The impact of Ghana’s vehicle income tax on ride hailing industry.

The Impact of Ghana’s Vehicle Income Tax on the Ride-Hailing Industry: Challenges and Drivers’ Pushback

The ride-hailing industry in Ghana is facing a significant hurdle as drivers voice their concerns and push back against a new tax on commercial vehicles. Ghana’s revenue authority plans to implement a Vehicle Income Tax (VIT) in January 2024, which will require ride-hailing drivers to pay quarterly taxes based on their earnings. This move has sparked controversy and raised questions about the sustainability of the ride-hailing business model in Ghana. In this article, we will delve into the details of the VIT, the drivers’ objections, previous attempts at taxing ride-hailing companies, and the overall impact on Ghana’s tax landscape and the ride-hailing industry.

I. Understanding the Vehicle Income Tax (VIT)

According to Ghana’s Revenue Authority, ride-hailing vehicles fall under “Class A” and will be subject to the VIT. Under this tax scheme, drivers will be required to pay 12 Ghana cedis quarterly, amounting to 48 GHC annually. Additionally, ride-hailing companies such as Uber, Bolt, and Yango will need to ensure that drivers are in compliance with the VIT before allowing them to operate on their platforms.

The introduction of the VIT aims to increase tax revenue and ensure that the ride-hailing industry contributes its fair share to the country’s economy. However, the implementation of this tax has raised concerns among ride-hailing drivers, who argue that it will further strain their already burdened incomes.

II. Drivers’ Objections and the Burden on Individuals

Ride-hailing drivers in Ghana are expressing their dissatisfaction with the VIT, claiming that it places an unfair burden on individual drivers. Many argue that the tax should be paid by ride-hailing companies themselves, as they are the ones who profit the most from the platform. Drivers contend that they are already operating in a challenging environment, facing rising fuel prices and increased competition, which have impacted their earnings. The introduction of the VIT is seen as an additional financial burden that could potentially push drivers towards unsustainable financial situations.

III. Previous Attempts at Taxing Ride-Hailing Companies

This is not the first time that Ghana has attempted to impose taxes on ride-hailing companies. In April, the Driver and Vehicle Licensing Authority (DVLA) introduced a levy on every ride. However, this move faced significant backlash from the public. In September 2019, online drivers collectively halted their services to protest what they perceived as “modern-day slavery” imposed by ride-hailing operators. The drivers criticized the companies for continuously lowering trip fares, despite the consistent rise in fuel prices, which adversely affected their earnings.

These previous attempts at taxing ride-hailing companies highlight the challenges of finding a balance between generating tax revenue and ensuring a sustainable business environment for drivers. The VIT is yet another attempt by the Ghanaian government to address this issue, but its implementation has been met with resistance from drivers.

IV. Ghana’s Tax Landscape and the Ride-Hailing Industry

Ghana’s tax-to-GDP ratio has traditionally been lower compared to many other African countries. According to a report by the Organisation for Economic Co-operation and Development (OECD), Ghana’s tax-to-GDP ratio reached its highest ever at 14.1% in 2021. However, this figure remains lower than the average tax-to-GDP ratio of the 33 African countries in 2023, which stood at 15.6%.

The introduction of the VIT in the ride-hailing industry is part of the government’s efforts to increase tax revenue and bridge this gap. However, the concerns raised by drivers highlight the potential negative consequences of placing the burden on individual drivers rather than ride-hailing companies themselves.

V. The Future of Ghana’s Ride-Hailing Industry

The implementation of the VIT and the ongoing resistance from ride-hailing drivers raise important questions about the future of the industry in Ghana. It is crucial for the government to consider the concerns of drivers and find a solution that strikes a balance between generating tax revenue and maintaining a sustainable environment for drivers to earn a livelihood.

Additionally, ride-hailing companies must also play a role in addressing the concerns of drivers and finding a mutually beneficial solution. Collaborative efforts between the government, ride-hailing companies, and drivers can lead to a more equitable taxation system that ensures drivers are not overburdened and the industry continues to thrive.

Conclusion

The introduction of the Vehicle Income Tax (VIT) in Ghana’s ride-hailing industry has sparked a contentious debate between drivers and the government. While the tax aims to generate revenue and ensure the industry’s contribution to the economy, drivers argue that it places an unfair burden on their already-strained incomes. The history of taxing ride-hailing companies in Ghana has shown the challenges of finding a fair and sustainable solution.

FAQS:

1. How will the Vehicle Income Tax (VIT) impact ride-hailing drivers in Ghana?
The Vehicle Income Tax (VIT) will require ride-hailing drivers in Ghana to pay quarterly taxes based on their earnings. This additional tax burden may strain the already burdened incomes of drivers and potentially impact their financial sustainability.

2. Why do ride-hailing drivers believe the tax should be paid by the companies rather than individual drivers?
Ride-hailing drivers argue that the tax should be paid by ride-hailing companies themselves, as they are the ones who profit the most from the platform. They believe that placing the tax burden on individual drivers is unfair and further exacerbates the financial challenges they already face.

3. What were the previous attempts at taxing ride-hailing companies in Ghana?
In April, the Driver and Vehicle Licensing Authority (DVLA) introduced a levy on every ride, which faced public backlash. In September 2019, online drivers collectively halted their services to protest what they perceived as exploitative practices imposed by ride-hailing operators. These previous attempts highlight the challenges of finding a balance between generating tax revenue and ensuring a sustainable business environment for drivers.

4. How does Ghana’s tax-to-GDP ratio compare to other African countries?
Ghana’s tax-to-GDP ratio in 2021 was 14.1%, its highest ever. However, this figure is lower than the average tax-to-GDP ratio of the 33 African countries in 2023, which stood at 15.6%. The introduction of the VIT is part of the government’s efforts to increase tax revenue and bridge this gap.

5. What does the future hold for Ghana’s ride-hailing industry?
The implementation of the VIT and the resistance from drivers raise questions about the future of the ride-hailing industry in Ghana. It is crucial for the government, ride-hailing companies, and drivers to work collaboratively to find a solution that ensures a fair and sustainable environment for drivers while also generating tax revenue for the country. Only through such collaborative efforts can the industry thrive and continue to benefit both drivers and the economy as a whole.