analysis to strengthen enforcement and improve collections. The research concludes that closing the tax gap is not only an economic necessity but also crucial for achieving inclusive growth, gender equity and a sustainable, self-financed development path.
The workshop brought together media professionals, civil society representatives and tax policy experts to discuss strategies for addressing Ghana’s revenue challenges. The findings add pressure on policymakers to implement comprehensive tax reforms as the country seeks to stabilize its fiscal position and reduce external borrowing.
