Ghana’s complex Value Added Tax system, with its cascading levies pushing the effective rate to nearly 22 percent, is driving potential investors toward competing African nations with simpler tax regimes, according to a senior tax expert at PricewaterhouseCoopers. The warning comes as government prepares to introduce sweeping VAT reforms announced in July’s mid-year budget review.
Abeku Guan Quansah, a Tax Partner at PWC, told the Business & Financial Times that the current VAT structure’s cascading effect creates unnecessary complications that influence investor behavior and business competitiveness. When companies evaluate where to establish operations across Africa, he explained, tax complexity often becomes a deciding factor, pushing investment toward countries like Côte d’Ivoire, Morocco, or Zambia where tax systems are more straightforward.
The concern centers on how Ghana’s VAT operates in practice. Unlike a standard VAT that applies once to value added at each production stage, Ghana’s system layers multiple levies on top of each other, creating what tax experts call a cascading effect. This means businesses pay tax on tax, driving up costs and reducing competitiveness.
Ghana’s current VAT framework includes a standard rate of 15 percent, plus three additional levies that bring the total to 21 percent. These comprise the National Health Insurance Levy at 2.5 percent, the Ghana Education Trust Fund Levy at another 2.5 percent, and the COVID-19 Health Recovery Levy at 1 percent. All these charges apply together when businesses make taxable supplies.
The system becomes even more intricate when considering the separate flat rates. Small businesses face a 3 percent flat VAT rate, while the real estate sector operates under a 5 percent flat rate. Both these categories still get charged the COVID-19 Levy on top. Add in zero-rated supplies, withholding VAT rates at 7 percent and 12.5 percent, and you’ve got a tax structure that demands considerable expertise just to navigate correctly.
“No country in Africa charges VAT exceeding 20 percent,” Guan Quansah emphasized, noting that Ghana’s nearly 22 percent effective rate stands out unfavorably when investors conduct regional comparisons. He stressed that this matters particularly because investors actively compare tax environments when deciding where to deploy capital. “Our tax system will drive their decision,” he said.
The complexity doesn’t just deter foreign investment. It also makes compliance difficult for domestic businesses, potentially reducing government revenue collection. When tax rules become too complicated, businesses struggle to apply them correctly, leading to errors, disputes, and reduced voluntary compliance.
Government announced plans in the mid-year budget review to simplify the VAT regime by introducing a unified flat rate and scrapping the separate 3 percent and 5 percent rates. Finance Minister Dr. Cassiel Ato Forson indicated that reforms would include abolishing the COVID-19 Levy, reducing the effective VAT rate, removing the cascading effect of GETFund and NHIS levies, and eliminating VAT flat rates.
While Guan Quansah commended government’s decision to tackle VAT simplification, he expressed uncertainty about whether the proposed reforms would fully address the cascading problem. The key question, he noted, is whether government intends to decouple the NHIL and GETFund levies from the VAT system entirely or simply consolidate them into a single rate that still gets charged multiple times through the supply chain.
“Removing the cascading effect is to say that we want the levies to work like VAT, which is a proper tax that does not affect production,” he explained. A true VAT operates as a neutral tax where businesses can claim credits for the tax they pay on inputs, ensuring tax only applies to the value added at each stage rather than accumulating through the production chain.
The COVID-19 Levy has become particularly controversial, with many questioning why it remains in force years after the pandemic’s end. The levy was introduced in 2021 as Act 1068 to support pandemic-related expenditures, imposing a 1 percent charge on supplies of goods and services. Its continued application has drawn criticism as an outdated measure that should have been temporary but has persisted longer than the crisis it was designed to address.
Guan Quansah acknowledged that repealing the COVID-19 Levy would be “a good thing to do” but cautioned that this alone won’t solve the fundamental problem. If the cascading effect remains embedded in how the NHIL and GETFund levies operate, Ghana’s VAT will continue creating complications for businesses and maintaining the country’s disadvantage in attracting investment.
The expert explained that businesses respond differently depending on whether cascading exists. When levies cascade through the supply chain, businesses must factor VAT into their cost structures and pricing agreements because they can’t fully recover it. But when the cascading disappears and VAT operates properly, businesses don’t worry as much because they know they can claim credits and remit only the net amount to the Ghana Revenue Authority.
The reforms are expected to be formalized through a new VAT Amendment Bill scheduled for presentation to Parliament by October 2025, with implementation likely coming in the 2026 budget. This timeline suggests businesses and investors may need to wait several more months before seeing concrete changes to the tax regime.
For Ghana, the stakes extend beyond just simplifying tax compliance. The country is working to position itself as a competitive investment destination within West Africa and the broader continent. A reputation for tax complexity works against this goal, particularly when neighboring countries offer simpler alternatives that deliver similar revenue to their governments without imposing the same compliance burdens on businesses.
Whether the forthcoming reforms will fully address these concerns remains to be seen. The government has signaled its intention to tackle the problem, but as Guan Quansah’s comments suggest, the devil will be in the details of how the new unified system actually operates. If the cascading effect truly disappears and compliance becomes more straightforward, Ghana could see improved investment flows and better business competitiveness. If not, the country risks continuing to lose out to regional competitors with more investor-friendly tax environments.
