Rethinking taxation, fiscal policy, and gender equality under debt constraints: A case study of Ghana

Introduction

Ghana has had periods of high growth rates, averaging 7% since 2000.¹ But the gains from growth have not been equitably distributed despite declining poverty levels due to rising inequality.² Fiscal policy (taxation and spending) can play a role in promoting gender equality and inclusive growth. This contribution examines Ghana’s attempts to raise domestic revenue through the introduction of new taxes and provides some thoughts on how to make revenue mobilization both more efficient and equitable. The chapter then turns to a discussion of a holistic approach to fiscal policy—considering taxation and expenditure together—to promote gender equality and inclusive growth. To achieve this, Ghana should rebalance public spending toward care and infrastructure that reduce unpaid work, expand the tax base in both progressive and effective ways, strengthen tax administration and compliance, and establish a credible fiscal contract that links taxes to tangible improvements in public services. Only by combining tax reforms with visible spending can fiscal policy sustainably promote poverty reduction, gender equality, and inclusive growth.

Ghana’s revenue structure and current fiscal position³

Taxation is the main source of government revenue. Its share of total revenue (including grants) averaged about 78% between 2013 and 2024.⁴ The share of non-tax revenue⁵ over the same period averaged 15%. Even though Ghana’s tax effort [tax revenue-to-Gross Domestic Product (GDP)] has been low, fluctuating around 10-12% between 2013 and 2022, there has been some improvement following the country’s Extended Credit Facility Programme with the International Monetary Fund (IMF) in 2023. For instance, the tax-to-GDP ratio in 2023 was estimated at 17.2%;⁶ this was projected to rise to 17.9% in 2024 and to 18% in 2025 in line with the Medium-Term Revenue Strategy (2024–2027). It is worth noting that tax revenue consists of only those taxes that are administered and received by the Ghana Revenue Authority (GRA) (comprising direct and indirect taxes, and international trade taxes). This means that the tax-to-GDP ratio excludes all tax-like payments made at the local levels such as market fees and property taxes.⁷

The composition of tax revenue did not change significantly between 2013 and 2024. Direct taxes (mainly corporate and personal income taxes) constituted about 47% of tax revenue (between 2013 and 2024:Q2), although their share fluctuated during the intervening years. The personal income tax regime is progressive. Although the standard corporate income tax (CIT) rate is 25%, the rate varies (between 8% and 35%) across businesses, depending on the location of business and the type of industry, thereby exhibiting some elements of progressivity. For instance, the CIT for manufacturing companies located in regional capitals (except Accra and Tema⁸) is 18.5% while the rate for those located outside of Accra, Tema, and the regional capitals is 12.5%. Similarly, the share of indirect taxes in total taxes was about 41%, with value added tax (VAT) constituting about 60% of indirect tax revenue. Although VAT exhibits some progressivity since it has three tax categories (exempt, 3%, and 15%) based on turnover thresholds, all consumers are subjected to 15% VAT regardless of income level when they buy products subject to VAT from VAT-registered businesses. Tax collections from international trade have become less important in Ghana’s revenue mix, constituting about 16% and 13% of tax revenue and total revenue (including grants) respectively between 2013 and 2024:Q2.

Ghana’s macroeconomic situation became more challenging in 2022, recording its worst performance in the last three decades. The increase in government spending (more below) and decline in revenues due to the COVID-19 pandemic’s impact on the economy caused a worsening of the primary deficit and overall fiscal deficit in 2020. The financial sector cleanup costs and rising interest bills also contributed to the worsening fiscal and external position. Although the deficits declined marginally in 2021 following the government’s restraint in spending, this was short-lived, and 2022 was a crunch year. Interest costs on both domestic and external borrowing began rising in 2021. Public sector borrowing became a burden on the budget. The share of government spending on interest payments increased between 2020 and 2021 and was more than twice the share of capital spending.⁹ The country was barred access to international capital markets (ICMs) in late 2021 following its deteriorating economic conditions and poor credit ratings. Ghana’s debt was declared unsustainable by the World Bank and IMF in 2022, after conducting of a joint debt sustainability analysis.¹⁰ This situation persists in 2025.

