Experts say VAT increase is ‘a necessary evil,’ but at what cost?

Finance Minister, Ken Ofori-Atta

Economists fear the NPP’s proposal to broaden the country’s tax base will overwhelm Ghana’s lower-class, who argue the VAT they currently pay is not being reflected in their communities.

“If citizens know that the taxes are being put in good use, they will pay,” Dr. Priscilla Twumasi-Baffour, an economist specialising in labour markets, gender and inequality told Daniel Dadzie in a panel discussion on the Super Morning Show Monday.

She continued: “But we have a problem when there are potholes all over, trash everywhere, and then the government comes and asks us for more money.”

Dr. Priscilla Twumasi-Baffour

As of now, the VAT stands at 17.5%, and experts predict Finance Minister Ken Ofori-Atta will increase it to 21.5% in the Mid-Year Budget Review Thursday.

President Akufo-Addo has since called for an emergency meeting with Cabinet scheduled for Tuesday. Sources told Joy News Monday that he has not made a firm decision regarding the tax hike unless he’s discussed all options with the country’s ministers.

Former president John Mahama has criticized reports of the proposed VAT increase in a tweet stating that “the Ghanaian business sector has never experienced such difficult times in the history of the 4th Republic. Akufo-Addo’s proposed new taxes would cripple businesses further and also defeat his much-touted mantra of from taxation to production.”


Meanwhile, residents are reeling from the possibility of a tax rise.

“This doesn’t make me happy,” 22-year-old student Sani Awal told Joy News. “There’s already no money. This won’t be good for us.”

Professor Peter Quartey, head of the Economics department at the University of Ghana, argues though, that the tax is necessary for Ghana to continue on its path as one of the strongest economic competitors on the continent.

Read more: President convenes emergency Cabinet meeting over possible tax hike

“Taxation is something that’s frowned upon by people. Nobody likes the tax collector. But that’s what we depend on to develop our country. Numbers show tax revenue accounts for 70 per cent of our total revenue,” he said.

Professor Peter Quartey

But Baffour contends that the government should tackle the tax hike from another angle.

“The VAT hits the poor,” she said. “Why not impose property taxes on residents who live in these plush buildings all around? If we all want development, taxation is a necessary evil. But there needs to be a balance.”

Professor Robert Darko Osei, associate professor of the Institute of Statistical, Social and Economic Research at the University of Ghana, agrees, but further stated that he understands the government is making an effort.

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“To some extent, I sympathize with government. The revenue right now is not allowing the government to deliver what they have promised.”

Professor Robert Darko Osei

Those promises include NPP’s commitment to provide education through the Free SHS policy and commitments to enhance the NHIS.

“Government is overstretched. We are basically financing ourselves without investing in capital,” Twumasi-Baffour said.

“Did the government oversell? Yes. They promised too much,” Quartey said. “But it’s also good to be ambitious,” he said, adding that “[Government] can’t continue to tax its way out of its problems. If funds are spent inefficiently, they’re fighting a losing battle.”

Source: Ghana | | Zaina Adamu | Email: | Twitter: @ZainaAdamu