Is there a link between port traffic and government tax revenue?

This report explores the relationship between tax policies and port operations in Ghana, focusing on how changes in tax regimes affect port traffic and government revenue. Ghana’s ports, particularly Tema and Takoradi, are crucial to the nation’s economy, serving both domestic needs and neighboring landlocked countries. However, high taxes, especially post-2022, have strained Ghana’s port competitiveness compared to ports of neighboring countries like Togo and Cote d’Ivoire.

Key Findings
1. Tax Regimes and Port Traffic Trends: From 2017 to 2019, tax relief measures, such as the Benchmark Value Discount Policy (BVDP), significantly boosted port activity, leading to a noticeable increase in imports, which constitute 66% of overall cargo throughput. However, from 2020 onwards, increased taxes, including a VAT hike and the abolition of the BVDP, have led to a decline in port traffic. Notably, the COVID-19 pandemic also affected export traffic in 2020, but recovery efforts saw a resurgence by 2021. Despite this, import and overall cargo
throughput have been negatively impacted by increased tax burdens, leading to a 7% drop in exports by 2023.

2. Comparative Performance with Neighboring Countries: Ghana faces competition from Togo and Ivory Coast, with Togo surpassing Ghana in container traffic since 2015 due to lower taxes and a more favorable business environment. Togo’s exponential growth in container throughput highlights Ghana’s declining regional competitiveness.

3. Tax Revenue Trends: Despite the decline in port activity, Ghana’s overall tax revenue has grown, driven primarily by direct taxes. Customs and indirect taxes have contributed, though to a lesser extent. The report suggests that, while the government has increased revenue, the high taxes have discouraged importers, reducing port traffic.

4. Forecast: The forecast for 2024-2030 predicts a continued decline in import traffic due to rising
costs, while export traffic is expected to experience erratic but upward growth. This reflects the potential for Ghana to capitalize on its export sector if favorable policies are implemented.

Conclusion and Recommendations: The report concludes that high taxes, particularly the abolition of the BVDP, have adversely affected Ghana’s port competitiveness. To reverse this trend, policymakers are advised to reconsider tax relief measures, introduce competitive port tariffs, and streamline port processes to reduce hidden costs. Enhanced collaboration with neighboring countries and investment in port infrastructure are also recommended to regain regional competitiveness. Moreover, the report suggests that government can grow tax revenue from the ports by focusing attention on the efficiency and effectiveness of tax operations, particularly, direct taxes.