Tax Reform Rocks SMEs: Ghana’s New System Brings Challenges and Opportunities

Story by Fada Amakye

The Commissioner of the Domestic Tax Revenue Division (DTRD), Dr. Martin Kolbil Yamborigya, has acknowledged the complexities of Ghana’s new tax system, highlighting the challenges faced by Small and Medium Enterprises (SMEs) in adapting to the multiple tax rates. The introduction of a standard rate, 3% for retailers of goods, and 5% for real estate aims to simplify the system but poses difficulties for some businesses.

Speaking at a forum, Dr. Martin kolbil Yamborigya noted that SMEs without input tax will struggle under the new system, while those with input tax may benefit. “If you have input tax, then you are better off being under this new system. But those who do not have input tax will find it challenging,” he said. He emphasized the need for businesses to adapt and reorganize their transactions to claim VAT invoices and input tax.

The Commissioner addressed concerns from sectors like watch sellers and spare parts retailers, who feel they were better off under the previous 3% tax rate. Dr. Martin Kolbil Yamborigya stressed that many businesses were underreporting their income, citing examples of retailers claiming annual sales of GHC 200,000, which was unrealistic given their daily sales.

To address these challenges, Dr. Martin kolbil Yamborigya emphasized the importance of education and compliance. “We need to keep on educating them and encourage them,” he said. The tax authority is also reviewing the new system and may make further amendments to address emerging issues.

The new tax system offers benefits to companies, particularly those in manufacturing, with tax concessions and rebates available for businesses located outside Accra. For instance, companies in regional capitals can access a 25% tax rebate, while those in district capitals can get a 50% rebate.

However, the definition of “Accra” is being redefined to prevent abuse of these concessions. The original definition of Accra refers to the Accra Metropolitan Area (AMA), and businesses outside this area may be eligible for tax rebates.

As Ghana navigates its tax reform journey, the DTRD is committed to supporting SMEs and promoting sustainable growth. Dr. Yamborigya urged businesses to take advantage of tax concessions and incentives, emphasizing the importance of compliance and strategic planning in today’s business landscape.

The tax authority’s efforts aim to create a fair and efficient tax system, where all businesses contribute their fair share. As the new system beds in, SMEs are encouraged to stay informed and adapt to the changing tax landscape.