By: Felix Larry ESSILFIE(Dr)
Ghana’s struggle to raise adequate domestic revenue has become a defining feature of its economic narrative.
Despite two decades of robust GDP growth and multiple tax reforms, the country’s tax revenue remains stuck at roughly 12–14% of GDP, far below its own targets and the levels needed for fiscal sustainability.
For 2022, the tax-to-GDP ratio was about 13.8%, prompting officials to aim for 18% in the medium term.
This persistent underperformance, illustrated in Figure 1, is not for lack of effort; it reflects deeper political economy dynamics. Ghana’s tax ratio has risen only modestly from about 8% of GDP at the turn of the millennium to the mid-teens today, and progress has largely stalled since 2017.
International comparisons reinforce the point: Ghana ranks in the middle of lower-middle-income countries on revenue effort and lags the average African tax yield (around 16% of GDP).
The question is, why has mobilizing revenue been so difficult? Four analytical lenses—fiscal contract theory, new institutional economics, public choice theory, and fiscal sociology—offer complementary answers.
Figure 1: Ghana’s tax revenue as a percentage of GDP over time (based on Ministry of Finance and OECD data). The ratio climbed from roughly 8% in 2000 to about 14% in recent years, but has plateaued below the government’s 18–20% target. This persistent gap underpins Ghana’s fiscal challenges.
Fiscal contract theory posits that taxation is fundamentally a social contract, whereby citizens consent to tax obligations in exchange for credible and visible state service delivery.
In Ghana, this contract has been historically strained by perceptions of poor governance, corruption, and ineffective public spending. These perceptions significantly erode tax morale and compliance.
The introduction of the Electronic Transfer Levy (E-Levy) in 2022 offers a compelling empirical case. Initially projected to yield GH¢6.96 billion in revenue, the levy generated just GH¢612 million following widespread public backlash and behavioral adaptations, such as shifts to cash transactions.
As illustrated in Figure 2, the more than 90% shortfall between projected and actual revenue reflects a profound breakdown in state-citizen trust, consistent with the fiscal contract framework.
Citizens responded not through open revolt but by disengaging economically, highlighting the subtle yet powerful impact of legitimacy on compliance. In 2023, modest policy realignments—including a rate reduction from 1.5% to 1%, digital collection enhancements, and public education campaigns—resulted in improved performance.
These adjustments, coupled with IMF program credibility, suggest a tentative rebuilding of the fiscal compact. However, the episode underscores that sustainable revenue mobilization in Ghana hinges not only on policy design but on reestablishing trust in state institutions and fiscal governance.
Figure 2: E-Levy revenue: original targets vs. actual collections. In 2022, the government projected about GH¢6.9 billion from the new levy, but raised only GH¢0.61 billion after public backlash and behavioral avoidance. After reforms (including a rate cut) in 2023, collections rose to GH¢1.19 billion, exceeding the pared-down target of GH¢1.11 billion. This gap between plans and outcomes highlights the impact of public resistance on revenue performance.
Public choice theory offers a critical lens for understanding the political economy constraints underpinning Ghana’s revenue underperformance. Unlike fiscal contract theory, which centers on citizen compliance, public choice theory emphasizes the role of political incentives, electoral calculus, and rent-seeking behavior among policymakers and vested interest groups.
In democratic contexts such as Ghana, tax increases are often politically costly, prompting elected officials to avoid reforms that could provoke voter backlash or disrupt elite coalitions. This dynamic explains the historical preference for external borrowing and monetary accommodation over politically risky tax expansions.
Ghana’s heavy reliance on Eurobond markets during the 2010s deferred difficult revenue decisions until market access evaporated in 2022, precipitating a debt crisis and the return to an IMF-supported program.
These dynamics are evident in the composition and design of Ghana’s tax system. Politically expedient, broad-based taxes like VAT—dispersed across large consumer bases—have been easier to implement and expand, while taxes that target organized, influential constituencies have been consistently underutilized.
Property taxation, which disproportionately affects wealthier urban elites, remains negligible—well below 0.5% of GDP—due to weak local enforcement capacity and a lack of national political will.
The political economy calculus discourages confrontation with vocal property-owning classes, whose opposition could destabilize ruling coalitions. Tax exemptions provide another clear manifestation of public choice dynamics. Over successive administrations, tax holidays and preferential treatment have been extended to politically connected firms, often under the guise of promoting investment or development.
Despite the passage of the Exemptions Act in 2022 to rationalize these concessions, implementation inertia persists. As illustrated in Figure 3, revenue forgone to import-duty exemptions rose sharply to GH¢3.545 billion in 2023 from GH¢2.388 billion in 2021, reflecting continued leakage despite legislative reforms.
This underscores the entrenched influence of rent-seeking elites who benefit from the status quo and resist efforts to broaden the tax base. These forms of “quiet resistance”—invisible to the public eye but deeply embedded in fiscal policy—erode state revenue capacity.
Rectifying this demands sustained political will, institutional insulation of tax policy from partisan interests, and enhanced fiscal transparency, including mandatory publication of all granted exemptions and their beneficiaries.
Figure 3: Revenue lost to import tax exemptions in Ghana (in nominal Cedi terms). Despite a new Exemptions Act in 2022, import-related tax expenditures remained elevated at GH¢3.5 billion in 2023 (up from GH¢2.4 billion in 2021). This indicates the persistence of special tax breaks and the challenge of reforming them, consistent with public choice dynamics where interest groups resist losing favorable treatment.