Suggested measures to improve revenue from taxation

Even though Ghana’s macroeconomic situation and credit ratings have improved,¹¹ with significant gains recorded beginning 2025:Q2,¹² the country’s current program with the IMF places a limit on the size of the fiscal envelope, and access to the ICMs remains restricted.¹³ Real incomes of many have been eroded by high inflation since 2022, and there is not much appetite for increased taxation. A lesson from Ghana’s past failures in introducing new taxes is that there must be a credible fiscal contract between taxpayers and government if new tax policies are to be successfully implemented.¹⁴ The populace must be convinced that the additional revenue generated will be spent on programs and projects that will be beneficial to them and will not be siphoned off through corruption and fraud.

The next section discusses three taxation options, one of which the Government tried to implement, and two others for consideration, which hold several lessons for the design and implementation of tax reforms. The first option looks at ways to expand the tax base and minimize the negative distributional effects. Options two and three focus on ways to improve efficiency in the administration of tax policies. Option three also brings out the importance of simplicity.

Taxation of activities and incomes currently outside the tax net

In the last decade, the government has introduced revenue-increasing measures, but some have not been successful. We discuss two failed initiatives. The first was a tax on financial assets, and the second was a recent attempt to widen the tax net by roping in the informal sector. We argue the first attempt failed because it did not take into account the political nature of the proposed tax measures. The second attempt failed partly because of conflicting objectives and because it was based on the false narrative that informal operators do not pay taxes;¹⁵ moreover, it didn’t take into account the heterogeneity within the informal sector, which spans both subsistence-level operators and profitable enterprises. These failed attempts provide valuable lessons for the design of future tax measures.

Individual income from investments in financial assets of resident financial institutions and government treasury bills and bonds are currently not taxed. In 2016, the government attempted to introduce a one-percent tax on interest earned on financial assets. Taxing this component of the incomes of the non-poor was intended to introduce more fairness into the system because it would capture a substantial share of the higher-income individuals whose income was not captured in the tax net. For instance, ownership of investment and fixed deposits was not widespread at the time—less than 5% of the adult population, mostly men.¹⁶ It was withdrawn a couple of weeks after it was set to take effective—most likely because of public outcry from wealthy elites who wield outsized influence on government policy. If the government should consider re-introducing a tax on financial assets, which would be an important revenue source, its timing will be critical to avoid failure. This is because the domestic debt restructuring program that was completed in 2023 reduced the present value of holdings of government bonds by an average of about 30%.¹⁷ There is likely to be resistance to a further reduction in investment income through taxation. In addition, the tax rate should be set at a level that does not discourage investment in domestic financial markets. Taxing incomes from financial assets will not only improve the progressivity of the tax system—since the non-poor are more likely to own them—but also promote gender equality given the gender gap in financial asset ownership that is biased against women.¹⁸

The introduction of new tax measures must be preceded by stakeholder engagement that provides information on how the expected revenues will be spent. The information should go beyond specifying sectors that will benefit from additional spending to include how different groups will benefit. It is important to develop an effective constituency in support of the new taxes. This may require that when the burden of the new tax is largely borne by high-income groups, components of the proposed spending program should have explicit benefits for them.

The second reform identified taxes on digital transactions as a potential source of revenue. Given the large informal economy, and in line with calls to broaden the tax net to cover the informal sector, the government introduced the Electronic Transfer Levy (e-levy) which was applicable to electronic transfers above GH₵100 per day and covered mobile money payments, bank transfers, merchant payments, and inward remittances.¹⁹ Analyses revealed the e-levy was regressive and disproportionately impacted the informal sector, which was already burdened by regressive taxation.²⁰ Additionally, the burden among the lowest-earning quintile was higher for women compared to men.²¹ The design of the e-levy included an exemption that applied to businesses that were registered with the GRA and had a merchant account with the largest telecommunications company in the country, Mobile Telephone Network (MTN).²² The telecommunications company was supportive of the exemption program because it would gain customers for its digital product.²³ Yet, the requirements to register with the GRA and the MTN merchant payment system discouraged participation in the exemption scheme by micro and small firms.²⁴ Women’s businesses were more likely to be excluded because they are predominantly micro or small firms, and more likely to be unregistered.²⁵ Thus, the design of the e-levy was regressive on two scores: it was a flat rate that was not linked to the capacity to pay, and the eligibility criteria to benefit from the exemption was a barrier to small and micro-sized firms.²⁶

