The Complexity of Ghana’s VAT System and the Need for Reform
Prof. Patrick Asuming, a senior lecturer at the University of Ghana Business School, has raised concerns about the lack of clarity surrounding the proposed value-added tax (VAT) reform in Ghana. This reform aims to simplify the current complex tax policy, which is seen as a critical step toward improving compliance and supporting fiscal consolidation efforts.
The government’s failure to meet the September deadline for implementing these reforms has led to uncertainty among businesses and undermined a key component of the country’s revenue mobilisation strategy. Prof. Asuming highlighted that the current VAT system is irrational, with similar businesses being subjected to different rates—some on the standard rate and others on the flat rate. He described this as unsustainable and discriminatory, contributing to non-compliance.
The existing VAT structure includes a standard rate of 15 percent, along with additional levies such as the National Health Insurance Levy (NHIL) at 2.5 percent, the Ghana Education Trust Fund (GETFund) Levy at 2.5 percent, and the COVID-19 Health Recovery Levy (COVID-19 HRL) at 1 percent. These combined make a total VAT of 21 percent. In addition, there are separate flat rates of 3 and 5 percent for small businesses and the real estate sector, respectively. These rates include only the COVID-19 Levy.
The system also features zero, 7, and 12.5 percent withholding VAT rates. The proposed reform, outlined in the 2025 Mid-year Budget Review, seeks to flatten and unify these rates to enhance compliance and efficiency.
“The current structure is quite difficult to understand. Simplifying it would be ideal,” Prof. Asuming said, emphasizing that decoupling levies could result in a “tax on tax,” which he described as unhelpful.
Taxes play a significant role in shaping business behavior, investment decisions, and competitiveness. Experts have noted that the cascading effect of these levies can deter investors, impact business operations, and force companies to pass costs onto consumers.
The delay in implementing the VAT reform has also exacerbated systemic issues with the rollout of the Electronic VAT (E-VAT) system. Prof. Asuming confirmed that the E-VAT system is lagging behind, with many businesses reluctant to onboard, making the policy ineffective in improving compliance.
“If we improve our VAT compliance from around 60 percent to 90 percent, the revenue generated could solve a lot of our revenue problems,” he asserted, pointing to a potential 50 percent increase in VAT efficiency if the reforms are implemented.
According to him, this improvement would significantly boost government revenue and support fiscal consolidation.
Commissioner-General of the Ghana Revenue Authority (GRA), Anthony Sarpong, acknowledged the complexity of the VAT system during a side event at the 2025 Deloitte Africa Tax Conference. He emphasized that consultations to simplify the system are well underway and stressed the importance of leveraging technology to strengthen the VAT process.
Prof. Asuming believes that implementing both the E-VAT and VAT reforms could transform the economy. However, he pointed out that a major challenge lies in the numerous tax exemptions currently in place. These exemptions are also used by the 24-hour economy as incentives for round-the-clock production.
“The bigger issue is dealing with the 20 exemptions built into the system,” he said, noting that closing these loopholes could have a transformative impact on the economy. However, he expressed cautious optimism about whether there is sufficient political will to address them.
Another structural weakness identified by Prof. Asuming is the failure to integrate the informal sector into the tax net. He described this as the “harder work” needed to allow for lower tax rates across the board without jeopardizing fiscal consolidation.
He challenged the perception that it is difficult to bring the informal sector into the tax system, citing underutilized investments in digitalization. He pointed out that mobile accounts now connect to bank accounts, and the Ghana Card is required for land and business registration. “We just need to get them to connect,” he said.
Prof. Asuming also highlighted the recent 2024 Integrated Business Establishment Survey, which provides an updated business registry that should be leveraged for tax revenue mobilization.