Ghana’s government faces mounting calls to revert its Value Added Tax (VAT) computation method to the pre-2018 structure, a move businesses argue would lower costs, simplify compliance, and align with global tax practices.
The anticipated shift, speculated to feature in Finance Minister Dr. Cassiel Ato Forson’s 2025 budget presentation on Tuesday, follows years of criticism over a 2018 reform that decoupled key levies from VAT, inflating effective tax rates despite a headline rate cut.
Prior to 2018, VAT was levied at 15% on taxable goods and services, inclusive of the National Health Insurance Levy (NHIL) and Ghana Education Trust Fund (GETFund). A mid-year budget that year reduced the headline VAT rate to 12.5% but separated NHIL (2.5%), GETFund (2.5%), and later the COVID-19 Health Recovery Levy (1%) as standalone charges. This required businesses to apply VAT to the cumulative value of goods, services, and the levies, effectively raising their tax burden. Crucially, firms could no longer claim input tax credits on the levies, compounding financial strain.
“The current system creates a hidden tax hike,” said a Accra-based retail manager, echoing widespread frustration. “Even with a lower VAT rate, the math works against us.” Analysts estimate the post-2018 framework pushed effective tax rates on some goods above 20%, discouraging compliance and VAT filings. Official data shows stagnant VAT contributions since the change, despite Ghana’s tax-to-GDP ratio lagging peers at 13.5%.
Reverting to the older model—integrating levies under a single VAT rate—could streamline calculations, reduce administrative hurdles, and ease costs for businesses. “Simplification is key to boosting compliance,” argued tax advisor. “Collapsing the levies back into VAT would mirror systems in nations like Nigeria and South Africa, where consolidated rates improve transparency.”
The 2025 budget arrives as Ghana’s new administration seeks to reconcile fiscal consolidation with private sector concerns. Dr. Forson has previously criticized inefficiencies in VAT collection, noting exemptions cost Ghana 1.9% of GDP annually. While the Finance Ministry has not confirmed the VAT reversal, sources suggest it is under “active consideration” alongside broader reforms to digitize tax administration and curb evasion.
Ghana introduced VAT in 1998, but frequent tweaks—including rate shifts and levy additions—have eroded clarity. A return to the pre-2018 framework would mark the latest pivot in a 25-year effort to balance revenue needs with economic pragmatism. For businesses, the stakes are high: “This isn’t just about fairness,” said a Kumasi manufacturer. “It’s about survival.”
With inflation easing but growth sluggish, Tuesday’s budget could signal whether the government prioritizes short-term revenue or long-term tax equity. For now, stakeholders on all sides await Dr. Forson’s announcement—and the math behind it.
