Fundamental flaws in the tax system has undermined revenue collection and forced government into an unsustainable borrowing cycle, former finance minister and current Special Presidential Advisor on the Economy, Seth Terkper, has observed.
At the launch of his book ‘VAT in Africa – The Ghanaian Experience’ held last week, Mr. Terkper warned that distortions in Ghana’s tax framework are creating a dangerous fiscal pattern whereby insufficient revenue collection leads to increased government borrowing to fill expenditure gaps – thus highlighting a link between tax policy effectiveness and the country’s fiscal sustainability.
The country’s public debt has emerged as one of the most pressing challenges facing its economy in recent years, with debt restructuring being part of a US$3billion International Monetary Fund programme agreed in 2023.
Terkper served as finance minister from 2013 to 2017 and oversaw major tax reforms including the current VAT Act. He has identified a proliferation of levies as the key factor undermining the tax system’s effectiveness.
For instance, while VAT was designed to replace numerous consumption taxes, many of these have returned in the form of levies…creating administrative complexity and compliance challenges. He described this trend as a distortion of the streamlined tax framework established during the 2013-2016 reform period.
These complex tax systems encourage avoidance and evasion, further reducing government revenue, Terkper cautions.
As a result, Mr. Terkper advocates maintaining what he describes as the “pillars of the fiscal system” – a simplified structure based on two core taxes: one on income and another on expenditure. This approach, he argues, reflects international best practices adopted by advanced economies.
“Every country has pillars of taxes. In most of the advanced countries, until the recent tariff scheme, they don’t rely very much on tariffs,” he notes, “unlike developing countries like Ghana which depend heavily on trade taxes and Customs duties.”
His comments come at a time when government faces pressure to increase revenue mobilisation while managing the economic impact of high taxation on businesses and households. Mr. Terkper emphasised that effective tax administration, rather than new taxes, should be the focus for improving revenue collection.