The introduction of the e-levy triggered widespread protests and the rejection of the 2022 National Budget by the opposition party in Parliament for the first time since 1981.²⁷ There were negative sentiments and disagreements among the public despite the government providing information on how the tax revenues would be utilized.²⁸ The e-levy subsequently became one of the key issues in the 2024 general elections campaign, with the leading political parties promising to abolish it. On April 2, 2025, the e-levy was repealed.²⁹

Three issues doomed the e-levy: failure to adequately consider the heterogeneity of informal sector operators with minimum thresholds that exclude subsistence-level operators; the administrative burden on small and micro firms to register; and the political backlash given the lack of trust in the government concerning how the additional revenue would be used. Future tax measures should take into account these three factors to be successful.

Improving tax administration

Revenue collection is constrained by low enforcement. The use of third parties, such as firms that provide information on income and profits and collect taxes on behalf of the government (via the pay-as-you-earn system, for example), has been found to enhance tax collection.³⁰ However, third-party participation is limited in countries such as Ghana, where own-account workers and micro-sized firms dominate and where bookkeeping is not widespread. Tax authorities, therefore, do not have enough hard evidence to sanction and prosecute taxpayers who default or evade tax payments. Dzansi and co-authors (2016) report that only about 22% of local governments prosecute offending taxpayers. Tax efforts should be directed toward improving revenue generation from large enterprises, which do not suffer from the lack of third-party information that is a characteristic of small and micro-enterprises.³¹

Some existing tax handles do not generate as much revenue as they could because of administrative weaknesses and challenges in the collection of taxes. This is particularly the case for taxes on rental income and property rates. The database on rental units is being developed, and this should contribute to enhancing the revenue authorities’ capacity to collect these taxes. It will be important to ensure the database contains information on the sex of property owners. This may help in gender analysis of tax systems in general—and asset/property ownership, in particular—which would be useful for designing and implementing gender equitable tax policies and effective policies to bridge the gender asset/property gap.

The implementation of property rates is under the jurisdiction of local government (metropolitan, municipal, and district assemblies). The generation of more revenue from property rates can support spending on social services and infrastructure at the local level, and this has the potential to affect the poor and people vulnerable to poverty more directly. Revenue generation from property rates is hampered by limited data on properties and difficulty in locating properties for bill delivery.³²

The unified common property rate platform is the most recent effort to improve collection of property taxes. It is a collaborative effort between the GRA and local governments. It aims to improve accountability through the elimination of cash transactions and the development of a comprehensive database.³³ After the introduction of the platform, the number of billable properties in the database increased from 1.3 million to over 10 million properties in June 2023.³⁴

Beyond data limitations, the poor performance of revenue mobilization through property rates is a political problem because most properties either belong to high-profile personalities or politically connected people who often resist reforms that have proven to be effective elsewhere.³⁵ The property rates system contains elements of equity, although the extent to which these principles guide implementation is left to the discretion of the local authorities. Property tax rates range between 0.5% and 3% of the assessed value of the premises and it is left to the local authorities to determine the applicable rates within this range. The Local Government Act, 2016 (Act 936) does not provide for the exemption of properties below a minimum value (this is left to the discretion of the local authorities).³⁶ If thresholds are introduced, and since on average the value of real estate (i.e., housing, land, and commercial properties) owned by women is less than that of men,³⁷ the implication is that women will be less likely to be drawn into the property rates/taxes. However, it does provide refunds for poor people who are otherwise liable to pay the rates. Act 936 does not provide a definition of poverty, so that is presumably left to the discretion of the local authorities. It exempts people aged 70 years and above from paying property rates. In order to apply the property rates fairly, the local authorities must be equipped with the capacity to identify both poor women and men, so that they are not drawn into the tax net. Accountability on the part of local government authorities is crucial to encourage compliance.

