By Joshua Worlasi AMLANU
A more equitable distribution of the tax burden represents the most realistic way to raise government revenue in a sustainable manner, Dela Agbo, CEO-EcoCapital Investment, has argued.
Speaking with B&FT ahead of the 2025 budget presentation tomorrow, Tuesday, March 11, 2025, he said the nation is at a critical juncture in its fiscal policy as it faces persistent revenue shortfall – with policymakers under pressure to identify new revenue sources without overburdening businesses and households.
He noted that while the formal sector, which makes up only about 20 percent to 30 percent of the economy, is taxed consistently, the informal sector remains largely untapped.
“One of the areas that any government has to look at is how to effectively and efficiently tax the informal sector,” Mr. Agbo said, stressing that this could help alleviate pressure on already compliant businesses.
This comes as the Finance Ministry has been exploring various tax reforms, with a renewed focus on improving compliance, rationalising exemptions and leveraging untapped revenue streams.
Informal Sector Key Revenue Source
Government has long struggled to bring the informal sector into the tax net, despite its significant contribution to economic activity. Traders, artisans and small businesses operate largely outside formal tax systems, leading to a narrow tax base. Mr. Agbo believes that implementing targetted tax policies for this sector could yield significant revenue without increasing existing tax rates.
“We should expect to see some strategic way of taking some money from the informal sector – spare-parts dealers, traders and other informal sector players,” he said.
Another area with potential for increased revenue is property taxation. Mr. Agbo pointed out that many high-value properties in Ghana are either untaxed or under-taxed, leading to significant revenue losses.
“If someone can buy a house for US$500,000, they should be able to pay US$5,000 annually in property taxes,” he argued, adding that effective implementation of property taxes could generate substantial funds without affecting lower-income earners.
The prevailing property tax system has historically been plagued by poor enforcement and outdated valuation methods, leading to limited collections. However, government officials have acknowledged the need for reform and there are expectations that stricter enforcement will be included in the 2025 budget.
Luxury Taxes and High-End Consumption
To ensure a fairer distribution of the tax burden, Agbo suggested imposing higher taxes on luxury goods and services, including nightclubs, alcoholic beverages and high-end consumer products.
“Some lifestyles need to pay more,” he said, arguing that such measures would protect low-income earners while ensuring that wealthier individuals contribute proportionally.
This aligns with recent government discussions on progressive taxation, whereby high-value consumption is targetted rather than broad-based levies like the e-levy, which affects all income groups.
VAT reforms, tax exemptions
Government’s broader tax reform agenda extends beyond new tax sources. Finance Minister Dr. Cassiel Ato Baah Forson recently highlighted inefficiencies in VAT collection and excessive use of tax exemptions as key issues undermining domestic revenue mobilisation.
Speaking at the National Economic Dialogue, Dr. Forson pointed out that Ghana’s tax revenue stood at just 13.5 percent of Gross Domestic Product (GDP) in 2023, significantly lower than the levels seen in peer economies.
“Ghana’s domestic revenue mobilisation has remained stagnant for the last decade, with tax revenues failing to keep pace with economic expansion,” he said.
Value Added Tax (VAT), which is a major revenue source in many developing economies, underperforms due to widespread exemptions and compliance challenges. Tax expenditures – exemptions across VAT, personal income tax and import duties – cost Ghana an estimated 3.9 percebt of GDP; with VAT exemptions alone accounting for 1.9 percent of GDP in revenue losses.
“The current tax exemptions regime is not sustainable. While we recognise the need for targetted relief, we must also ensure that tax policies do not undermine our ability to fund critical public services,” Dr. Forson noted.
To address these challenges, government is looking to strengthen tax administration through digitalisation, improved enforcement and stricter controls on exemptions.
The Ghana Revenue Authority (GRA) has been tasked with enhancing data integration across tax systems to track income flows more effectively and reduce underreporting.
Fiscal consolidation, growth considerations
As government seeks to increase revenue, there is also a focus on ensuring that fiscal consolidation does not stifle economic growth. Ghana’s budget deficit is projected to decline from 4.9 percent of GDP in 2024 to 4.2 percent in 2025, largely driven by improved revenue collection and spending controls.
However, Mr. Agbo cautioned that policymakers must balance these efforts with the need to support businesses and investment.
“Growth is very important, especially with a new government coming in. They will want to improve from the previous administration,” he said, adding that a balanced approach is necessary to maintain investor confidence.
Lowering interest rates through debt restructuring remains a key strategy for government.
The EcoCapital Investment CEO noted that authorities are already pushing for lower borrowing costs, particularly through Treasury bill auctions.
“Government is strategically borrowing at a lower interest rate, indirectly restructuring its debt through Treasury bill auctions,” he explained.
“They are intentionally borrowing at lower rates, not allowing investors to get the risk premium they want on their investment.”
Reducing Government Expenditure
Beyond revenue generation, there is also a strong push for fiscal discipline. Mr. Agbo commended the new government’s moves to cut unnecessary spending, including the reduction in ministerial appointments from 100 to about 60.
“It’s a good saving,” he remarked.
He noted that further restrictions on government travel and procurement could help free-up additional funds.
Dr. Forson echoed this sentiment, stating that excessive spending had contributed to fiscal imbalances in the past. “We need to ensure that wasteful expenditure is curtailed, and resources are allocated efficiently to priority areas,” he said.
