2025 Budget: Economist says Untapped Potential of VAT Alone Can Cover Shortfall from Scrapping E-levy, Others

Economist at the University of Ghana Business School, Professor Patrick Asuming is making a strong case for the removal of some taxes deemed to be nuisance taxes and detrimental to businesses.

The economist insists Ghana’s revenue system, especially the Value Added Tax (VAT) alone can offset the shortfall that will arise from scrapping those taxes.

The government has committed to scrapping some taxes including the controversial E-levy, COVID-19 levy, Betting Tax among others. The move has triggered a very polarized debate as a section of analysts are vehemently opposing the move on grounds of significant revenue losses.

A recent study by KPMG has revealed that scrapping those tax handles can create a revenue gap of about GHC6.4 billion.

Ahead of the budget presentation today, Prof. Asuming, who has been at the forefront advocating for tax reforms, insists that the VAT system alone has the capacity to generate more than enough revenue to compensate for any losses that will result from the removal of these taxes.

Speaking on the upcoming budget, he revealed the inefficiencies in the country’s tax collection system, disclosing that Ghana is currently collecting less than 60% of its VAT potential.

He therefore believes that a well-enforced VAT collection system, coupled with eliminating excessive tax exemptions, could significantly boost revenue without overburdening taxpayers.

“I am extremely supportive of removing the E-levy. I don’t know whether the government will go ahead and remove the COVID-19 levy. But I still feel that there is room to remove those taxes. There has been a lot of talk about tax rationalisation of the tax system. I suspect that will include removing some of the tax exemptions. And then also making it more uniform. At the moment, there is too much discrepancy. Different segments apply different rates,” he indicated.

He added that, “So I think all that rationalisation, if we simplify the system, can remove a lot of exemptions. Even within VAT, we are not even collecting 60% of our potential. So if we are able to include the enforcement in the collection, that is enough to bring us more than enough savings to make up for any expenditure or revenue losses from those taxes.”

Already one expectation of the Ghana Union of Traders Association (GUTA) is the restructuring of the VAT system to make it simple, uniform and affordable. President of GUTA, Dr. Joseph Obeng says reforming VAT will enhance compliance and improve revenue generation for the government.

As Ghanaians await the budget presentation today, all eyes will be on whether the government heeds calls to scrap the E-Levy and COVID-19 Levy while strengthening VAT enforcement to ensure sustainable revenue generation.

Source: TheHighStreetJournal