The World Bank indicates that Ghana is losing 3.9% of GDP due to tax exemptions on VAT, PIT, and import duties. The biggest VAT losses stem from real estate exemptions, while cocoa farmers’ PIT exemptions significantly impact revenue. The report calls for rebalancing tax policies for effective fiscal management.
The World Bank has reported that Ghana is incurring a loss equivalent to 3.9% of its Gross Domestic Product (GDP) due to tax exemptions associated with Value Added Tax (VAT), Personal Income Tax (PIT), and import duties. While these exemptions provide temporary fiscal relief, they also create economic challenges such as leakages, complexity, and distortions.
The report identifies that the most significant contributor to lost VAT revenue stems from exemptions related to real estate, including dwellings and land, which account for roughly 33% of the total revenue loss. In the context of Personal Income Tax, the exemption for cocoa farmers has a notable impact, equating to 0.42% of GDP, followed closely by pension and social security contribution deductions at 0.37% of GDP.
Although the Tax Exemptions Act of 2022 aims to provide clear criteria for tax exemptions, the World Bank has noted that additional legislative measures create further tax incentives that diverge from established tax benchmarks. This calls into question the effectiveness of the current tax exemption framework.
The World Bank advocates for a reevaluation of tax expenditures, stressing the necessity of balancing fiscal relief with the need to reduce detrimental impacts associated with tax exemptions. By optimizing the current tax system, Ghana could improve overall fiscal health without undermining economic stability.
In summary, Ghana faces a substantial financial impact from tax exemptions, losing an estimated 3.9% of GDP. The identified sources of revenue loss, including VAT and PIT exemptions, illustrate the urgent need for policy reform. By reassessing these exemptions and aligning incentives with fiscal goals, Ghana can work towards mitigating the negative effects on its economy.
Original Source: www.ghanaweb.com
