Ghana’s tax performance far below regional potential

The International Monetary Fund (IMF) has revealed that Ghana is significantly far below its tax collection efforts compared to its potential within Sub-Saharan Africa and globally.

The Fund indicated that the tax gap, which is the difference between actual tax collections and what could potentially be collected exceeds 5% of Gross Domestic Product (GDP) in about one-third of countries in Sub-Saharan Africa.

In its report on Tax Expenditures in Sub-Saharan Africa, the IMF disclosed that the cross-country “heterogeneity in the estimated tax potential reflects differences in the level of economic development, the degree of informality, trade openness, and public sector effectiveness and corruption.”

It further noted that the region’s overall estimated tax potential is considerably lower than that of other global regions, pointing to what it described as long-standing structural challenges.

“In this context, scaling back costly and often poorly targeted tax expenditures could contribute to narrowing the tax gap by strengthening revenue performance and improving the efficiency of the overall tax system,” the report stated.

On shrinking external financing options and the growing need for economic resilience, the Fund stressed that countries in Sub-Saharan Africa must explore untapped areas of tax policy for improvement, emphasizing that although revenue mobilization has seen a gradual increase over time, it has remained stagnant in recent years.

The report also noted that from 2000 to 2019, the median total revenue-to-GDP ratio in Sub-Saharan Africa rose from about 13% to 16%, but fell back to around 14% in 2022, largely as a result of the COVID-19 pandemic.

The Fund attributed this progress to tax revenue, stating that as of 2022, 18 countries in Sub-Saharan Africa had achieved a revenue-to-GDP ratio exceeding 13%, which is considered the minimum threshold necessary for pushing growth and development.