Ghana loses 3.9% of GDP to tax exemptions – World Bank reveals

3.9% of GPD goes to tax exemptions

The World Bank has revealed that Ghana is losing an estimated 3.9% of its Gross Domestic Product (GDP) due to tax exemptions on Value Added Tax (VAT), Personal Income Tax (PIT), and import duties.

According to the report, these exemptions offer some fiscal relief while it warns they also create “leakages, complexity and distortions” in the economy.

The report highlights that the largest source of foregone VAT revenue comes from exemptions on the supply of dwellings and land, accounting for 33% of the overall cost.

However, in terms of Personal Income Tax, the exemption for cocoa farmers has the deepest impact on revenue; representing 0.42% of GDP, followed by deductions for pension and social security contributions at 0.37% of GDP.

While Ghana’s Tax Exemptions Act of 2022 sets out clear criteria and guidelines, the World Bank notes that other legislation introduces further tax incentives that deviate from the “notional tax benchmark.”

The World Bank emphasizes the need for rationalizing tax expenditures, calling for a balance between offering fiscal relief and mitigating the negative impacts of exemptions.

“Ghana’s tax exemptions from VAT, PIT, and import duties are estimated to generate a loss in revenue of 3.9 percent of GDP: while offering fiscal relief, they create leakages, complexity and

distortions”.

“The Tax Exemptions Act, 2022, sets out clear criteria and guidelines, but other legislations introduce further tax incentives that deviate from the notional tax benchmark.”

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