The Role of the Extractive Sector in Ghana’s Comparatively Low Public Sector Revenue Mobilization [Policy Brief No.11]

The government of Ghana has long sought to mobilize adequate revenue through a series of tax and non-tax policy and administration reforms, particularly starting from 1983. Yet, studies have found that, measured as a share of GDP, Ghana’s public sector revenue has performed very poorly relative to most other countries in the developing world. The government often cites three main factors as being the main causes of the problem. These are: (1) the large informal sector, which has proven difficult to tax; (2) weak real property taxation; and (3) the country’s generous tax exemption system. However, credible estimates of untapped revenues from these sources fall far short of the identified gaps in the total revenue to GDP ratios between Ghana and its peers. A number of researchers and commentators have argued that the various extractive sector agreements signed between the government of Ghana and the multinational corporations are skewed in favor of the multinational corporations, which negatively affects government revenue generation capacity of the sector. Yet, no study has sought to ascertain how much Ghana’s entire extractive sector may be lacking in actual revenue generation when compared with peer countries. This paper therefore seeks to ascertain (1) how much Ghana earns from its extractive resources compared with other countries, (2) whether the extractive sector is the main source of the poor performance of Ghana’s public sector revenue or not, and (3) how the sector can be repositioned to improve its revenue generating capacity.