Ghana's persistent struggle to meet its revenue targets is primarily due to low tax compliance, not a shortage of taxes. Economist Emmanuel Amoah Darkwa stated this during a recent appearance on Kessben TV's Digest show. He emphasized that Ghana already possesses sufficient tax mechanisms, but successive governments have failed to broaden the tax base effectively.
Mr. Darkwa highlighted that Ghana's tax-to-GDP ratio stands at a mere 18-19%. This figure is significantly lower than the 23% average observed in comparable lower-middle-income countries. The economist argued that this gap indicates substantial room for improvement in domestic revenue mobilization.
This issue fits into Ghana's broader economic narrative of fiscal challenges and the ongoing need for increased domestic revenue. The government has often resorted to introducing new taxes or adjusting existing ones to bridge budget deficits. However, Mr. Darkwa's analysis suggests that these measures are less effective than improving the collection of current taxes. The focus on new taxes often overlooks the fundamental problem of a narrow tax net.
Emmanuel Amoah Darkwa asserted that Ghana continues to rely on "low-hanging fruit" for revenue. He urged authorities to strengthen efforts to bring more taxpayers into the system. Specifically, he called for improved collection of property rates and the inclusion of more workers from the informal sector under the personal income tax system. These two areas represent significant untapped revenue potential.
The economist also pointed out a historical pattern where new administrations tend to abolish taxes introduced by their predecessors. For instance, the New Patriotic Party (NPP) government scrapped several taxes implemented by the National Democratic Congress (NDC) after taking office in 2017. Such policy inconsistencies, he argued, hinder long-term revenue growth. The current government has also removed some taxes introduced by its predecessor, yet revenue generation has seen little improvement.
Mr. Darkwa stressed the importance of public education regarding the necessity and benefits of paying taxes. He noted that citizens in other countries pay higher taxes but understand their purpose, leading to greater compliance. He suggested that if the government effectively communicates the benefits of taxation, citizens would be more willing to contribute. This public sensitization is crucial for fostering a culture of tax compliance.
The implications of low tax compliance are significant for Ghana's economic stability and development. Without a robust and broad tax base, the government struggles to fund essential public services and infrastructure projects. Decision-makers must now consider shifting their strategy from introducing new taxes to rigorously enforcing existing tax laws and expanding the tax net. This approach could lead to more sustainable and predictable revenue streams, crucial for Ghana's fiscal health. Investors and international bodies will closely watch the government's efforts to address this fundamental revenue challenge.