Increasing the VAT registration threshold to exempt SMEs in Ghana

On Thursday, July 24, 2025, at the presentation of the 2025 Mid-Year Budget Review to Parliament, the finance minister revealed a significant policy shift focused at assisting small and medium-sized businesses (SMEs).

The VAT registration threshold will be raised to exempt small and micro businesses, along with additional measures to improve compliance through public education, awareness creation, and the use of fiscal electronic devices. 

This change is expected to reduce the financial and administrative constraints on SMEs, creating a more favorable environment for their growth and sustainability.  This article examines why raising the VAT registration threshold is a commendable decision, highlighting six practical reasons it benefits businesses and business owners while also contributing to Ghana's overall economic goals.

Reduced financial burden 

SMEs, particularly micro-enterprises, frequently operate with small budgets and low profit margins.

The necessity to register for VAT and remit taxes can put a burden on their resources because it includes not only tax payments but also the expenditures of keeping detailed records and submitting returns. 

By raising the VAT registration level, the government relieves smaller enterprises with lesser turnovers of these duties, allowing them to keep more cash for reinvestment. For example, a small retail shop or local service provider can now use funds that would have been spent on VAT compliance to buy inventory, hire employees, or upgrade equipment. 

Simplified compliance 

VAT compliance requires firms to keep accurate records, make frequent returns, and manage complex tax requirements, which can be especially difficult for SMEs with little resources. 

The administrative cost of hiring accountants or investing in compliance technologies can take resources away from vital business functions.

By raising the threshold, many small and micro firms will be excluded from these restrictions, allowing them to avoid time-consuming and expensive administrative tasks. 

Enhanced competitiveness

Exempting SMEs from VAT registration allows them to price their products and services more competitively. 

VAT-registered enterprises must include VAT in their prices, making their products or services more expensive than competitors in the informal sector or those below the threshold. By raising the threshold, more SMEs can operate without charging VAT, making their products cheaper to consumers. 

For example, a small bakery or tailoring business can keep its prices low, attract price-sensitive customers, and gain a competitive advantage in local markets. 

This regulation levels the playing field, allowing SMEs to compete more successfully against larger corporations and informal operators.

Encouragement 

High tax compliance requirements might prevent entrepreneurs from formalising their operations, as the expense and complexity of VAT registration can be overwhelming.

By lowering the VAT threshold, the government reduces the barrier to entry for small firms, encouraging more entrepreneurs to register their operations properly. 

Formalisation provides advantages such as access to credit, government assistance programs, and legal protection. 

Furthermore, the government's emphasis on public education and awareness will assist entrepreneurs in understanding the benefits of formalization and compliance, establishing a culture of tax awareness while placing minimal costs on small enterprises. 

Increased cash flow 

Cash flow is a major challenge for SMEs, with many struggling to retain liquidity while paying tax responsibilities. By exempting small and micro firms from VAT, the government ensures that smaller businesses keep more of their earnings, which improves cash flow. 

This excess liquidity can be utilized to make crucial investments such as expanding operations, implementing new technologies, or training workers. 

For example, a small agribusiness can invest in better farming equipment, but a micro-retailer can stock a greater choice of products. Improved cash flow not only helps with day-to-day operations, but it also allows SMEs to plan for long-term growth, which contributes to economic stability.

Job creation 

SMEs are important employers in Ghana, notably for young people and women in both rural and urban settings. By easing the financial and administrative burdens of VAT compliance, the government allows SMEs to devote resources to hiring and training staff. 

This increases job opportunities, particularly for marginalized groups, and encourages economic inclusion. For example, a small-scale manufacturing exempt from VAT can hire more workers to fulfil rising demand, whereas a micro-enterprise can invest in employee skill development. 

Conclusion

The decision to raise the VAT registration level to exempt small and micro enterprises, revealed in the 2025 Mid-Year Budget Review, is a progressive policy that benefits Ghana's SMEs. 

This policy makes the business climate more open and dynamic by lowering financial and administrative costs, increasing competitiveness, boosting entrepreneurship, improving cash flow, and fostering job creation. 

The supporting measures of public education and fiscal technological devices improve compliance and transparency, ensuring a fair approach to revenue collection. 

The writer is a Senior Lecturer/SME Industry Coach, Coordinator (MBA Impact Entrepreneurship and Innovation) at the University of Professional Studies Accra
ayiku.andrews@upsamail.edu.gh
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