The government has announced a reduction in the tax refund ceiling from 6% to 4% as part of efforts to compensate for the revenue shortfall caused by the scrapping of multiple taxes, including the E-Levy and betting tax.

The National Democratic Congress (NDC), in the lead-up to the 2024 elections, had promised to scrap several “nuisance taxes” if elected, arguing that they were stifling economic activity. The party had specifically pledged to remove the E-Levy, the betting tax, and certain VAT components to ease the financial burden on Ghanaians.

In its first budget since taking office, Finance Minister Dr. Ato Forson revealed that the reduction in the tax refund ceiling is expected to save GH₵3.8 billion, which will help offset the revenue losses from the removal of the 1% E-Levy, the 10% tax on betting winnings, the Emission Levy, and VAT on motor vehicle insurance.

“Mr. Speaker, by reducing the ceiling on the tax refund from 6% to 4%, we will save GH₵3.8 billion. This amount is enough to close the revenue shortfall from the removal of the E-Levy amounting to GH₵1.9 billion and the Betting Tax of GH₵180 million,” Dr. Forson disclosed during the budget presentation.

Beyond revenue replacement, he justified the tax refund ceiling reduction by citing past abuses of the Tax Refund Account. According to him, a study on tax refunds over the last eight years found that GH₵29.11 billion had accrued to the account, but only GH₵12.5 billion (43%) was actually used for tax refunds, while the remaining GH₵16.6 billion (57%) was misapplied in violation of financial regulations.

To further close the revenue gap, the government outlined additional measures, including increasing mining royalties from 1% to 3%, reintroducing road tolls, enhancing tax compliance, adjusting energy sector levies, and uncapping GETFund, NHIL, and the Road Fund to ensure adequate financing for education, health, and infrastructure.

Despite the government’s new tax reforms, the COVID-19 levy, which had been expected to be scrapped, remains in place. Instead, the government has proposed comprehensive VAT reforms aimed at reducing distortions, simplifying the tax structure, and easing the burden on businesses.

As part of this reform agenda, the Fiscal Affairs Department of the IMF will provide technical assistance, with an IMF mission expected in April 2025. Additionally, the government will establish a VAT Reform Task Force to engage stakeholders and ensure smoother implementation.

The VAT reforms are expected to lead to the abolition of the COVID-19 Levy, the reversal of the decoupling of GETFund and NHIL from VAT, a reduction in the effective VAT rate for households and businesses, and the exemption of micro and small businesses from VAT collection through a raised VAT registration threshold.

As the government moves forward with these fiscal adjustments, attention will be on whether these tax policy shifts will ease economic pressures on businesses and individuals while maintaining revenue stability.