Why Ghana’s tax system needs urgent reform

Ghana’s tax system has long been inefficient, and progress in addressing its flaws remains slow. While some reforms have been made, they are far from sufficient to generate the revenue needed for national development.

The next government faces a critical task: implementing meaningful changes to expand the tax net, make the system fairer, and boost national revenue.

One major issue is the narrow tax net. Formal sector workers, such as teachers and nurses, bear a disproportionate tax burden despite their modest incomes. Meanwhile, many informal sector workers—like masons, traders, and hairdressers—pay little to no taxes.

For instance, a mason earning GHS10,000 weekly often escapes taxation, while a teacher earning GHS2,500 monthly is heavily taxed. This inequity persists due to weak enforcement, mistrust in the system, and inadequate mechanisms to track informal sector incomes.

Beyond individuals, systemic inefficiencies compound the problem. Corruption, tax evasion, and outdated systems hinder the Ghana Revenue Authority (GRA) from collecting taxes effectively. While digitalization has been discussed, implementation remains slow, leaving the country overly reliant on foreign loans.

The 2022 IMF bailout, for instance, came with harsh conditions that worsened living standards. To avoid such dependence, Ghana must prioritize raising revenue domestically.

One promising avenue for increased revenue is tourism. The sector currently contributes about $2 billion annually but has the potential to double with targeted investments and strategies. Lessons can be drawn from countries like the UK, which generates over £100 billion annually by leveraging historical landmarks, cultural heritage, and diverse entertainment options. Through campaigns like “Visit Britain,” seamless airport connectivity, and simplified visa processes, the UK attracts millions of visitors.

South Africa and Kenya also earn billions by promoting wildlife safaris and national parks. Similarly, Morocco and Rwanda thrive on cultural festivals and eco-tourism, underpinned by investments in roads, airports, and resorts.

Ghana can emulate these successes by building on its “Detty December” programs, which attract African Americans, Europeans, and Britons. Expanding events beyond Accra, improving infrastructure, and partnering with airlines for discounted travel packages can significantly boost tourism.

Enhancing historical landmarks like Cape Coast Castle with virtual tours, promoting eco-tourism, and using digital marketing to reach the African diaspora can further elevate Ghana’s appeal. These efforts could increase tourism revenue to over $4 billion annually, create jobs, and stimulate local economies.

Ghana must also improve how it manages its natural resources. The country’s gold, oil, and cocoa sectors suffer from poor contracts and a lack of value addition. For example, processing cocoa beans into chocolate locally would generate far more revenue than exporting raw beans. These solutions are well-known but have been slow to materialize.

The Ghana Card presents an opportunity to broaden the tax base by linking it to tax records. However, more must be done to include informal workers. Simplifying tax systems for small businesses and self-employed individuals and offering benefits like access to loans or health insurance, can encourage compliance. Additionally, adopting digital systems to reduce corruption and improve transparency in tax collection is critical.

Citizens need to see their taxes used effectively for development projects such as better roads, schools, and hospitals. Visible results will rebuild trust in the system and encourage tax compliance. Leaders must ensure fairness by holding both large corporations and small traders accountable.

Fixing Ghana’s tax system requires bold leadership. The government must take decisive steps to expand the tax net, improve transparency, and educate the public on the importance of taxes. These reforms, when fully implemented, can provide the revenue Ghana needs for sustainable growth and reduce dependence on foreign loans.

The time for action is now. With a reformed tax system and an optimized tourism sector, Ghana can unlock its full potential and chart a path toward sustainable development. Leadership and commitment are the keys to making this vision a reality.

By Collins Adjei Kuffuor

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