To boost economic growth and increase revenue mobilization, the Ghanaian government is implementing measures to improve the country’s tax-to-gross domestic product (GDP) ratio.
Abena Osei Asare, the Minister of State at the Finance Ministry, has stated that while efforts to increase tax mobilization in the formal sector have been made, plans are advanced to widen the tax base.
Ghana’s tax collection is currently lower compared to other lower-middle-income countries, with non-compliance of tax payments being a significant issue.
This has led to a widening fiscal deficit and a rising debt burden for the government. The country’s tax-to-GDP ratio of less than 14% is significantly lower than the average for 30 African countries (16.5%) and much lower than some comparable lower-middle-income countries.
During a panel discussion at the ongoing IMF/World Bank Spring Meetings in Washington D.C., Mrs Asare highlighted the challenges facing Ghana’s revenue mobilization efforts, including a narrow tax base due to the informal economy and a culture of non-compliance.
She explained that before 2017, only about 1.2 million people were paying direct taxes, while approximately 6 million people were eligible. This indicates a narrow tax base that needs to be addressed.
To tackle these issues, the government is focusing on digitizing revenue lines, reducing human interventions in tax revenue administration, and promoting a culture of compliance.
“One of the challenges that we see in Ghana is the narrow tax base, most of the economy is not formalized. When I say that I mean that most of the people are in the informal sector so we are not able to capture and bring them to the tax when it comes to payment of direct taxes. Before 2017, we had just about 1.2 million paying direct taxes, when the number of people eligible to pay taxes was around 6 million.
“So clearly, you could tell that the tax base was narrow, and so we need to do something to address this. Our tax revenue administration, there’s a lot that we need to do to prop up in terms of reducing human interventions and digitising most of our revenue lines to make sure that we can rake in more revenue and also there’s a culture of non-compliance.”
Additionally, she added that efforts are being made to ensure public financing is utilized in the best way possible to support citizens.
“One thing the government is doing is to make that public financing is utilized in the best way to help or support citizens.”
Source: Citinewsroom