Economist and Political Risk Analyst, Dr. Theo Acheampong is proposing a reduced effective Value Added Tax (VAT) rate as part of the tax reforms to enhance business growth and competitiveness.
Dr. Theo Acheampong is highly convinced that an effective rate ranging between 15% and 17% would be business and revenue mobilization friendly.
In recent years, the country’s VAT system has become a major concern among businesses due to its complexity and high effective rate. The partly emanated from the reform undertaken by the previous administration. While the standard VAT rate was officially set at 15%, the then government decoupled GETFund and NHIL levies, making them straight levies.
Both levies were set at 2.5% and with the inclusion of the 1% COVID-19 Levy, pushing the actual tax burden to approximately 22%.
With this high rate and complex nature, Dr. Theo Acheampong welcomes the decision of the new administration to reform and restructure the tax system.
As announced by the Minister for Finance, Dr. Cassiel Ato Forson in his budget presentation to parliament signaled that the COVID-19 levy will be eliminated, a move which is welcomed by the economist and other business community.
Dr. Acheampong says Ghana’s high effective VAT rate is a significant challenge for businesses, particularly in an era of global competition. Neighboring economies with lower VAT rates create a more attractive environment for investment, trade, and consumer spending. By reducing the effective VAT rate, Ghana could position itself as a more competitive destination for businesses and stimulate economic activity.
“Ghana’s effective VAT rate is about 22 per cent. This is because GETFund Levy of 2.5 per cent, National Health Insurance Levy (NHIL) of 2.5 per cent and COVID-19 Levy of 1 percent are all added to the base for the final determination of the VAT rate. We need the effective VAT rate to be 15%-17% to be competitive,” Dr. Theo Acheampong suggested in a Facebook cited by The High Street Journal.
He further stressed that raising the VAT registration threshold would be a game-changer for micro and small businesses, many of which struggle with compliance due to complex tax obligations. By exempting smaller enterprises from VAT collection, the economist believes the government could ease administrative burdens and promote small business growth.
He is therefore suggesting that the government should also, “increase the registration threshold to exempt micro and small businesses from the collection of VAT – collection is a big compliance issue for many small businesses.”
The potential reduction of VAT to a more competitive level aligns with broader efforts to simplify the tax system and enhance economic resilience. Experts argue that rather than relying on higher tax rates, the government should focus on broadening the tax base and improving efficiency in tax collection.
