The President of the Association of Ghana Industries (AGI), has warned government about the current Value Added Tax (VAT) system describing it as "the killer in the room" that is crippling local businesses.

Dr Humphrey Ayim-Darke was emphatic about the urgent need for comprehensive VAT reform to prevent further market distortions and operational hardships for companies, especially 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 painted a vivid picture of the systemic flaws, explaining, "Imagine two companies operating in the same sector, both importing the same product and paying the same HS code for raw materials.

"Yet, because of how the VAT is applied, their treatments are completely different. That inconsistency is distorting the market and hurting competitiveness."

Dr. Ayim-Darke made it clear that the AGI's foremost proposal to the Finance Ministry is a total overhaul of the VAT regime.

"If you want to implement a total VAT at 21%, then we say fine, let’s do input-output VAT properly," he argued.

"But don’t embed levies within it that end up distorting our entire operations. When you do that, businesses are left with no choice but to pass the cost onto consumers, which defeats the purpose of fair taxation and stifles economic growth."

He further stressed that VAT reform should not just be about changing rates but also about ensuring fairness and compliance.

"Once VAT is rationalized, it becomes the government's responsibility, through its agencies, to oversee compliance and ensure proper collection. Businesses shouldn’t be burdened with inefficiencies in the system," Dr. Ayim-Darke emphasized.

While acknowledging the government’s efforts in addressing other taxes, such as the removal of certain COVID-related and betting taxes, Dr. Ayim-Darke insisted that the primary concern remains the VAT.

"Yes, we welcome the steps taken on those taxes—it’s a 60% pick of our concerns—but let’s not kid ourselves. The VAT is the biggest hurdle. It’s the elephant in the room—or as I call it, the killer in the room. If we don’t streamline it now, the repercussions for local industries will be dire," he warned.

Dr. Ayim-Darke concluded with a rallying call for the government to act decisively.

"Our message is simple: rationalise the VAT. Remove the distortions, level the playing field, and let’s support local industries to thrive instead of suffocating them under unfair tax structures," he said.