Improvements in tax compliance

Tax compliance is low. Revenue from corporate taxes is estimated to be below the potential. Improved targeting of large companies can increase tax revenues.³⁸ This will require skilled and committed tax officials because large companies will have an incentive to implement measures to reduce or avoid tax payments. Danquah and Osei-Assibey (2018) estimate that only about 25% of potential revenue of the tax stamp, a presumptive tax imposed on informal sector enterprises, is paid.³⁹ This likely overestimates the tax gap (the difference between the calculated potential tax and actual tax paid) because the calculation of potential revenue includes household enterprises that generate subsistence-level incomes and therefore should not be included in the tax net.⁴⁰ In addition, Danquah and Osei-Assibey (2018) find that the total value of the tax gap for female owners of household enterprises is higher than for male owners. This is probably because women are more likely to own micro-enterprises, whose revenue should not be included in the tax net.

Tax compliance is not costless, with estimates of the cost to firms ranging from $0.90 to $167.5 monthly.⁴¹ The costs of tax compliance must be minimized for all firms and individuals, with an emphasis on the reduction of costs for smaller firms. The reduction in tax compliance costs will be beneficial to women, especially if this includes a re-evaluation of threshold limits for exemption and their introduction in cases where they are non-existent. The review of threshold limits should be guided by equity considerations because the use of presumptive taxes or rates to collect revenue from informal sector operators is regressive.

In addition, the benefits of paying taxes must be explained and made obvious. Tax compliance may be improved by the authorities making a concerted effort to provide tax education that does more than informing taxpayers about what taxes they must pay and how to pay them. Taxpayers want information on how much tax is collected and what the revenue raised has been used for.⁴² The information provided by tax authorities should be simple to understand and easy to access. The radio, television, and town hall meetings have been suggested by taxpayers as preferred mediums for interaction between taxpayers and tax authorities. Town hall meetings are held in the districts. However, if they are to be attended by a broad spectrum of people, information about meeting times must be disseminated widely, and meetings should be held at times convenient to as many women and men as possible.⁴³ Tax officials may have to undergo training to change the content of the existing tax education programs. The demand for information on how collected revenues are utilized requires collaboration between the tax and spending agencies.

Ghana’s tax policies have paid limited attention to gender inequality.⁴⁴ The analysis so far of some failed tax measures (for example, the e-levy) shows that the negative distributional effects are not the same for women and men. The design of policies to improve tax administration and tax compliance must also take into account the potential differential effects, including between women and men.

Fiscal policy, poverty, and inequality

One way to minimize the negative distributional effects of tax policies is by using spending policies. A review of two recent fiscal incidence analyses (2012/2013⁴⁵ and 2016/2017⁴⁶) using the Commitment to Equity (CEQ)⁴⁷ framework provides insights into how taxation and spending together influence poverty and inequality. Danso-Mensah and co-authors’ (2024) analysis showed that the overall impact of government fiscal policy on poverty improved between 2013 and 2017, driven primarily by spending on education and health. Although indirect taxes increased poverty, these effects were counteracted by spending on the government’s cash transfer program (Livelihood Empowerment Against Poverty, or LEAP⁴⁸), free school meals (at the primary-education level), and spending on pre-tertiary education.⁴⁹ In addition, the LEAP and free school meals programs increased the coverage of the poor over time such that fiscal policy increasingly benefited the poor.⁵⁰ While the inclusion criteria of both programs do not explicitly include gender, in the case of LEAP, the inclusion criteria of “elderly persons who are 65+ years old” is likely to select more women, given that the female life expectancy at birth (67.94 years) is higher than that of males (63.13 years).⁵¹ Also, in 2015, a pilot “LEAP 1000” initiative targeting extremely poor or vulnerable households with pregnant women and children below 12 months of age was launched by the Ghanaian government, in partnership with UNICEF Ghana and USAID in ten districts in northern Ghana. This lasted between 2015 and 2017.⁵² The beneficiaries, a majority of whom were women, were subsequently mainstreamed into the larger LEAP program.⁵³

