Ghana’s “Sin Taxes” Generate GH₵ 9.3 Bn in 12 Years, But Loopholes are Eroding Gains

Although Ghana might be doing well in raising revenues from health-related taxes, widely known as “sin taxes,” the loopholes in the management and administration of these taxes are threatening the gains made so far.

Since taxes, also known as health taxes, have been adopted as a strategy the world over to both safeguard public health and boost national revenue. Ghana is not an exception.

In Ghana, these taxes on harmful products such as tobacco, alcohol, sugary beverages, and plastics have generated a whopping GH₵ 9.3 billion to state coffers in a 12-year period.

This means that on average, health-related taxes generate about GHC 775 million in revenue every year, marking a significant portion of the country’s domestic revenue mobilization.

 Aside from the revenues the country rakes in, some successes have been chalked in the behavioral aspect. These taxes have been able to drive down the prevalence of tobacco use, making Ghana the lowest-ranking tobacco consumer in ECOWAS.

However, there is more room for improvement. The Assistant-Commissioner of the Ghana Revenue Authority (GRA) in charge of Research and Policy, Dr. Alex Moyem Kombat reveals that diabetes and other non-communicable diseases (NCDs) are on the rise and now account for 43% of all deaths in Ghana.

In a paper titled “Implementation of Health Taxes in Ghana,” Dr. Kombat further indicated that recent figures show alarming trends – obesity rates among children have soared to 46%, while alcohol use disorders now affect over 4% of adults, higher than the African average.

To curb this tide, he reveals Ghana’s government has enacted a raft of tax reforms, including the 2023 Excise Duty Amendment Act (Act 1108), imposing 50% ad valorem rates on electronic cigarettes and up to 47.5% on beer with low local raw material content. Even plastics now attract a 5% excise tax, a response to the worsening urban flooding and sea pollution.

International institutions, including the WHO and the World Bank, have commended Ghana’s bold steps, highlighting the success of such taxes in reducing consumption and raising funds for development. However, not all is well beneath the surface.

However, these gains, the Assistant Commissioner reveals, face major enforcement hurdles. The collection of “sin taxes,” he says, faces the challenge of porous borders that allow illicit imports by small and medium enterprises (SMEs) that remain largely unregulated.

In addition, trust in government spending of tax revenue is low. Dr. Kombat further states that there is also policy interference and smuggling involving industry players, while outdated excise rates have failed to keep up with inflation.

To address these loopholes, Dr. Moyem proposes the enhancement of border security through the deployment of advanced technology, improved logistics, and adequate personnel to detect and prevent smuggling. A digital track and trace system using product-specific stamps is also recommended to monitor the movement of both locally produced and imported goods. This system aims to ensure transparency and accountability in the supply chain, making it easier to identify and remove illicit products from the market.

He further calls for a hybrid tax regime combining specific and ad valorem taxes to be introduced to discourage consumption of these products, with a provision for automatic inflation adjustments to maintain the real value of the tax rates. Public education campaigns, he says, must be led by the Ghana Revenue Authority (GRA) and other stakeholders to raise awareness about the health risks of harmful products and the consequences of smuggling.

Without systems in place to check loopholes, Dr. Kombat is worried that the revenues generated from the taxes cannot properly cater for the health-related expenses will continue to drain the country’s coffers.

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