Ghana Far Below its Tax Potential in Sub-Saharan Africa – IMF

By Praisebell Rosemond Larbi

Ghana remains significantly below its tax potential compared to other countries in Sub-Saharan Africa and the rest of the world, the International Monetary Fund (IMF) has disclosed in its latest report on Tax Expenditures in Sub-Saharan Africa. The findings point to structural weaknesses in Ghana’s tax system and underscore the urgent need for reforms that can unlock additional revenue to support development.

According to the Fund, the tax gap, the difference between what a country currently collects and what it could collect under stronger compliance and better-designed tax policies, exceeds five percentage points of GDP in nearly one-third of Sub-Saharan African countries. Ghana falls within this lower-efficiency bracket, signalling substantial untapped revenue potential.

The IMF attributes the wide variation in tax performance across the region to several key factors, including levels of economic development, the size of the informal sector, trade openness, and the effectiveness of public institutions. Issues such as weak enforcement, corruption, and limited administrative capacity continue to constrain tax collection.

“The region’s estimated tax potential, reflecting the upper bound of feasible revenue performance, is itself substantially lower than in other parts of the world, underscoring long-standing structural constraints,” the IMF noted. These constraints limit how much governments can realistically collect, even under optimal conditions.

The report emphasises that scaling back costly and often poorly targeted tax expenditure, including exemptions, holidays, and special incentives, could help narrow the tax gap. Such measures, the IMF says, would enhance revenue mobilisation while improving the efficiency and equity of national tax systems.

With external financing tightening and debt vulnerabilities rising, the Fund stressed that countries such as Ghana must increasingly “look inward” for sustainable and under-utilised sources of domestic revenue. This includes modernising tax administration, broadening the tax base, and improving compliance, especially within the informal sector.

Trends in Revenue Mobilisation

The IMF highlighted that revenue mobilisation in Sub-Saharan Africa had improved over the past two decades but has weakened in recent years. The median total revenue-to-GDP ratio across the region rose from about 13% in 2000 to 16% in 2019, before declining to approximately 14% in 2022, largely due to the economic disruptions triggered by the COVID-19 pandemic.

Despite these challenges, tax revenue remains the main driver of fiscal improvement in many countries. As of 2022, 18 countries in the region have achieved revenue-to-GDP levels above 13%, which the Fund identifies as the minimum threshold necessary to accelerate economic growth and support development priorities.

Ghana’s own tax-to-GDP ratio currently stands at about 13%, placing it near the lower end of the regional spectrum and well below its potential. The IMF’s findings suggest that with targeted reforms, particularly around reducing tax expenditures and strengthening administration, Ghana could significantly boost domestic revenue and build greater macroeconomic resilience.