Estimating tax incidence in Ghana : an exercise using household data

This study analyses household income and expenditure data from the Ghana Living Standards Survey to examine the question "Who pays the taxes in Ghana?". The study considers the effects of the three main types of taxes -- trade, indirect domestic, and direct domestic taxes. In regard to trade taxes, while the emphasis has shifted away from duties on cocoa exports, traditionally a major source of tax revenue, and toward import duties, cocoa duties continue to be a significant source of revenue, and the study faults these as being distortionary, regressive, and the most clearly harmful to the poor. The study recommends abolition of this tax in favor of other, more equitable levies, favoring in particular the Ghanaian government"s project to establish a value-added tax. Among domestic indirect taxes, which include excise duties, sales tax, and a petroleum tax, the petroleum tax, which has grown into a dominant source of revenue -- projected to be one-third of all revenue in 1993 -- has drawn considerable fire from those concerned with equity. However, the study finds that overall, this tax appears to be proportional or even slightly progressive. Finally, increased domestic direct taxes have come almost entirely through the corporate income tax, and are thus presumed to fall mainly on the wealthy. Overall, the study disputes the contention that Ghana"s fiscal stabilization program has disproportionately harmed the poor, while recognizing that all groups are probably paying more taxes than they used to. Only if the benefits of government expenditures had become more regressive under stabilization, a contention disputed by other studies on Africa and Ghana, would this argument have merit.