2025 Budget: Gov’t announces major VAT reforms to ease tax burden on businesses and households

Finance Minister has announced major VAT reforms to reduce tax burdens on businesses and households, including scrapping the COVID-19 Levy and adjusting VAT rates.

Finance Minister, Dr. Cassiel Ato Forson, has announced that the government will undertake comprehensive Value Added Tax (VAT) reforms in 2025 to address inefficiencies in the current system and reduce the tax burden on businesses and households.

Presenting the 2025 Budget to Parliament, Dr. Forson acknowledged that Ghana’s VAT system is currently distorted and inefficient, combining elements of both VAT and sales tax principles, including a mix of flat rates, standard rates, and levies.

“Mr. Speaker, we commit to the people of Ghana and the business community that we will undertake comprehensive Value Added Tax (VAT) reforms this year with the aim to review the current distortions and cascading structure of the VAT regime,” he stated.

Currently, Ghana’s effective VAT rate is about 22%, although the official VAT rate is 15%. This is because additional levies — including the GETFund Levy (2.5%), National Health Insurance Levy (NHIL) (2.5%), and the COVID-19 Levy (1%) — are added to the VAT base, effectively raising the overall rate.

Dr. Forson emphasized that businesses are not allowed to claim input tax credits on the NHIL, GETFund, and COVID-19 levies, which further increases costs and indirectly affects prices for consumers.

“Aside the high VAT rate, businesses are not permitted by law to claim their input for the NHIL, GETFund Levy and COVID-19 Levy, compounding the burden on households,” he explained.

To address these challenges, Dr. Forson outlined key areas for reform, which include:

1. Abolishing the COVID-19 Levy.
2. Reversing the decoupling of GETFund and NHIL from VAT, so these levies are treated as part of VAT and allow input claims.
3. Reducing the effective VAT rate to ease the burden on households and businesses.
4. Reversing the VAT flat rate regime, which currently applies to some sectors.
5. Raising the VAT registration threshold, so that micro and small businesses are exempt from VAT collection.
6. Improving tax compliance through increased public education and awareness.

The Finance Minister also revealed that Ghana has requested technical assistance from the IMF’s Fiscal Affairs Department to guide the VAT reforms.

An IMF mission is expected to begin in April 2025, and their recommendations will help shape the final reforms.

“Mr. Speaker, ahead of the IMF Technical Assistance Mission, I will inaugurate a VAT Reform Task Force to hold broad consultation with key stakeholders for their inputs,” Dr. Forson added.

He assured Parliament that the VAT reforms will be completed within 2025, emphasizing that these changes are necessary to simplify the tax system, reduce the cost of doing business, and improve overall tax compliance.

Source: 3news.com