Sanitation

• It’s only the third African country to introduce an explicit carbon tax, after South Africa and Mauritius.
• The tax is intended to address harm associated with vehicle emissions.

Why is the government taxing emissions?

• The proposed vehicle emissions tax under the Emissions Levy Act, 2023 is one of several environmental fiscal reform measures being introduced by the government.
• Environmental tax reform aims to shift the burden of taxation to environmentally damaging activities, such as pollution.
• Ghana’s government believes the vehicle emissions tax is a more cost-effective and equitable way to make sure the polluter pays, prevent harm and protect the public.

What has been done so far to reduce air pollution?

• In 2021, the government introduced a sanitation and pollution levy on petrol and diesel under the Energy Sector Levies Act to raise revenue to improve air quality, among other goals.
• The levy accrued GHS452 million (US$55 million) in 2022.
• These measures weren’t well designed from a tax policy point of view as they were not tied to actual vehicular emissions.

How should an emissions tax work and how does the new tax work?

• Ideally, the tax should be based on the actual carbon dioxide and other pollutant emissions from a vehicle, measured in grams of carbon dioxide per kilometre.
• Each car owner would pay an annual tax for the amount of CO₂ their car emits above that threshold.
• The tailpipe emissions test would be done during the annual roadworthiness check by Ghana’s Driver Vehicle and Licensing Authority.

What are the objections to the tax and can they be accommodated?

• There is also no clear plan for what the tax will be used for after it is collected.
• Several critics, especially in the manufacturing and transport sector, say there are already too many taxes.
• But the government is under pressure to raise domestic revenue as part of its International Monetary Fund conditionalities.

How does Ghana’s tax compare with others in Africa?

• For example South Africa introduced a carbon emissions tax on vehicles in 2010.
• A 2018 study indicated that South Africa’s CO₂ emissions tax had failed to influence which new cars consumers were buying.
• Ghana’s proposed emissions tax for vehicles up to 3 litre engine capacity is not unreasonable when benchmarked to South Africa’s.

Can the tax be implemented and will it meet its objectives?

• The existing sanitation and pollution levy must first be scrapped and replaced with the vehicle emissions tax.
• The tax bands should conform to emission standards set by the Ghana Standards Authority and the vehicle licensing authority.
• Having both the sanitation and pollution levy and vehicle emissions tax operating at the same time amounts to double taxation.

What is the tax collection picture in Ghana?

• Ghana tax collection is currently around 14% of GDP.
• Its aim is to get to 18% by 2028, comparable with its peers such as Senegal, Namibia, Togo and Rwanda.

Theophilus Acheampong is affiliated with the IMANI Centre for Policy and Education in Accra, Ghana. He has also consulted for the Government of Ghana on environmental fiscal reform in a private capacity.