Assessing the Effects of Bank Taxation on Profitability and Risk for a Sustainable Development in Ghana

Abstract

This study examines the impact of the National Fiscal Stabilisation Levy (NFSL) on bank returns in Ghana using an event study approach. It also analyses banks' individual and systemic risks through z-score, value-at-risk, expected shortfall, and tail risk measures after NFSL's introduction. Results show that listed banks' returns and overall profits remain unaffected, though risk levels vary across banks. We recommend a bank tax that targets both profits and short-term borrowing to reflect differing risk exposures. Given banks' heavy investment in treasury securities, we also propose taxing such investments to encourage lending to households and businesses. A well-designed bank tax could provide a stable revenue source for Ghana, supporting the UN's Sustainable Development Goals (SDGs) and financing green and socially sustainable projects. Specifically, we suggest a tax of 1% on total liabilities (excluding equity and insured deposits), 5% of pre-tax profits, or 1% of treasury investments, whichever is higher.