Economist, Professor Godfred Bokpin has cautioned that the implementation of the new increase of the Value Added Tax (VAT) rate could negatively affect the vulnerable in society as prices of goods and services go up.

The Finance Minister, Ken Ofori-Atta, in the presentation of the 2023 budget announced an increase in VAT from 12.5% to 15%.

The Ghana Revenue Authority (GRA) has already assured that it is ready to implement the policy. But commenting on the VAT increase, Professor Bokpin stated that household savings may also drop as the poor will be the hardest hit.

“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”.

According to him, an increase in VAT will affect basic items such as food since it constitutes a large part of the items in the inflation basket.

“If you look at data from Ghana Statistical Service, between 42% and 44% 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% 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

Parliament on December 22, 2022 passed the 2.5% hike in the Value Added Tax (VAT) rate.

Presenting the 2023 Budget, the Finance Minister Ken Ofori-Atta explained that the review is to directly support road construction projects and the digitisation agenda of government.

Debating the issue on the floor of Parliament, the Chairman of the Finance Committee, Kwaku Kwarteng touted the tax measure as key in turning around the fortunes of the economy.

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.