How 2025 budget’s indirect tax measures will affect business operations

Tax policies influence the business environment of every economy. The 2025 budget includes several indirect tax changes targeted at boosting economic growth, lowering corporate costs, and enhancing access to basic goods and services. 

Among the major changes are the elimination of Value Added Tax (VAT) on motor vehicle insurance premiums, the exclusion of more pharmaceutical raw materials and critical imported pharmaceuticals from VAT, and a complete VAT reform.  

These policies are projected to have a wide-ranging impact on businesses, particularly small and medium-sized firms (SMEs), which constitute the backbone of Ghana's economy. 

This article investigates how these indirect tax policies will influence Ghanaian firms, providing insights into both the potential and challenges they present.

Removal of VAT on motor vehicle insurance premiums

For enterprises that rely substantially on transportation, such as logistics companies, delivery services, and factories, eliminating VAT on motor vehicle insurance premiums will drastically reduce operational costs. 

This frees up capital that can be used in other aspects of the business, such as fleet growth or employee training. 

SMEs, who sometimes operate on a tight budget, may benefit from lower insurance premiums. This will make it easier for small businesses to insure their automobiles, safeguarding their assets and lowering financial risks. 

While this approach reduces revenue for the government, it is projected to promote the uptake of motor vehicle insurance, which benefits insurance providers and creates a stronger market.

Exemption of Pharmaceutical Raw Materials and Essential Imported Medicines from VAT

Local pharmaceutical producers will profit from reduced raw material costs, allowing them to make medicines at lower pricing. 

This will increase their competitiveness both domestically and regionally. By exempting vital imported drugs from VAT, the government makes healthcare cheaper to the average Ghanaian. 

This will raise demand for pharmaceutical products, opening new prospects for pharmacies and distributors. 

The exemption of raw materials from VAT is a strategic step aimed at increasing local pharmaceutical production. This will help Ghana lessen its dependency on imported pharmaceuticals while also creating jobs in the industrial sector.

Reform of the VAT system

Removing the COVID-19 Health Recovery Levy: The removal of this fee will lower the tax burden on enterprises, notably those in the health and education sectors. 

This reduces the cost of goods and services, making them more affordable to customers. 

Treating health and education taxes like VAT will simplify the tax system, allowing businesses to better comprehend and comply with tax requirements. 

This will reduce administrative expenditures and the likelihood of noncompliance penalties. Reduction for Eligible VAT-Registerable Traders: 

The government is lowering the compliance burden on small enterprises by limiting the number of VAT-registered traders.

This will allow SMEs to focus on expansion rather than navigating complex tax requirements. 

Challenges

Revenue Shortfalls for the Government: While these measures assist firms, they may cut government revenue, thereby affecting public investment in infrastructure and other key sectors.

Adjustment Period: Businesses may experience initial difficulties in transitioning to the new tax regime, particularly in comprehending and implementing the changes. 

Uneven Impact: These policies will not help all sectors equally. Businesses outside of the transportation, pharmaceutical, and insurance industries may not reap major immediate benefits.

Conclusion

The indirect tax measures in the 2025 budget are a big move towards improving Ghana's economic environment. 

By removing VAT from motor vehicle insurance premiums, exempting pharmaceutical raw materials and critical medicines from VAT, and overhauling the VAT system, the government is addressing important business pain points, particularly for SMEs. 
These reforms will lower operational costs, simplify tax compliance, and boost growth in important sectors.  

However, their effectiveness will be determined by effective execution and firms' capacity to adjust to the new tax landscape. 

These changes provide Ghanaian businessmen and SME owners with a unique opportunity to prosper in an increasingly competitive market. 

As the government refines its tax policy, businesses must remain aware and proactive, using these improvements to generate development and innovation. 

The 2025 budget is more than a financial plan; it is a road map for a more robust and dynamic Ghanaian economy.

Dr Andrews Ayiku, Lecturer/SME Industry Coach, Coordinator (MBA Impact Entrepreneurship and Innovation), University of Professional Studies Accra

ayiku.andrews@upsamail.edu.gh
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