An economist, Prof. Godfred Bokpin, has issued a warning that the implementation of the new increase in the Value Added Tax (VAT) rate could have a severe impact on the society's most vulnerable members as prices for products and services rise.

The 2023 budget was presented by the Finance Minister, who also announced a rise in VAT from 12.5 percent to 15 percent.

The Ghana Revenue Authority (GRA) has stated that it is prepared to put the policy into effect. But in response to the VAT rise, Prof. Bokpin said that since the poor will be severely hurt, household savings may also decrease.

“VAT rate increases is going to affect consumption. At the end of the day, it is also going to affect the savings mobilisation effort of consumers. When these things happen they affect the poor”.

He claimed that because food makes up a sizable portion of the inflation basket, an increase in VAT will have an impact on essential commodities like food.

“If you look at data from Ghana Statistical Service, between 42 and 44 percent of household expenditure is on food and depending on where you buy your food, there may be VAT”, he said.

He explained that a critical calculation of consumption tax in Ghana puts the figure above 20 percent since GETFund and the NHIL are all taxes imposed on goods.

This, he said will cause prices to go up as traders pass on the taxes to consumers.

“If you put all of this together, VAT alone at 21% or depending on where you find yourself in certain times of the year. Don’t forget there will be tourism levy, and other taxes”, he said.

Parliament passes new VAT rate

The Value Added Tax (VAT) rate increase of 2.5 percent was approved by Parliament on December 22, 2022.

When introducing the 2023 Budget, Finance Minister Ken Ofori-Atta stated that the review would directly assist government initiatives for digitisation and road construction projects.

Chairman of the Finance Committee Kwaku Kwarteng praised the tax policy during a debate on the subject in front of the entire House of Representatives.

According to him, the reason of the Minority’s opposition has been considered and incorporated under paragraph 6.3 of the committee’s report, adding that the recommendation by the committee was a majority decision.