No Serious Government Responds To Tax Evasion By Making Compliant Businesses Pay Over 700% More

Government’s decision to substantially increase the levy on fuel oil has reignited the debate over the appropriate balance between revenue mobilisation and fair taxation. While every government has a responsibility to safeguard public revenue and prevent tax evasion, the measures adopted to achieve that objective must be proportionate, targeted, and economically sound.

Parliament’s approval of the Energy Sector Levies (Amendment) Bill, 2026 has significantly altered the tax treatment of fuel oil. Under the amendment, the Energy Sector Shortfall and Debt Repayment Levy (ESSDRL) has been increased from GH¢0.24 per litre to GH¢1.93 per litre, representing an increase of more than 700%. In addition, the product has now been brought under the Road Fund Levy, extending another statutory levy to what is arguably one of the economy’s most important industrial inputs.

According to government, some operators within the downstream petroleum sector were allegedly exploiting the lower tax applicable to fuel oil by misclassifying petroleum products to reduce their statutory tax liabilities. If that assertion is correct, then government is justified in addressing the abuse.

The critical policy question, however, is whether a tax increase of this magnitude on every legitimate user of fuel oil represents the most appropriate policy response.

To illustrate the point, consider a school where a handful of students are caught cheating during an examination. Rather than identifying and sanctioning the offenders, the school authorities decide to increase tuition fees by over 700% for every student. The dishonest few escape individual accountability, while the overwhelming majority who complied with the rules are required to bear the consequences. Such an approach would rightly be regarded as unfair because it shifts the burden from the offenders to everyone else.

That is precisely the logic underpinning this tax adjustment.

If the underlying problem is tax evasion, then the first line of response should ordinarily be stronger enforcement, improved monitoring, better compliance systems, digital tracking of petroleum movements, and effective prosecution of offenders. Broadly increasing the tax burden on compliant businesses risks addressing the symptom while leaving the underlying enforcement challenge unresolved.

The broader implications of the measure also deserve careful consideration.

Fuel oil is not an ordinary consumer fuel. It is a strategic industrial input used extensively by the shipping industry, thermal power plants, manufacturing firms, and segments of the mining sector. Consequently, increases in its cost rarely remain confined to those industries.

Higher fuel oil costs raise freight charges within the shipping industry, increasing the cost of imports. Manufacturers that depend on fuel oil to operate industrial boilers, furnaces, and production equipment will inevitably face higher operating costs. Thermal power producers and mining companies will experience similar cost pressures. In competitive markets, businesses rarely absorb such increases indefinitely. Instead, they incorporate them into the prices of the goods and services they provide.

This is the transmission mechanism economists describe as tax incidence.

Although the statutory obligation to pay the levy falls on businesses, the economic burden gradually moves through the supply chain until it reaches consumers. In practical terms, households ultimately bear the cost through higher prices for imported goods, manufactured products, transportation, and other essential commodities.

For this reason, it would be misleading to suggest that the increase affects only businesses that purchase fuel oil directly. The effects are likely to be economy wide. Motorists, traders, manufacturers, importers, and consumers are all connected through the same production and distribution network. Once production and freight costs rise, the consequences are eventually reflected across the broader economy.

The Finance Minister’s assertion that motorists will remain unaffected simply because the levy applies to fuel oil rather than petrol or diesel is inconsistent with established principles of tax incidence. At best, it is economically unsound; at worst, it is fundamentally flawed. When the cost of producing, transporting, importing, and distributing goods rises, every Ghanaian ultimately bears the burden, regardless of the type of fuel they purchase.

Government’s desire to improve domestic revenue mobilisation is understandable, particularly in the context of continuing fiscal pressures and the need to finance public expenditure. However, revenue mobilisation should not come at the expense of sound tax policy. Measures designed to address tax evasion should be carefully targeted at those who evade taxes rather than structured in a manner that substantially increases the burden on law abiding businesses.

Ultimately, effective tax administration is measured not only by the amount of revenue collected but also by the fairness, efficiency, and credibility of the system. A policy that responds to the misconduct of a few by imposing a tax increase of over 700% on an entire category of legitimate users risks undermining those very principles.

Tax evasion is a legitimate problem deserving of a robust response, but collective punishment is not an effective substitute for effective enforcement.

Indeed, a serious government responds to tax evasion by strengthening enforcement, improving compliance systems, closing regulatory loopholes, and prosecuting offenders. It does not transfer the cost of weak enforcement onto law abiding businesses and, ultimately, the Ghanaian consumer.

That is not prudent tax policy. It is an admission that it is easier to tax compliant businesses than to enforce compliance against tax evaders.