Ghana’s Value Added Tax (VAT) system is under intense scrutiny, with the Association of Ghana Industries (AGI) warning that businesses especially small and medium-sized enterprises (SMEs) will suffocate if urgent reforms are not implemented.
Describing VAT as “the killer in the room”, AGI President Dr. Humphrey Ayim-Darke called on the government to rationalize the tax structure, which he argues is distorting market competition and increasing operational costs for businesses
The AGI highlights critical inefficiencies in the VAT system that are hurting competitiveness and disrupting supply chains. Dr. Ayim-Darke provided a striking example.
“Two companies in the same sector, both importing the same item and paying the same charge for raw materials, are treated differently under the current VAT structure. This inconsistency distorts the market and creates an uneven playing field,” he said in an interview monitored by THSJ.
The current VAT structure, which effectively stands at 15%, has forced businesses to absorb higher costs, reducing profitability, passing increased costs onto consumers, driving inflation, and making it harder for businesses to operate efficiently.
AGI is advocating for an input-output VAT system, ensuring that businesses can claim deductions on inputs rather than being burdened with cascading tax costs.
“If you want to implement a total VAT at 21%, then do input-output. Don’t embed levies that distort operations. When you do that, businesses have no choice but to pass the cost on to consumers,” Dr. Ayim-Darke explained.
While the government has promised to take steps to remove some taxes including COVID-19 levies and betting taxes, AGI insists that VAT reform should be the top priority for the Finance Ministry.
To prevent further damage to Ghana’s business environment, the AGI is pushing for VAT Rationalization; thus implementing a fair and transparent VAT system that eliminates distortions in pricing and market competition. They are also calling for enhanced compliance and collection to ensure state agencies properly enforce tax collection while preventing over-taxation and loopholes. Finally, they are calling for tax incentives for local businesses, by supporting Ghanaian manufacturers and SMEs with a VAT model that promotes industrial growth and local production.
With Ghana’s business sector under mounting pressure, policymakers are being urged to prioritize tax efficiency over revenue maximization. A streamlined VAT system could not only help businesses remain competitive but also boost economic productivity and consumer confidence.
As AGI leads the charge for a more business-friendly tax regime, the big question remains: Will the government listen and take decisive action, or will businesses continue to struggle under an unsustainable tax burden?
