Former Finance Minister and current Presidential Advisor on the Economy, Mr. Seth Terkper has offered an incisive analysis of Ghana’s tax revenue challenges, urging a fundamental rethink of policy direction and revenue mobilization strategies as the country seeks to transition into an upper-middle-income economy.
Despite years of policy reforms and initiatives, Ghana has struggled to meet its tax-to-GDP target of 15%, consistently falling short.
“As a country, we have not been able to achieve that long-term trend,” Terkper admitted. Citing data from the African Tax Administration Forum (ATAF) and the World Bank, he noted that Ghana’s average tax-to-GDP ratio as of the end of 2024 remains around 14%, with figures for 2023 and 2024 hovering near 13%.
This lags behind the continental average of 16%, and well below some African peers who are managing to achieve 18–23%. “We are not raising enough tax,” he said, emphasizing the fiscal implications. “Our tax to GDP is at best 14%, when some are doing 18%, 20%, 23%. It tells you there is a lot of risk, indirect risk.”
The Problem of Over-Taxing the Formal Sector
Terkper pointed out a persistent structural issue: over-reliance on a narrow tax base.
“We have an informal economy that constitutes about 80%, and we have not devised the proper mechanism for taxing that. So all we do is overtax the 20%, why should we focus so much on the 20% and leave the 80%?” he cautioned.
He added that such pressure on the formal sector through multiple levies and high effective tax rates could actually incentivize tax evasion and erode the integrity of the tax system.
Reassessing the E-Levy and Other Measures
Touching on one of Ghana’s most controversial tax instruments in recent years the Electronic Transfer Levy (E-Levy) Terkper described it as “a decent tax” conceptually, but poorly implemented.
“At the time, the justification was to avoid going to the IMF, the rate was just too high it was punitive. We could have done a lower rate, say 0.45%, and still raked in substantial revenue.” he recalled.
He noted that the policy should have been extended to cover online transactions and sales, as initially envisioned. “It was a missed opportunity. We need a comprehensive study of whether to tax this or not.” he said.
Terkper emphasized that when designing consumption taxes like VAT or E-Levy, policymakers must be careful not to penalize savings and investment.
“The problem with the E-Levy was that it taxed savings. I’ve paid income tax already, and I want to move money electronically, and I’m taxed again?” he questioned.
“Consumption should be taxed, not the act of saving or investing.”He added.
Sustainability and Fiscal Discipline
He stressed the need for Ghana to sustain long-term policies and return to prudent debt management strategies. He recalled that Ghana’s previous attempt to manage Eurobond repayments through a debt service reserve fund was prematurely halted contributing to the current fiscal stress.
“We stopped, and as a consequence, we defaulted. Projects should pay for themselves. Loans should not burden taxpayers.” he said.
A Push Toward Middle-Income Transition
Ghana’s ambition to become an upper-middle-income country is not misplaced, Terkper said, especially with the country’s evolving economic structure.
“We are no longer an agrarian economy we are a service economy. The opportunity exists for us to move further if we focus on diversifying the economy, building resilient institutions, and fostering a dynamic private sector.” he noted.
He stressed that to realize this transformation, Ghana must benchmark against middle-income peers, not low-income countries.
“If we want to be in the upper-middle-income category, we should not be governing ourselves like low-income countries. We are losing concessional financing and grants by staying in the wrong classification.”
VAT Clarity and Input Tax Credits
Terkper concluded with an important clarification on VAT, noting that confusion around the tax system continues to affect compliance. “VAT is a consumption tax. When you spend, you pay. But the input VAT should be set aside, not added to the cost base. Otherwise, VAT is charged on VAT, leading to cascading taxes.” he explained.
He called for a rationalization of the entire tax system, highlighting the importance of transparency and equity.
“Let’s clean up the distortions. Let’s be fair. And most importantly, let’s be strategic about how we build a sustainable tax regime.”
According to the Former Finance Minister, only through structural reform, fair taxation, and disciplined fiscal policy can Ghana realize its ambitions of economic transformation.
