Ghana’s Parliament on recently passed the Value Added Tax Bill 2025, raising the revenue threshold at which businesses must begin charging VAT, a move designed to ease pressure on small enterprises, reshape tax administration and support the country’s ongoing economic recovery.
The bill, which now awaits President John Mahama’s approval before it becomes law, signals a shift in how Ghana intends to balance revenue mobilization with the realities facing SMEs across the country.
The measure emerged from months of debate within the Finance Committee, where Chairman Isaac Adongo argued that the previous VAT threshold pushed many micro-businesses into a system they struggled to comply with.
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Market traders, mechanic workshops, small agro-processors and informal retail operations often operate on thin margins, and VAT registration adds layers of paperwork and additional accounting costs that many simply cannot manage.
The committee maintained that narrowing compliance to medium and larger firms would not only ease pressure on small operators but also improve the quality of VAT administration, allowing the Ghana Revenue Authority to focus on businesses with stronger record-keeping capacity.
The change lands at a moment when the government is recalibrating its broader tax regime. Earlier in the year, Parliament voted to scrap the electronic levy (E-Levy), the COVID-19 recovery levy and taxes on gambling and several digital transactions, arguing that the reforms were needed to lower household expenses and spur consumer spending.
In a country where inflation and recovery from the 2022–2023 economic turbulence have shaped voter anxieties, the removal of nuisance taxes and the recalibration of VAT are being interpreted as efforts to rebuild confidence among both citizens and investors.
For small businesses, the implications are practical and immediate. Ghana’s SME sector accounts for more than 80 percent of all businesses and contributes roughly 70 percent of employment, according to the International Council for Small Business. Many operate without formal financing, relying on daily earnings to manage cash flow, and often fall into the informal economy because the administrative cost of formalization outweighs perceived benefits.
A higher VAT threshold effectively removes a barrier that frequently pushed these firms into non-compliance. For a small tailoring shop in Kumasi or a maize-milling operator in Tamale, exemption from VAT obligations can mean keeping one or two extra workers or redirecting income into equipment upgrades, decisions that have cumulative effects on productivity.
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This policy shift also carries broader significance for the continent. Across Africa, governments are wrestling with how to fund development without suffocating small enterprises. Nigeria introduced a higher VAT exemption threshold in 2020, shielding micro-businesses and recovering close to ₦1 trillion in VAT revenue by focusing on larger firms with clearer financial trails.
Kenya has repeatedly revised its turnover tax and VAT thresholds in an attempt to streamline compliance and reduce administrative disputes. South Africa’s approach, where the VAT threshold sits near the equivalent of US$50,000 in annual turnover, has long demonstrated that a more targeted VAT base can still sustain long-term revenue growth. Ghana’s reform places it closer to these emerging continental norms, aligning domestic tax policy with models that prioritize economic dynamism over broad-based collection.
The sustainability dimension of the change is also notable. A lighter tax burden on micro-enterprises can influence how communities adapt economically in the face of climate-related pressures. In northern Ghana, where rainfall variability affects agriculture-dependent households, small processing businesses such as shea butter cooperatives or community-scale solar cold-storage enterprises often struggle with start-up costs and regulatory fees.
Lower VAT obligations free up capital for these local industries, many of which support climate-resilient livelihoods. The same logic extends to waste-recycling micro-firms in Accra, artisanal fisheries along the coast and renewable-energy service providers expanding pay-as-you-go systems in rural markets. Tax relief does not solve their structural challenges, but it offers breathing room in sectors critical to sustainable development.
Financing remains the lingering obstacle. Even with reduced tax pressures, Ghanaian SMEs continue to cite high lending rates, often above 25 percent, and a lack of collateral as major constraints. The VAT reform alone cannot solve this, but it may enhance creditworthiness for firms that re-enter formal registration systems once administrative burdens are lowered.
Banks, micro-finance institutions and impact investors tend to favour enterprises with cleaner tax records, meaning Ghana could see modest improvements in SME finance over time if compliance rates rise.
The next step is presidential assent, which is largely procedural but politically symbolic. Once signed, the law will require the Ghana Revenue Authority to adjust its enforcement strategies, update systems and begin public education campaigns to ensure businesses understand which obligations remain and which no longer apply.
The transition will test Ghana’s administrative capacity, but the shift reflects a deliberate recalibration: a tax regime that recognises the realities of the country’s economic structure and the central role small businesses play in sustaining livelihoods and supporting long-term growth.
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