Motor Insurance VAT scrapped as part of government's effort to reduce hardship

Dr. Cassiel Ato Forson speaking on Joy News’ PM Express on Tuesday, March 11, after presenting the 2025 Budget Statement to Parliament, Dr. Forson said the decision was based on an analysis of its economic impact.

“The previous administration, I think, in December 2023, introduced VAT on insurance, and as part of the bill that they introduced, which became law in January 2024, there is now VAT on all insurance, including vehicles,” he explained.

He clarified that while some forms of insurance, such as marine and corporate insurance, largely affect businesses, VAT on motor insurance would have been directly borne by individual vehicle owners.

His comments reinforce the government’s commitment to shielding vulnerable groups from excessive taxation while ensuring that policies do not create unintended hardships for ordinary Ghanaians.

“I said the other insurance, such as marine insurance and other different types of insurance, they are largely patronised by companies, and most of these companies are VAT registered, so they will be able to offset their input VAT with output VAT. And the incidence will not be on individuals,” he stated.

Dr. Forson argued that imposing VAT on motor insurance would disproportionately affect public transport operators and private vehicle owners.

“If you introduce VAT on motor vehicles, the incidence will be on the trotro driver, on the taxi driver, on the Uber driver.

"So even if you are going to implement such a policy, the first thing you need to do is to exempt the ordinary person—the person who is running a taxi, the person who is running trotro, the person who, by the grace of God, has been able to buy a vehicle and needs to buy insurance. You don’t want to make it punitive so that such a person will not even buy the insurance at all.”

He stated that the decision to scrap the tax was deliberate and aimed at preventing unnecessary hardship.

“I felt, based on the analysis, that the incidence on the motor vehicle VAT would be on the ordinary Ghanaian. And it is better you exempt that and allow the policy to go. And that is why I deliberately zoomed in on that one.”

The Finance Minister also downplayed the financial impact of the VAT removal, stating that the government would forgo only about ¢20 million in revenue, an amount he deemed insignificant compared to the backlash the tax had generated.

“The amount of money involved—how much was it? It’s about 20-something million, based on the analysis that they gave to us. You allow that to go because when the noise around it is more than the revenue, it becomes a nuisance tax, and it’s not worthwhile.”

Dr. Forson reiterated that corporate entities benefiting from other forms of insurance would still be subject to VAT since they can offset their input and output VAT.

“Rather allow the companies to pay because they will be able to offset their input VAT with their output VAT. And the companies are not complaining. They want to pay anyway.”