New institutional economics provides a critical analytical framework for understanding Ghana’s revenue mobilization challenges, emphasizing the role of formal rules, organizational architecture, and enforcement mechanisms in shaping fiscal outcomes.
From this perspective, institutional capacity and governance effectiveness are as central to revenue performance as political will or social trust. Ghana’s creation of the Ghana Revenue Authority (GRA) in 2009, consolidating the Internal Revenue Service, Customs, and VAT Service, was a major institutional reform aimed at reducing fragmentation and enhancing operational efficiency.
While this unification has yielded gains in administrative coherence and technological modernization, persistent limitations in enforcement, especially in the informal sector, continue to cap the state’s extractive capacity. Structural constraints—including insufficient audit manpower, outdated logistical systems, and fragmented taxpayer data—undermine compliance and revenue buoyancy.
In response, recent policy attention has shifted toward institutional strengthening through digital reforms. The deployment of electronic VAT invoicing, launched in 2022, mandates that large and medium taxpayers issue VAT receipts through a system linked directly to GRA’s monitoring infrastructure.
This real-time data architecture enhances the transparency of tax transactions and curtails underreporting and fraud. Early implementation data suggest the system is beginning to plug leakages in VAT collection, although comprehensive impacts will depend on full taxpayer coverage. Similarly, the 2023 rollout of a Unified Digital Property Tax Platform seeks to address long-standing inefficiencies in property rate administration.
By digitizing property valuation rolls, billing, and payments, the platform aims to institutionalize local tax compliance and close one of the most underutilized revenue channels in the country. However, institutional reforms in Ghana do not occur in a political vacuum. Resistance from local authorities and bureaucratic actors has emerged, particularly over fears that centralized digital platforms erode local discretion and rent-seeking opportunities.
This underscores a core tenet of new institutional economics: institutions are embedded within political contexts, and reform outcomes depend on the credibility and enforcement of rules. If sustained, these reforms—complemented by robust legal frameworks like the Exemptions Act—have the potential to recalibrate Ghana’s revenue architecture, expand the tax net, and enhance the state’s fiscal capacity through improved compliance, reduced discretion, and institutional modernization.
Finally, fiscal sociology – the sociological study of taxation – reminds us that Ghana’s revenue mobilization dilemmas are also rooted in social structures, historical legacies, and normative dimensions that shape tax behavior. Ghana’s colonial fiscal history—marked by coercive instruments like poll taxes—has left enduring legacies of distrust toward state taxation.
These historical grievances, passed intergenerationally, continue to frame how many citizens perceive contemporary tax policy. In a society where over 70% of economic activity resides in the informal sector, formal tax compliance is often perceived not as a civic obligation but as a contingent choice upon formalization. This structural informality reflects more than administrative failure; it indicates a limited social penetration of the state into everyday economic life.
Tax resistance in Ghana is thus deeply embedded in collective memory and cultural perceptions. The “Kume Preko” protests of 1995, triggered by the introduction of VAT, remain a powerful symbol of fiscal dissent. More recently, the public backlash against the E-Levy drew rhetorical parallels with that earlier resistance, reinforcing a narrative that taxation is often extractive and regressive.
These episodes underscore that tax compliance is as much about perceived fairness as it is about legal obligation. Many Ghanaians view the tax system as inequitable—formal sector workers bear consistent burdens while politically connected elites and informal operators evade through exemptions or opacity.
Conversely, experiences where taxes have been transparently earmarked for public goods—such as health insurance or education infrastructure—have seen greater public acceptance, reinforcing the notion that tax legitimacy is built through reciprocity and visibility.
Therefore, policy effectiveness must move beyond technocratic fixes toward a recalibration of fiscal norms. Enhancing tax morale through civic education, participatory budgeting, and transparent revenue-use linkages is essential. Realignment in this sociological sense requires embedding taxation within a broader narrative of equity, accountability, and shared national development.
Ghana’s domestic revenue mobilization dilemma is not simply a technical deficit to be addressed through new taxes or administrative upgrades, but a complex political economy challenge rooted in institutional weakness, public distrust, and entrenched elite interests.
Fiscal contract theory underscores the role of trust and reciprocity, while public choice theory reveals how political self-interest and rent-seeking undermine reform. New institutional economics highlights administrative fragmentation and capacity gaps, and fiscal sociology draws attention to the social norms and historical legacies that constrain compliance.
Together, these perspectives explain why even well-designed reforms often meet resistance—ranging from overt public backlash to bureaucratic inertia. In the wake of Ghana’s debt crisis, the imperative for a new fiscal alignment is urgent.
Measures such as VAT digitization, the Exemptions Act, and the digital property rate platform represent early attempts at realignment, but their success will depend on embedding reforms within a framework of transparency, accountability, and citizen engagement. Ghana stands at a critical inflection point.
Without meaningful revenue expansion, its development ambitions will be constrained by austerity; with it, the state can reclaim fiscal sovereignty. The challenge ahead is to translate theoretical insights into a politically legitimate, socially embedded tax system capable of sustaining inclusive national transformation.
The writer is the Executive Director, IDER
