Rethinking Ghana’s Fiscal Framework: You Cannot Tax Your Way To Prosperity

Ghana needs revenue. Government must finance roads, schools, hospitals, security, sanitation, energy infrastructure and other essential public services. But Ghana also desperately needs something else: more businesses, more factories, more jobs, more exports and stronger Ghanaian-owned companies.

The challenge is ensuring that the pursuit of tax revenue does not undermine the businesses expected to create the economic growth from which future taxes will come.

Across Ghana, micro, small and medium-sized enterprises form the backbone of everyday economic activity. From traders and artisans to food processors, farmers, transport operators and small manufacturers, these businesses provide livelihoods for millions of people. Yet a large proportion of economic activity remains informal.

This raises an important question: Why do so many Ghanaian entrepreneurs prefer to remain small and informal rather than register, expand and enter the formal economy?

Part of the answer lies in the cost and complexity of formalisation.

Once an enterprise becomes visible to the state, it encounters a range of obligations. Depending on its size and activities, these may include corporate income tax, VAT-related obligations, payroll and social-security responsibilities, business operating permits, regulatory fees and import duties.

These obligations are legitimate components of a functioning economy. The problem arises when the cumulative burden of taxation, regulation and compliance becomes disproportionate to the capacity of a young or struggling business.

For a small Ghanaian manufacturer already dealing with expensive financing, electricity costs, imported raw materials, machinery costs, transportation challenges and competition from imported finished goods, every additional charge matters.

VAT deserves particular attention. A consumption tax may appear straightforward on paper, but compliance can be challenging for smaller enterprises without sophisticated accounting systems. Record keeping, invoicing, filing and understanding the applicable tax treatment all impose administrative costs.

Tax reform should therefore pursue not only revenue mobilisation but simplicity. A small entrepreneur should be able to understand what is owed, calculate it easily and pay it without needing an entire accounting department. Digitalisation provides Ghana with an opportunity to make tax compliance simpler rather than merely more technologically sophisticated.

Corporate taxation is necessary, but Ghana should also think strategically about the early stages of enterprise development.

A newly established business employing five people should not be viewed only as another taxpayer. It should also be viewed as a potential employer of 50 or 500 people tomorrow. Government should therefore consider how targeted incentives, simplified tax regimes and carefully designed transitional arrangements can encourage promising enterprises to formalise, reinvest profits and expand.

The objective should be simple: help businesses develop the capacity to pay more taxes tomorrow rather than extracting so much today that they never grow.

Ghana must also examine the relationship between taxation at the ports and its industrialisation ambitions.

There is an important distinction between importing finished consumer products and importing machinery, equipment, specialised components and raw materials needed for domestic production.

A country seeking industrialisation should make it easier, where economically justified, for productive enterprises to acquire the machinery and inputs required to manufacture locally. Otherwise, Ghana risks creating a contradiction: encouraging entrepreneurs to manufacture domestically while making the equipment and inputs required for manufacturing prohibitively expensive.

The tax system should reward production and value addition.

When a Ghanaian company imports machinery to establish a factory, employs Ghanaian workers, purchases local raw materials and eventually exports finished products, the long-term economic benefits can exceed the immediate revenue collected at the port.

Government also cannot simply demand that informal businesses become formal. It must make formalisation worthwhile.

A registered Ghanaian MSME should experience tangible advantages: better access to affordable finance, government procurement opportunities, business-development services, export assistance, technology, training and legal protection.

Imagine a trader who formalises and eventually becomes a distributor. Imagine the distributor becoming a manufacturer. Imagine that manufacturer eventually exporting through the African Continental Free Trade Area.

At every stage, employment increases, economic activity expands and government acquires a larger and more sustainable tax base.

None of this is an argument against taxation. Ghanaians and businesses must contribute fairly towards national development. Tax evasion should not be tolerated, and effective administration is necessary to ensure fairness.

But there is a fundamental difference between broadening the tax base by growing the formal economy and repeatedly increasing the burden on businesses already within the tax net.

If the same relatively small formal sector is continuously asked to carry more of the country's fiscal burden, businesses may reduce investment, pass costs to consumers, remain deliberately small or retreat into informality.

Ghana needs a different cycle:
FORMALISATION → INVESTMENT → PRODUCTION → EMPLOYMENT → PROFITS → TAXATION → REINVESTMENT → GROWTH

The stronger the productive economy becomes, the greater government's capacity to mobilise revenue sustainably.

Ghana has repeatedly declared its ambition to become an industrialised economy. That ambition must be reflected not only in speeches and policy documents but also in taxation, customs administration, access to finance, energy policy and regulation.

If we want Ghanaian companies producing beverages, pharmaceuticals, textiles, cosmetics, processed foods, machinery, building materials and other manufactured products, our fiscal system must recognise the strategic importance of domestic production.

Local manufacturers should not find themselves structurally disadvantaged against importers of finished products.

The objective should be to make it increasingly attractive to produce in Ghana, process in Ghana, package in Ghana, employ in Ghana and export from Ghana.

Every successful Ghanaian factory creates economic activity far beyond its gates. It supports farmers, transporters, packaging companies, technicians, engineers, distributors, retailers and professional service providers. Industrialisation therefore expands the tax base naturally.

When Ghana assesses fiscal performance, we should certainly ask how much revenue the Ghana Revenue Authority collected. But we should also ask how many informal businesses became formal, how many new businesses survived beyond five years, how many MSMEs expanded, how many manufacturing plants opened and how many sustainable jobs were created.

We should ask how much private capital was invested in productive activity, how much of what Ghana consumes is now produced locally, how many Ghanaian businesses are exporting under AfCFTA, and how many small Ghanaian companies are growing into large African enterprises.

These indicators matter because taxation ultimately depends on economic activity.

Ghana cannot build prosperity merely by finding new ways to tax the existing economy. We must expand the economy itself.

We need entrepreneurs who are confident enough to invest, manufacturers who can compete, farmers connected to processing industries, young people creating enterprises and Ghanaian companies capable of expanding across Africa.

Ghana needs taxes to develop, but it needs productive businesses from which those taxes can sustainably come.

The principle should therefore guide our fiscal and industrial policy:

You cannot tax your way to prosperity. Ghana must produce, invest, manufacture, innovate, export and grow its way to prosperity—and build a fair, simple and predictable tax system around that growth.