Prof. Bokpin Proposes Merger Of VAT and Straight Levies, Capping Combined Rate at 18%
Economist and Professor of Finance, Prof. Godfred Bokpin, has recommended merging Ghana’s standard VAT rate with its straight levies, capping the combined rate at a maximum of 18%.
Speaking on the inefficiencies within the current tax system at the National Citizen’s Review and Feedback on the IMF-Supported Programme organized by the Economic Governance Forum on July 30, 2024, Prof. Bokpin highlighted the country’s paradox of low revenue collection despite high tax rates.
“Our tax revenue is low, yet our tax rates are exceedingly high, which is neither productive nor progressive,” he stated. “We need to abolish the e-levy and merge the standard VAT rate with straight levies, setting it at 18%. The corporate tax rate should be maintained at 25% to encourage compliance. Addressing inefficiencies at our ports is crucial, as excessive levies and taxes on goods clearance increase the cost of doing business and undermine the competitiveness of our private sector.”
Former Minister for Finance, Seth Terkper has also argued that straight levies such as the GETFund and NHIL as well as the recent Covid-19 recovery levy charged on goods and services will add to the cost of goods and services.
Mr Terkper intimates that the separation of GETFund and NHIL from the VAT coupled with the Covid-19 levy charge denies businesses the needed input credit tax and refunds.
“The law now says businesses can no longer get input credit and refunds on taxes paid on inputs as allowed previously, so what happens now is that businesses add what they were supposed to get in the form of input tax credit and refunds to the cost of goods and services and that will definitely result in higher prices than when GETFund and NHIL were part of VAT and input tax credit and refunds were claimed by businesses,” Mr Terkper stated.
“And you see, when prices are that high, it makes businesses uncompetitive, especially for those exporting,” he added, stating further that unlike the VAT which is zero-rated on exports, the GETFund and NHIL are not zero-rated on exports.
“Because you see, if you break the VAT into straight levies and have 5% tax charge for NHIL and GETFund, and then have VAT which is 12.5%, unless you have a special provision which says the straight levy should also be zero on exports, then the zero-rate VAT on goods for exports does not apply in the case of the NHIL and GETFund. So in effect you will be exporting the 5% NHIL and GETFund charge to the country’s exports to other African countries. Meanwhile, Nigeria and Ivory Coast are not doing same, they do not charge any straight levy on exports and they are zero-rate VAT on exports,” he emphasized.
The calls for the merger of the VAT and straight levies underscore the urgent need for a more streamlined and efficient tax regime in Ghana to foster business competitiveness and economic growth.
