Ghana’s tax system evolves with measures like corporate income tax, VAT, E-Levy, and special levies, balancing revenue needs with economic growth. SMEs face compliance challenges due to complexity, while experts call for simpler policies and incentives to foster trust and ease business burdens
Businesses in Ghana face a changing tax system as the government works to balance collecting enough revenue with supporting economic growth. From corporate income tax to the electronic transaction levy (E-Levy), companies must navigate a range of taxes. While these taxes are critical for funding public services, they also bring challenges, especially for small and medium enterprises (SMEs).
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Corporate Income Tax: A Key Revenue Source
Corporate income tax (CIT) is one of the most important taxes in Ghana. The standard rate is 25% of a company’s taxable income, but there are special rates for certain sectors:
- Mining and upstream petroleum companies pay 35%.
- Hotels enjoy a lower rate of 22%.
- Manufacturing firms outside major cities are taxed at just 12.5%.
These rates are designed to promote regional development and attract investment, but some businesses say the different rates make compliance more complicated.
VAT: Adding to the Price Tag
The value-added tax (VAT) is another significant tax for businesses. It’s charged at 15% on most goods and services, with additional levies for health insurance (2.5%) and education (2.5%). Small retailers and wholesalers with turnovers between GHC 200,000 and GHC 500,000 can opt for a flat VAT rate of 3%, which offers some relief.
However, because VAT is added at multiple stages of production and sale, it can increase prices, creating challenges for both businesses and consumers.
New Taxes: Growth Levy and E-Levy
To address financial shortfalls, the government has introduced new taxes:
- The Growth and Sustainability Levy applies to profits before tax in selected industries to ensure high-earning sectors contribute more.
- The E-Levy charges 1.5% on electronic transactions over GHS 100 daily. While it was designed to increase revenue, critics say it discourages digital payments, which are vital for modernizing the economy.
Withholding Taxes: A Double-Edged Sword
Withholding taxes ensure the government collects revenue early from payments like dividends, interest, and service fees. Rates range from 8% to 20%, depending on the type of payment and whether the recipient is a resident or non-resident.
These taxes are useful for securing revenue upfront but can strain businesses that depend on regular cash flow.
Special Levies: Mineral Royalties and Excise Duties
Mining companies must pay royalties of 3% to 5% on their revenue, making this a significant income source for the government. Excise duties on products like alcohol, tobacco, and petroleum also contribute to public funds. However, the success of these levies depends on how well they are enforced and managed.
The Challenges for Businesses
While taxes are crucial for national development, they can create challenges for businesses, especially SMEs. Many small businesses struggle to comply with complex tax systems, and limited financial literacy makes the process even harder. A report by the Ghana Revenue Authority revealed that tax compliance among SMEs is still low, highlighting the need for more accessible tax policies.
Experts recommend simplifying the tax system and offering incentives to encourage compliance. Building transparency about how tax revenue is used could also help foster trust between businesses and the government.
As Ghana recovers from global and domestic challenges, taxes will play a vital role in driving sustainable growth. However, the government must carefully balance raising revenue and supporting businesses. Policies should ensure that taxes do not burden companies so heavily that they hinder economic activity.
