Breaking Down Ghana’s Domestic Taxes in 2023:

Domestic taxes play a critical role in Ghana’s economic framework, accounting for a significant portion of government revenue. According to provisional figures from the Ministry of Finance and Economic Planning for the period January to December 2023, domestic tax collection amounted to GHS 45.70 billion. Here’s a detailed breakdown and analysis of this performance.

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Overview of Tax Components

The government collected taxes across several categories, with the following contributions:

• Value-Added Tax (VAT): GHS 25.50 billion (56%)

• Excises: GHS 5.60 billion (12%)

• National Health Insurance Levy (NHIL): GHS 5.30 billion (12%)

• GETFund: GHS 5.30 billion (12%)

• Covid-19 Levy: GHS 2.10 billion (5%)

• E-Levy: GHS 1.20 billion (3%)

• Communications Service Tax (CST): GHS 0.70 billion (2%)

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Key Highlights

1. VAT as the Backbone of Domestic Revenue

VAT emerged as the most significant contributor, generating over half of the total domestic tax revenue. This underscores its pivotal role in funding government expenditures, especially given Ghana’s reliance on consumption-based taxation.

2. Uniform Contributions from NHIL, GETFund, and Excises

The NHIL, GETFund, and Excise taxes each accounted for 12% of total revenues. These taxes support specific initiatives, such as healthcare and education, and demonstrate the government’s commitment to targeted spending.

3. E-Levy’s Modest Performance

Despite its controversial introduction, the E-Levy contributed only 3% (GHS 1.20 billion) to total collections. This raises questions about its efficacy and the level of public compliance.

4. Covid-19 Levy’s Residual Impact

Although the pandemic’s peak has passed, the Covid-19 levy’s is still bringing some revenue for Government against public sentiments for its removal.

The Case for Removing the E-Levy

1. Minimal Revenue Contribution:

   • The E-Levy contributed only 3% to total tax revenue, making it one of the smallest contributors. In absolute terms, GHS 1.20 billion is significant, but its removal may not drastically affect overall collections compared to VAT and other major tax categories.

2. Public Sentiment:

   • The E-Levy has been widely criticized as a "nuisance tax" due to its direct impact on mobile money transactions, which are vital for financial inclusion. Removing it could restore public trust and encourage greater adoption of digital financial services.

3. Boosting Economic Activity:

   • Eliminating the E-Levy might stimulate higher transactional volumes in digital financial services. This could indirectly benefit other taxes, such as VAT, by increasing taxable transactions in the formal economy.

4. Administrative Challenges:

   • The E-Levy’s implementation has faced operational hurdles, including low compliance and high enforcement costs. Removing it could simplify the tax landscape and reduce administrative burdens.

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The Case Against Removing the E-Levy

1. Revenue Gap:

   • Although the E-Levy’s contribution is small relative to total revenue, GHS 1.20 billion is still a substantial amount for a developing economy. Its removal would necessitate finding alternative revenue sources to bridge the gap.

2. Policy Consistency:

   • Frequent changes to tax policies could create uncertainty for businesses and citizens. This may undermine confidence in the government’s fiscal strategy and discourage long-term planning.

3. Missed Opportunity for Digital Taxation:

   • Digital financial services are expected to grow significantly in Ghana. With improved implementation and public education, the E-Levy could become a more effective revenue tool in the future.

4. Impact on Fiscal Stability:

   • Ghana faces significant fiscal pressures, and removing even a small revenue source could strain public finances further unless alternative measures are introduced.

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Implications for Policy and Economic Planning

The debate over the E-Levy highlights broader issues in Ghana’s tax policy. While its removal may address public dissatisfaction, it also underscores the need for comprehensive reforms to diversify revenue streams and enhance compliance. Strengthening VAT and Excise tax systems, for instance, could provide more reliable alternatives.

Conclusion

The GHS 45.70 billion collected in domestic taxes in 2023 showcases the government’s efforts to mobilize revenue from diverse sources. However, the E-Levy’s modest contribution and public backlash make a strong case for its removal, provided alternative revenue streams are established. Balancing fiscal stability with public trust will be critical as Ghana navigates its economic challenges.