Ghana’s Finance Minister, Dr. Cassiel Ato Forson, has painted a stark picture of the nation’s economic landscape, highlighting the debilitating impact of tax exemptions and the underperformance of the extractive sector as major contributors to the country’s fiscal woes. He revealed that exemptions on key taxes, including Value Added Tax (VAT), Personal Income Tax (PIT), and import duties, are projected to drain the economy by a staggering 3.9% of GDP, a figure that excludes the further revenue losses resulting from corporate income tax exemptions. These exemptions, while potentially offering short-term relief in specific sectors, create long-term damage by introducing complexities and distortions within the tax system, ultimately hindering effective revenue mobilization.
A significant portion of these losses, according to Dr. Forson, stems from the VAT exemption on real estate transactions, specifically the supply of dwellings and land, accounting for a substantial 33% of all VAT exemptions. He criticized the previous administration’s decision to eliminate VAT on real estate in 2024, attributing the move to political expediency rather than sound economic policy, arguing that this decision has further exacerbated the revenue shortfall and demands urgent reconsideration. This policy, ostensibly implemented to stimulate the housing market, has instead created a significant loophole in the tax system, depriving the government of crucial revenue needed for development initiatives.
Furthermore, Ghana’s extractive sector, despite possessing significant potential, has failed to contribute meaningfully to the national treasury. The stark contrast between the sector’s natural resource rent, estimated at 14% of GDP, and the actual fiscal revenue generated, a mere 1.5% of GDP, underscores a critical disconnect in resource management. Dr. Forson questioned the nation’s inability to harness even a fraction of this potential resource rent for productive infrastructure development and improvements in human capital. This underperformance, he argued, represents a significant missed opportunity for economic growth and development, leaving crucial sectors underfunded.
The Minister attributed this poor revenue performance to a combination of factors, including a stagnant domestic revenue collection rate, a complex and convoluted tax system riddled with exemptions, and persistent challenges in tax administration. He stressed that Ghana’s VAT collection, a crucial component of government revenue, lags significantly behind comparable economies, highlighting the critical need for substantial reforms to streamline the VAT regime. This underperformance, coupled with the generous tax exemptions, creates a vicious cycle of revenue shortfall, hindering the government’s ability to invest in essential public services and infrastructure.
Dr. Forson’s assessment paints a picture of a nation struggling to effectively leverage its resources, both natural and fiscal. The significant revenue leakage through tax exemptions, coupled with the underperformance of the extractive sector, represents a double blow to Ghana’s economic prospects. Addressing these critical issues, he argued, is not merely a matter of fiscal prudence, but a fundamental requirement for ensuring sustainable economic growth and development.
The call to action is clear: Ghana must urgently revisit its tax exemption policies, particularly those related to real estate, and implement strategies to maximize revenue generation from the extractive sector. Simplifying the tax system, strengthening tax administration, and closing loopholes are crucial steps towards building a more robust and resilient economy. The alternative, continuing down the current path of unsustainable tax policies and underutilized resources, risks further deepening the fiscal challenges and jeopardizing the nation’s future economic prosperity.
