As Ghanaians eagerly await the 2025 budget, there is growing anticipation that the government may announce a return to the old method of calculating Value Added Tax (VAT). Currently, many businesses believe that the new VAT computation, introduced in 2018, has led to higher costs and unfair tax burdens.
Before 2018, VAT was applied only to the value of taxable goods and services. However, after the 2018 Mid-Year Budget, the government reduced the VAT rate from 15% to 12.5% but made an important change: it separated the National Health Insurance Levy (NHIL), the Ghana Education Trust Fund (GETFund), and the COVID-19 Health Recovery Levy from VAT. This meant that businesses had to pay these levies on top of the VAT, increasing the total amount they were taxed.
Under the new system, instead of VAT being calculated on just the value of goods and services, it is now applied to the combined value of the taxable goods and these levies. This led to higher tax payments, even though the VAT rate itself did not increase. Additionally, businesses are no longer allowed to claim these levies as input tax, which they found unfair.
Many believe that this change discouraged businesses from filing their VAT returns, as it increased their tax burden. Now, with a new government in place, there is hope that the tax system will be simplified. Experts suggest that returning to the old VAT computation method, where levies like NHIL and GETFund are not decoupled from the standard VAT rate, would reduce the amount businesses pay and encourage more tax compliance.
As the Finance Minister Dr. Casiel Ato Forson prepares to present the budget on Tuesday, the business community is waiting to see if the government will return to the old VAT formula, which many believe would be fairer and more aligned with international best practices.
Ghana’s VAT system was introduced in 1998 and has since undergone several adjustments. The standard VAT rate has fluctuated, and various levies like NHIL and GETFund have been added to increase government revenue. In recent years, concerns over VAT’s complexity and fairness have prompted calls for reform.
