It’s the paradox few are talking about: as the cedi strengthens, some of Ghana’s key tax streams are quietly weakening.
- Understanding the Tax Mix
- 1. The Customs Conundrum: Strong Cedi, Lower Port Revenue
- 2. Petroleum Taxes: Lower Prices, Lower Returns
- 3. Export Earnings and Royalties: FX Losses for the State
- 4. VAT and Income Tax: Inflation Relief as a Revenue Driver
- 5. Debt Service Relief: Fiscal Space Gained
- 6. Business Confidence and Compliance
- 🧾 Net Effect of Cedi Appreciation on Revenue Sources
- 🎯 Policy Implications: Don’t Be Fooled by the Cedi’s Strength
- The Double-Edged Sword
The Ghana cedi’s recent appreciation against major foreign currencies, especially the U.S. dollar, has sparked cautious optimism across the economy. Importers are paying less for goods. Consumers are hopeful that inflation will slow. But there’s a catch while headlines celebrate, policymakers at the Ministry of Finance and Ghana Revenue Authority (GRA) are facing a quieter concern: a stronger cedi may reduce certain streams of tax revenue, at least in the short term.
This article explores how cedi appreciation impacts Ghana’s tax system who gains, who loses, and the delicate fiscal dance policymakers must perform.
Understanding the Tax Mix
Ghana’s tax revenue largely comes from:
- Direct taxes: Personal income tax, corporate income tax
- Indirect taxes: Value Added Tax (VAT), excise duties
- Trade taxes: Import duties, export levies
Additional sources include petroleum levies, mineral royalties, and withholding taxes. The cedi’s strength interacts with each of these in unique ways—sometimes beneficial, often not.
1. The Customs Conundrum: Strong Cedi, Lower Port Revenue
How Import Duties Work:
When goods are imported, taxes (import duty, VAT, levies) are calculated based on the cedi value of the item, derived from its foreign currency price. When the cedi appreciates, the local currency value drops—even if the dollar price remains unchanged.
Example:
- April: $10,000 machine × GH¢13/USD = GH¢130,000 taxable value
- May: $10,000 machine × GH¢12/USD = GH¢120,000 taxable value
- Tax base drops by GH¢10,000.
If taxed at 20%, that’s GH¢2,000 less revenue per machine.
Impact:
Even if import volumes remain stable, GRA collects less. This matters because over 35% of indirect tax revenue comes through the ports (2024 data).
2. Petroleum Taxes: Lower Prices, Lower Returns
Ghana’s petroleum levies such as the Special Petroleum Tax (SPT), Road Fund Levy, and Energy Debt Recovery Levy are largely ad valorem (calculated as a percentage of product price). A stronger cedi reduces the cedi cost of oil imports, which means lower pump prices—and lower tax collected per litre.
Impact:
Unless fuel sales volumes surge to compensate, government revenue dips, even as consumers enjoy cheaper prices.
3. Export Earnings and Royalties: FX Losses for the State
Exporters in cocoa, gold, and oil earn in dollars but declare profits in cedis. A stronger cedi means fewer local currency earnings after conversion.
Result:
- Lower corporate income tax (due to lower reported profits)
- Reduced royalties and windfall taxes (based on export value in cedis)
Companies like Newmont, Gold Fields, and COCOBOD may see lower tax liabilities even if dollar prices remain stable.
4. VAT and Income Tax: Inflation Relief as a Revenue Driver
It’s not all bad news. A stronger cedi often lowers inflation by reducing the cost of imported goods like food, fuel, and raw materials.
Upside:
- Consumer spending improves, boosting domestic VAT
- Businesses invest more, leading to job creation and higher income tax collections
However, these effects take time and depend on business confidence translating into real expansion.
5. Debt Service Relief: Fiscal Space Gained
Ghana owes significant external debt in dollars and euros. A stronger cedi means fewer cedis are needed to repay these loans.
Example:
If the cedi appreciates from GH¢13 to GH¢12 per dollar, a $100 million debt payment costs GH¢100 million less. That’s domestic fiscal space that can be redirected potentially into infrastructure or tax reform.
6. Business Confidence and Compliance
Currency stability breeds confidence. With reduced exchange rate volatility:
- Businesses are more likely to formalize operations
- Tax compliance and voluntary disclosure increase
- GRA may see an uptick in filings from previously informal businesses
Though difficult to measure, this shift is critical to widening the tax net.
🧾 Net Effect of Cedi Appreciation on Revenue Sources
| Revenue Source | Impact |
|---|---|
| Import Duties | 🔻 Negative |
| VAT at Ports | 🔻 Negative |
| Petroleum Levies | 🔻 Negative |
| Export Royalties | 🔻 Negative |
| Domestic VAT | ⚖️ Potentially Positive |
| Income Tax (Personal & Corp) | 🔁 Mixed (Short-Term Negative, Long-Term Positive) |
| Debt Service Cost | ✅ Positive |
| Informal to Formal Shift | ✅ Positive |
🎯 Policy Implications: Don’t Be Fooled by the Cedi’s Strength
The government must look beyond the optics of cedi strength and prepare for shifting tax realities.
Considerations:
- Tighten compliance at ports to offset lower values
- Rebalance toward domestic taxes less sensitive to FX
- Explore fixed-rate levies for fuel to stabilize petroleum revenue
- Sustain fiscal discipline to reinforce cedi confidence
The Double-Edged Sword
A strong cedi is not a win for all. It lowers consumer prices and strengthens Ghana’s debt profile, but it can also weaken tax inflows, especially from imports and exports. The real challenge is turning currency strength into lasting fiscal strength. To do that, Ghana needs a resilient tax structure, not just a resilient cedi.
