VAT Set to increase to fund the digitization agenda

The Minister of Finance and Economic Planning, Mr. Ken Ofari-Atta, has come up with a proposal to increase the Value Added Tax by 2.5% so as to fund the digitization agenda of government and road construction. The VAT rate was decreased from fifteen percent to twelve and a half percent during the 2018 Mid-Year budget. Besides, the 2018 budget also scrapped the National Health Insurance Levy (NHIL) and Ghana Education Trust Fund Levy (GETFund Levy) from VAT.

VAT is useful for the value added to goods and services in every production level and distribution chain. Besides, Value Added tax contributes to consumers’ final cost to acquire goods and services from retailers. Speaking to the parliament on Thursday, November 24, the minister noted, “Government will re-evaluate the E-levy Act and specifically reduce the headline rate from 1.5 percent to 1 percent of the transaction value as well as the removal of the daily threshold.” Normally, the tax-free threshold only applies to the first GHc 100. According to the Minister of Finance and Economic Planning, his proposal is meant to be part of the 2023 Budget Statement and Economic policy. He revealed that the Government would adopt some measures to reorganize the economy and re-establish macroeconomic stability.

The Electronic Transfer Levy Act 2022 (Act 1075) charged a tax of 1.5% on all electronic transfers. The tax applies to the party carrying out the transfer electronically. The Electronic Transfer Tax Act is only charged by several authorized organizations listed in the First Schedule to the Act. These parties include Payment Service providers, Electronic Money Issuers, Banks, Specialized Deposit-Taking Institutions, and other Financial Institutions given by Regulations made under the Act.

The government introduced 1.5 percent on mobile money transactions in May 2022. The aim of introducing the levy was to increase tax revenues, and they believed that digital financial services were growing at a very first rate and it was good to reap all the benefits. Many people claimed that the rates were very high, and therefore the performance of the measure has not yet met the government’s expectations. Financial professionals have insisted that the introduction of the E-Levy at 1.5 percent is not realistic by the government and the management of Ghana’s digital economy. The professionals have requested the government to reduce the rate.

According to Mr. Ken Ofari-Atta, the Government would fast-track the enactment of the Unified Property Rate Platform program in 2023 as a sign of aggressive local revenue Mobilization. Additionally, Akufo’s Government has proposed some procedures such as Large-scale agriculture and agribusiness interventions by the Development Bank Ghana and Agriculture Development Bank to improve the domestic production capacity. The minister further revealed that all the public sector institutions that depended on imports from inputs or consumption would be splashed by 50%, and the Ghana Audit Service and Internal Audit Agency would cordially work with them to ensure submission. The minister also said that Ghana’s agricultural production volume would increase to encourage the locals to consume locally produced products such as vegetable oil, rice, fruit juice, poultry, and many others.

The Minister of Finance and Economic planning revealed that the government had received various suggestions to review the Electronic Levy. He further noted that the government was already working with all investors to examine the impact of the Levy. They will soon come up with the final decision, which will involve reconsidering several omissions. He said the first step would be reducing the momentous rate to one percent of each transaction and eliminating the normal threshold. Statistics indicate that VAT and tourism in Ghana are the major sources of income to the Ghanaian economy.