It is important to note that public spending has been growing steadily, almost doubling between 2010 and 2022, but investments in critical capital infrastructure that help enable gender equality have been limited. Specifically, from 2010 to 2021, the government’s non-discretionary spending—i.e., public sector wages, interest payments, and earmarked transfers to statutory funds—averaged about 15.8% of GDP. 60% of the government’s total annual spending and the corresponding figures for capital spending were 3.5% and 16% respectively.⁵⁴ Women in Ghana need infrastructure to reduce the burden of unpaid work (e.g., water, sanitation, electricity, transportation/roads). Less than a third of households have pipe-borne water on the premises requiring household members (primarily women and children) to travel to water sources.⁵⁵ Even though the rural electrification program has extended electricity so that 70.3% of rural households use electricity as the main lighting technology, almost a third of rural households either rely on other means (such as flashlight/lantern/torch, kerosene/paraffin lamp, and charcoal) or have no lighting in the household (0.5%).⁵⁶ Also, only 29% of households use clean fuels and technologies for cooking, with a significant rural-urban difference [i.e., urban (41.7%) compared to rural (11.2%)].⁵⁷ Public investment in infrastructure not only reduces unpaid work but also needs to be climate-resilient, given the impacts of climate change on the need for care (see Onaran and Oyvat and Grown et al. in this volume). Achieving this requires mobilizing enough revenue domestically, given the country’s current fiscal position and the IMF-ECF program, which prohibits large increases in expenditure. At the same time, the revenue mobilization measures must ensure that they do not burden the poor or widen inequality.

The dimensions of a holistic approach to fiscal policy

Even though there have been great strides in some areas, such as education (primary and secondary school enrollment) and maternal health, significant gender inequality remains in other areas, such as the distribution of unpaid work, precarious jobs, asset ownership, and decision-making.⁵⁸ What is required is a holistic approach to fiscal policy with clear poverty, inequality, gender inequality, environmental, and growth objectives. A holistic fiscal policy must incorporate the following elements:

• Adopt a medium‑term framework with explicit distributional goals: A holistic approach to fiscal policy requires that it be guided by a medium-term policy framework. Distributional objectives must be clearly articulated because both taxation and spending policies have distributional effects. Technocrats and policymakers must be able to anticipate these effects and design policies that minimize net negative effects on poverty and inequality.⁵⁹ This requires that the revenue and spending agencies work collaboratively and are committed to the goals of the medium-term policy framework.
• Strengthen inter‑governmental cooperation: Central government and local government should not operate in silos with respect to their fiscal policies. Collaboration and communication flows between the two are necessary to avoid conflicting policy effects and policy gaps. The increase in the property rates database and revenues from property taxes after the rolling out of the unified common property rate platform is an example of the potential benefits of collaboration between the GRA (central government) and local government. It also exposed potential frictions that should be taken into account, such as how costs and revenues are to be shared between the two levels of government, and ensuring that the appropriate legal framework is in place for collaboration.
• Invest in capacity and data: New analytical skills, technologies in data collection, and communication skills and techniques are essential for building capacity at the national and local levels. In addition, having sex-disaggregated administrative tax and expenditure data will be useful for implementing gender-equitable policies.
• Ensure that there is broad citizen support for fiscal policy measures: The political economy implications of the suggested tax measures and expenditure plans (not considered here) must be factored into strategies to introduce new taxes. The abolition of the e-levy illustrates the importance of taxpayers accepting new taxes if they are to be sustained, as well as the public’s trust in the government regarding the use of revenues. The e-levy also demonstrates how the involvement of players with vested interests in the design of tax exemption measures can end up hurting the poor (particularly poor women). The unsuccessful income tax on financial assets owned by individuals serves as an example of the importance of convincing the entire population of the potential benefits of the new taxes to reduce elite capture.

The political economy dimensions of tax policies must be skillfully managed if the tax potential is to be realized and spending programs are to be implemented. The existence of a credible fiscal contract is critical. The failed e-levy underscores the importance of ensuring that a regressive tax is accompanied by credible expenditure measures that will minimize the burden on the poor. In sum, these examples further emphasize the reason why taxation policies must not be developed independently of spending policies.