As government moves to dig deeper for revenue, a new tax policy targeting non-life insurance products has sparked concerns within the insurance industry as practitioners warn that the move, while financially pragmatic, could stifle growth in insurance uptake, particularly among low-income earners.
The industry is concerned that at the heart of the new 15% Value Added Tax (VAT) slapped on non-life insurance policies, includes the very micro-insurance products designed to protect the most vulnerable.
President of the Insurance Brokers Association of Ghana (IBAG), Shaibu Ali says, while the government sees the tax as part of its broader strategy to shore up domestic revenue, industry players fear it could discourage individuals and small businesses from taking up policies they already struggle to afford.
“It will definitely affect the uptake of insurance because insurance has inelastic demand and if the price goes up too much, the person can say he will not take it and so far as not all insurance policies are compulsory, you can’t force the person to take it,” Shaibu Ali narrated.
A Balancing Act
Despite the concerns, the President of IBAG admitted that to be fair, the government is in a fiscal bind. With debt obligations mounting and limited access to international capital markets, broadening the tax net is seen as a necessary, although unpopular step.
Taxing insurance premiums adds a new stream of revenue that could help finance key public services, support social programs, or reduce the country’s deficit.
“But the other side too is that the government needs money and we have to support government to raise the money,” Shaibu Ali conceded.
He however could shake off how the policy will hurt insurance penetration especially among the poor and the vulnerable who mostly patronize micro-insurance policies. He revealed that micro-insurance policies, which often cost as little as ₵10 or ₵15, are targeted at people who cannot afford comprehensive coverage. These are farmers, market women, artisans, and informal workers trying to manage risk on a shoestring budget.
For him, it was his expectation that the government would exempt micro-policies targeted at the poor.
“My expectation was that some policies would have been exempted, like small micro-insurance and other inclusive insurance. But, I mean, this is just a first step. Maybe going forward, the government might see it’s necessary to take out these insurances, because somebody is buying insurance and paying 10 Cedis, 15 Cedis. The person cannot afford that’s why the person is buying insurance for 10 Cedis. So, why charge 15% on that?” he questioned.
The concern is that a tax meant to widen the fiscal net might instead deepen the protection gap, leaving more Ghanaians exposed to financial shocks like fire, floods, or theft, and undermining Ghana’s long-term financial inclusion goals.
Advocacy for Exemption to Continue
While the implementation of the tax has gone ahead, industry players are not giving up. The Insurance Brokers Association, along with other stakeholders, is continuing advocacy efforts, hoping to secure exemptions for small-ticket policies and micro-insurance that serve the low-income segment.
“Maybe going forward, the government might see it’s necessary to take out these insurances,” Ali said optimistically.
The Bigger Picture
Insurance penetration in Ghana remains low, hovering below 2% of GDP, a figure that lags behind even some neighboring economies. Adding tax burdens to an already fragile sector could further delay progress in building a resilient, inclusive insurance culture.
The bigger question, then, is this: Can Ghana raise revenue without discouraging protection for its most vulnerable citizens? Only time will tell.
