Ghana’s tax system unfair – AGI
THE Association of Ghana Industries (AGI) has expressed concern over Ghana’s tax system, describing it as unfair and detrimental to the growth of local businesses.
According to the Chief Executive Officer of AGI, Seth Twum-Akwaboah, the current tax regime serves as a significant disincentive to the private sector, stifling growth and limiting the state’s ability to generate adequate revenue.
Addressing these challenges, Mr. Twum-Akwaboah pointed out that Ghana’s tax structure is overly complex and burdensome for businesses, especially those in the formal sector.
“Our tax regime is not in the best of shape. It is very high. For instance, when you import raw materials, over 52% of the value of the items is consumed by taxes. This leaves businesses with limited resources to reinvest and grow,” he lamented.
The AGI CEO stressed the need to simplify and streamline the tax system, making it more efficient and easier for businesses to comply with. He also highlighted disparities in the current system, where informal businesses often evade taxes, creating an uneven playing field.
“If I am a major distributor and I’m selling with VAT because I’m in the formal sector, but the next-door operator is selling the same item without VAT, it creates an unfair competition,” he said.
Multiplicity of Taxes Crippling Businesses
Ghanaian businesses, especially small and medium enterprises (SMEs), have long complained about the multiplicity of taxes they face. These include VAT, import duties, corporate taxes, and other levies.
The high tax burden affects their cash flow, limits their ability to expand operations, and in many cases, forces them into informal operations to avoid compliance costs.
A 2022 report by the Ghana Statistical Service (GSS) revealed that SMEs contribute about 70% of Ghana’s GDP and account for over 80% of employment. However, the overwhelming tax burden has led to increased operational costs, making many businesses uncompetitive both locally and internationally.
Economic analysts also warn that the multiplicity of taxes discourages entrepreneurship and innovation. With high import duties on raw materials, manufacturing costs rise, forcing many businesses to transfer these costs to consumers, further reducing demand.
AGI’s Recommendations
To address these challenges, AGI has called for a review of the current VAT system and broader tax reforms aimed at rationalizing the tax regime. Mr. Twum-Akwaboah proposed engaging key stakeholders, including business associations, to develop a fair and efficient tax system. He stressed that a more streamlined tax system would not only increase compliance but also improve revenue collection for the state.
“The surest way to improve revenue is to rationalize our tax regime. Simplifying it, closing loopholes, and ensuring fairness will encourage more businesses to comply voluntarily,” he added.
Government Response
In response to the concerns raised by the AGI, President John Mahama has pledged to prioritize reforms in Ghana’s tax system. Speaking at a recent business forum, he acknowledged the detrimental impact of the current tax structure on local businesses and assured stakeholders of his administration’s commitment to addressing these issues.
“Our goal is to streamline the tax regime to eliminate waste and inefficiencies while reducing the tax burden on businesses. This will reposition Ghana as a prime destination for investors and help absorb the growing number of unemployed youths in the country,” the President stated.
President Mahama also noted that his administration would work towards creating a more conducive environment for private sector growth, with the ultimate aim of making Ghana a competitive hub for regional trade and investment. As Ghana seeks to revive its economic fortunes, stakeholders are optimistic that these reforms, if implemented effectively, could unleash the full potential of local businesses, drive industrial growth, and create much-needed jobs for the youth.
