Tax reform and revenue productivity in Ghana

Newman Kwadwo Kusi

Working Papers from African Economic Research Consortium

Abstract: This study evaluates the revenue productivity of Ghana's overall tax system and of individual taxes on the basis of estimates of tax buoyancies and elasticities. It also looks at the links between the tax reform of 1983-1993 and revenue performance, as well as at ways of mobilizing additional revenue. The analysis shows that the tax reform has had significant impact on the productivity of both the individual taxes and the overall tax system. All the individual taxes, except for cocoa export tax and excise duties, showed buoyancies and elasticities of more than unity during the reform period, thereby causing the overall tax system to have a buoyancy and elasticity of more than unity each. The sharp improvement in the revenue productivity during the reform period was due principally to the successive devaluations of the exchange rate. It was also supported by the large inflow of foreign loans, the abolition of the price control and import licensing system, the simplification of the import tariff rates, and the complete overhaul of the tax administration. The tax reform succeeded in improving revenue generation, enhancing the efficiency of the tax administration and improving equity in the tax system. It also removed market distortions and strengthened economic incentives. Despite this, the share of government revenue in GDP remains low compared with the average obtained in developing countries, which calls for ways to mobilize additional revenue. Various revenue enhancement options were found to be available for use by the tax authorities. These options include the introduction of VAT to replace the existing sales tax, revaluation of properties to broaden the base of property tax, a review of the definition of income for the purposes of income tax, and further improvement in the tax administration to increase tax collection and to combat evasion and fraud.

Date: 1998-03
Note: African Economic Research Consortium
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