Digital Income Tax is emerging as a potential turning point in Ghana’s long-running struggle to raise domestic revenue without placing additional pressure on already overtaxed formal-sector workers. At a time when fiscal deficits remain high and public tolerance for new taxes is low, the proposal reframes the debate away from higher tax rates toward smarter identification of income, especially within the informal economy.
Professor of Finance at the University of Ghana Business School, Elikplimi Komla Agbloyor, argues that Ghana’s revenue problem is not primarily about tax rates but about coverage. Large volumes of economic activity, particularly digital and informal income, remain outside the effective tax net. According to him, Digital Income Tax offers a way to close this gap using existing payment infrastructure rather than creating new levies.
Ghana’s fiscal position has remained under strain for years. Between 2019 and 2024, the country recorded an average overall fiscal deficit of about 8 percent of GDP, while primary balances also remained negative. These deficits persist despite multiple tax reforms, highlighting structural weaknesses in revenue mobilisation rather than temporary shocks.
The core issue is that the tax system relies heavily on a narrow base of formal workers and companies, while the informal sector, where the majority of Ghanaians earn their livelihoods, largely escapes systematic taxation. Digital Income Tax directly targets this imbalance by focusing on income flows rather than registered employment status.
The Electronic Transaction Levy (E-Levy), abolished in 2025, remains central to this discussion. While politically unpopular, it raised about GH¢2 billion in 2024, demonstrating that digital platforms can generate meaningful revenue. Its failure, however, lay in its design.
By taxing transactions rather than income, the E-Levy blurred the line between economic activity and personal financial management. Savings transfers, family support, and routine payments were taxed regardless of whether they represented earnings. Professor Agbloyor argues that Digital Income Tax corrects this flaw by taxing only transactions that are clearly classified as income.
How Digital Income Tax would work
Under the Digital Income Tax framework, electronic payments, especially mobile money transfers, are classified at the point of transaction. The sender identifies whether a payment represents income, such as wages or payment for services, rather than a personal transfer.
Once classified as income, a small withholding tax is automatically deducted by the payment service provider and remitted to the state. The proposed rate, around 5 percent, is deliberately low to encourage compliance and reflect the modest earnings common in the informal sector.
For households that rely on informal labour, drivers, cleaners, gardeners, artisans, the Digital Income Tax introduces formality without heavy bureaucracy. Payments made via mobile money become traceable income streams, allowing workers to contribute modestly to national revenue while retaining most of their earnings.
A worker receiving GH¢300, for example, would take home GH¢285, with GH¢15 remitted as tax. While this slightly reduces immediate income, it also creates a documented income history that could later support access to credit, insurance, or pension schemes.
What this means for businesses
For small businesses and households paying for services, Digital Income Tax simplifies compliance. Rather than navigating complex filing systems, tax is collected automatically at source. This reduces evasion risks while lowering administrative burdens.
At a macro level, broader compliance improves fiscal sustainability. As revenue rises without higher tax rates, pressure eases on government borrowing, reducing crowding out of private-sector credit and stabilising interest rates over time.
Despite its promise, Digital Income Withholding Tax is not without risks. Accurate classification of transactions is critical. Mislabeling income as personal transfers could undermine revenue, while misclassification could reignite public resistance.
There are also concerns around data privacy, digital literacy, and the readiness of payment platforms to handle large-scale classification. Without strong safeguards and public education, the system could face the same trust deficit that plagued earlier digital tax initiatives.
Why this matters now
Ghana is at a fiscal crossroads. With limited room to raise tax rates and strong resistance to new levies, policy innovation is essential. Digital Income Tax represents a shift from taxing visibility to taxing value, capturing income where it actually occurs.
If implemented carefully, it could help Ghana move from persistent deficits toward fiscal stability while sharing the tax burden more equitably across society.
Digital Income Tax offers a credible path to expanding Ghana’s domestic revenue base without increasing headline tax rates. Its success, however, will depend on trust, clarity, and disciplined execution, lessons hard-earned from past reforms.