VAT overhaul will ease business costs, boost revenue – expert

By Joshua Worlasi AMLANU

A tax expert has said government’s plan to reform the value added tax (VAT) regime could simplify compliance, reduce distortions and strengthen the country’s revenue base.

Speaking at the KPMG 2025 first budget discussions, Kofi Frempong-Kore – a tax partner at KPMG – said the current VAT structure is complex, placing a financial strain on businesses while limiting revenue potential.

He noted that businesses have consistently called for a review of how VAT-related levies are treated.

“The VAT has been quite complicated in terms of implementation and its impact on the cost of doing business in Ghana. Businesses have been asking for the way the levies are currently treated to be relooked,” he said.

Mr. Frempong-Kore suggested integrating existing levies into the VAT system rather than maintaining them separately. “My view, based on previous pre-budget surveys, is that we need to clear the levies,” he said.

“And if they cannot be eliminated, they should be integrated into the input-output mechanism. We could adjust the VAT rate from 15 percent to around 18 percent, which would still provide some relief while creating more room for working capital,” he added.

When accounting for additional levies, Ghana’s effective VAT rate stands at about 22 percent. This, Mr. Frempong-Kore argues, places undue pressure on businesses – particularly given payment delays from clients.

“The way VAT operates is difficult. Businesses are required to remit VAT within a month, yet their debtors may take six months – one-year to settle payments. This means businesses are essentially pre-financing government,” he explained.

VAT currently contributes less than 25 percent of Ghana’s domestic tax revenue, far below the 45–50 percent levels seen in other countries. Tax experts  believe a more efficient VAT system could significantly boost government revenue.

“The rationalisation announced by the minister aims to review the entire VAT structure – its components, structure and implementation – to create efficiency and expand its reach so that businesses currently outside the VAT sector can be incorporated,” Mr. Frempong-Kore said.

Difficulties surrounding VAT refunds further complicate the system. “It’s not just about paying taxes; the process for refunds is so prohibitive that businesses either avoid applying or end up waiting for two years to receive their funds,” he noted.

Revenue challenges and IMF support

Government acknowledges the inefficiencies in the current VAT system. Presenting the 2025 budget in parliament last week, Finance Minister Dr. Cassiel Ato Baah Forson committed to undertaking comprehensive VAT reforms.

“Our VAT regime has been distorted and rendered inefficient. It combines both VAT and sales tax principles with a flat rate, standard rate and levies,” Forson said. “We have requested technical assistance from the Fiscal Affairs Department of the IMF on VAT reforms and the mission is expected to commence in April 2025.”

According to Dr. Forson, the upcoming reforms will aim to eliminate distortions, reduce the burden on businesses and households and improve compliance.

Key measures under consideration include abolishing the COVID-19 Levy, reversing the decoupling of GETFund and NHIL from VAT and increasing the VAT registration threshold to exempt micro and small businesses.

Mr. Frempong-Kore also noted the need to modernise VAT administration through digital solutions. He pointed out that Ghana’s VAT compliance process remains largely manual, which affects efficiency and tax collection.

“The compliance process is still very manual. Let’s move to an automated system and reduce the number of VAT returns businesses have to file,” he said. “Currently, there are about seven different returns required, especially in sectors like telecommunications.”

He also revealed that a previous attempt to introduce electronic invoicing (e-invoicing) was unsuccessful due to resistance from certain industries.

“The previous government tried using e-invoicing, but it didn’t work because some key industries opposed it. Maybe one day we’ll know who the political entrepreneurs behind it were,” he remarked.

Despite these challenges, he remains optimistic about leveraging technology to enhance VAT compliance. “The way forward is technology – e-invoicing and linking business systems directly to the Ghana Revenue Authority,” he said.

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