The President of the Association of Ghana Industries (AGI) has charged government to urgently reform the Value Added Tax (VAT) system, describing it as "the killer in the room" for local businesses.

Dr Humphrey Ayim-Darke underscored the distortions VAT creates in the market, stressing that its current structure is stifling the operations of companies, particularly small and medium-sized enterprises (SMEs).

"The major tax issue that we have tabled is the rationalization of the VAT. We believe strongly that it is distorting a lot of operations," he said on Joy News' PM Express Business Edition on Thursday, February 20.

He illustrated the problem with a striking example: "Two companies in the same sector, both importing the same item and paying the same charge for the raw materials that come in are treated differently under the current VAT structure. This inconsistency is distorting the market."

The AGI president did not mince words when highlighting how the VAT system is undermining fair competition.

"If you want to implement a total VAT at 21%, then we say, do input-output. Don’t embed levies that distort operations. When you do that, businesses have no choice but to pass the cost on to consumers," he explained. Dr. Ayim-Darke emphasized that once the government addresses the VAT issue, it will be incumbent on state agencies to ensure compliance and effective collection.

While acknowledging the government's efforts to eliminate some taxes, Dr. Ayim-Darke remained firm that VAT reform should be the priority. "We welcome the removal of some COVID-related taxes and betting taxes. That's a good step. But let’s be honest, the VAT is the biggest hurdle. It's the elephant in the room, or as I put it, the killer in the room. It must be streamlined," he urged.

Dr. Ayim-Darke's remarks signal a decisive push by the AGI to influence fiscal policy, with the association making VAT reform its foremost proposal to the Finance Ministry.

"Our first proposal on tax issues is clear: rationalize the VAT. Let’s stop the market distortions and help local industries thrive," he concluded.