Tax experts call for simplification of VAT system, full implementation of exemptions Act

Tax experts have highlighted the need for urgent reforms to Ghana’s Value Added Tax (VAT) system, which has become overly complex and hinders business operations.

At a recent World Bank’s recent report launch under the theme ‘Strengthening Domestic Revenue Systems for Fiscal Sustainability’, presented at the 8th Ghana Economic Update, Tax Partner at PwC, Abeku Gyan-Quansah indicated that the current VAT system in Ghana has multiple different rates and categories, ranging from 0 to 15 percent.

This complexity he said is making it difficult for businesses to comply with the tax and is ultimately costing the government revenue.

“The VAT system is troubling. Why should we have a law that at a minimum, excluding levies should have about six different rates, which I guess probably a number of you have not paid particular attention to? The law has a zero, 3, 5, 12.5, 15, and 7 percent withholding VAT rates. Of course, I am not saying they all apply at the same time on all transactions but it creates complexities, which are very difficult to do business with,” he said.

Exemptions Act of 2022

Mr. Gyan-Quansah emphasized the untapped potential within the Exemptions Act of 2022. This legislation allows the government to take equity stakes in companies receiving tax exemptions. According to him, fully implementing this provision could significantly boost government revenue.

“The Exemptions Act provides a unique opportunity for the government to secure equity stakes in businesses benefiting from tax exemptions,” the speaker stated. “This approach could create a new revenue stream, fostering a more sustainable economic environment.”

The expert called on parliamentarians to ensure the proper implementation of this law, highlighting that it offers a balanced approach by supporting businesses while safeguarding government interests.

Regarding the issue of compliance Tax expert and consultant, Abdallah Ali-Nakyea said it is a persistent problem among businesses and traders.

He underscored the need for stricter enforcement and clearer guidelines to ensure that VAT invoices are consistently issued, thereby reducing discrepancies and increasing overall tax compliance.

“We still have businesses and traders asking whether you want a VAT invoice or not. This practice poses a significant challenge and contributes to what is known as the tax gap,” he said.

He mentioned the implications of decoupling strict levies from the VAT system, which has significantly impacted business operations and compliance.