Taxation plays a pivotal role in the economic development of any nation. It gives the government the necessary resources to finance public services, infrastructure, and social welfare programs. However, in the face of economic hardship, the government of Ghana must exercise prudence and strike a balance between generating revenue and not overburdening its citizens with excessive taxes.

Ghana, like many countries across the globe, has faced economic challenges in recent years. Factors such as inflation, high unemployment rates, and the depreciation of the currency have placed a significant strain on the average Ghanaian citizen. Amidst these hardships, increasing the tax burden on the already struggling population can exacerbate the situation and hinder economic growth.

“The alternative is a compliance measure on foreign incomes of resident Ghanaians. Not Ghanaians abroad. We want to make that clear. This is not a measure. It has been in the policy but its implementation has not been optimal.”
Julie Essiam, Ghana Revenue Authority (GRA) Boss

In response to the revenue gap caused by the abandonment of the value-added tax (VAT) on electricity, the government of Ghana plans to implement a tax on the foreign incomes of resident Ghanaians. This decision follows a public backlash against the VAT on electricity, which led to its withdrawal, leaving a revenue gap of approximately GH¢1.8 billion.

The VAT on electricity was initially part of the revenue measures outlined in Ghana’s agreement with the International Monetary Fund (IMF), but its abandonment resulted in a shortfall in revenue.

Excessive taxation discourages investment and entrepreneurship. Individuals and businesses may be less willing to take risks and make investments due to the heavy tax burden. This can impede economic expansion and job creation, further exacerbating the economic difficulties faced by Ghanaians.

Moreover, when taxes are raised, businesses often pass on the burden to consumers by increasing prices. This leads to a higher cost of living, making essential goods and services less affordable for ordinary citizens. Such a situation can deepen inequality and worsen the living conditions of vulnerable populations.

During times of economic hardship, it is crucial to implement policies that stimulate economic recovery. Overburdening citizens with excessive taxes can hinder this process by suppressing economic activity and reducing the spending power of both individuals and businesses.

Need for Prudent Taxation Policies

Dr. Mohammed Amin Adam, the Finance Minister of Ghana, assured that the government is committed to not overburdening Ghanaians with additional taxes. Instead, the government plans to focus on collecting revenue from those who have not been paying the appropriate taxes or those who have been evading taxes.

“Some of the reforms that we’re implementing are biting, but I know that we’ll persevere and lead together, and ensure that the benefits of the fiscal consolidation will bring significant relief to the people of Ghana so that we can be counted once again as one of the fastest growing in the world.”
Dr. Mohammed Amin Adam, Finance Minister

Overreliance on a few sectors for tax revenue can be risky, especially during economic downturns. The government should explore diversification by broadening the tax base, encouraging investment in new sectors, and promoting a business-friendly environment that attracts foreign direct investment.

Rather than relying solely on increasing tax rates, the government should explore progressive taxation policies. This approach involves ensuring that higher-income individuals and corporations contribute proportionately more to the tax base while providing relief to low-income earners who are disproportionately affected by economic hardships.

The finance minister also highlighted the government’s efforts to pursue reforms within the tax administration to ensure proper assessments and to make it easier and faster for people to pay their taxes.

More importantly, the government should prioritize efficient and effective use of existing tax revenues. This includes curbing wasteful spending, tackling corruption, and improving public sector efficiency. By doing so, the government can optimize the use of available resources without putting additional burden on taxpayers.

Dr. Adam emphasized the government’s determination to ensure the effective implementation of revenue generation mechanisms announced in both the 2023 and 2024 budgets, which have not been fully implemented.

Rather than relying solely on short-term revenue generation through increased taxation, the government should prioritize policies that promote long-term economic growth. This includes investing in infrastructure development, improving education and healthcare systems, and fostering a conducive environment for businesses to thrive.

While taxation is an essential tool for government revenue generation, the government of Ghana must exercise prudence and avoid overburdening its citizens during times of economic hardship. By adopting prudent tax policies, the government can strike a balance between generating revenue and alleviating the burden on ordinary Ghanaians. This approach will not only help mitigate the effects of economic hardship but also foster sustainable economic growth and improve the overall well-being of the population.