The President of the Association of Ghana Industries (AGI), Dr. Yaw Osei Adutwum, has called on the government to address the Value Added Tax (VAT) system before celebrating any tax cuts. While tax reductions are often welcomed, Dr. Adutwum argues that the VAT system’s inefficiencies and challenges must be resolved first to ensure the long-term sustainability of the country’s economy.
Why VAT Reform is Crucial
VAT is a significant revenue source for the government, yet it presents several issues that impact businesses and the economy. One of the major concerns is compliance. Many businesses, especially small and medium enterprises (SMEs), struggle with the complexities of the VAT system. This results in inefficiencies and a higher likelihood of tax evasion, ultimately affecting government revenue.
Another key issue is the high VAT on imported goods. For local manufacturers, the added cost of VAT on raw materials makes production more expensive, reducing the competitiveness of Ghanaian products in the global market. Streamlining VAT processes and reducing the burden on local producers could enhance domestic manufacturing and stimulate growth.
The Case for Prioritizing VAT Fixes Over Tax Cuts
While tax cuts may seem appealing to citizens and businesses, Dr. Adutwum stresses that without fixing VAT first, the government risks reducing its revenue base, which could hinder long-term development. Addressing VAT inefficiencies would ensure that the country has a stable and sufficient revenue stream before considering broader tax cuts.
By improving VAT compliance and collection, the government can boost revenue without raising tax rates. This, in turn, would provide the necessary financial support for vital infrastructure projects and social programs, ensuring that tax cuts, when implemented, will have a lasting positive impact on the economy.
In conclusion, the AGI President’s call for VAT reform highlights the importance of addressing systemic tax issues before implementing cuts. Fixing VAT will help create a stable foundation for long-term economic growth and sustainable tax policies.