BY Issah Olegor
The growing automotive manufacturing industry is facing fresh uncertainty as major vehicle assembly companies warn that the removal of Value Added Tax (VAT) exemptions on locally assembled vehicles is beginning to undermine production, threaten jobs and weaken the competitiveness of the country’s automotive sector.
Industry players say the policy shift risks reversing years of progress made under the Ghana Automotive Development Policy, a flagship industrialization initiative introduced to transform Ghana into a vehicle assembly hub for West Africa and attract some of the world’s leading automobile manufacturers.
The concerns were raised by executives of global vehicle assembly firms operating in Ghana, who argue that maintaining the current 20 percent VAT burden on locally assembled vehicles could significantly affect production volumes, reduce investment and jeopardize hundreds of skilled jobs within the sector.
The warnings come nearly eight years after the Government of Ghana launched the Ghana Automotive Development Policy in 2018 as part of broader efforts to promote industrialization, technology transfer and job creation.
The policy successfully attracted several international automobile brands, including Nissan, Toyota, Volkswagen, Peugeot, Suzuki, Hyundai, Geely, Foton, Honda and Kia, to establish assembly operations in Ghana.
To encourage investment and make local assembly commercially viable, government introduced a package of incentives, including a zero percent VAT regime on locally assembled vehicles and reduced import duties ranging between five and ten percent on vehicle components and parts.
Industry stakeholders say those incentives played a critical role in making Ghana an attractive destination for automotive investment and helped position locally assembled vehicles to compete with imported vehicles on the domestic market.
However, recent changes to the tax regime have altered that equation.
According to vehicle assemblers, the withdrawal of the VAT exemption has increased production costs and made locally assembled vehicles less competitive compared to imported alternatives.
At the Japan Motors Assembly Plant in Tema, where brands such as Nissan, Foton, Peugeot and Geely are assembled, management says the impact of the policy change is already being felt.
Vehicle Assembly Plant Manager, Emmanuel Jason-Solomon Penneh, revealed that the company had planned to increase production significantly this year but has been forced to revise its projections due to declining demand linked to higher prices.
According to him, the reintroduction of VAT has increased the final cost of locally assembled vehicles, making them less attractive to consumers and affecting sales volumes.
“Last year we did close to 1,500 vehicles. This year we intended to do more but with the government’s change of policy, where they took the VAT component out, it has reduced local production and made our prices uncompetitive. Because they have taken the VAT away, it has reduced the volume of our production. Even with that, we are still doing about 138 vehicles per month,” he stated.
Penneh warned that if the current tax regime remains unchanged, local manufacturers may struggle to expand production and attract additional investments into the sector.
He therefore appealed to government to restore the VAT exemption while broader policy discussions on the future of the automotive industry continue.
According to him, maintaining the incentive would help local manufacturers remain competitive, stimulate demand and encourage increased production.
“The government should maintain the VAT exemption for assembly plants until a new policy is introduced,” he urged.
Industry analysts note that the success of Ghana’s automotive policy has largely depended on maintaining a favorable investment climate capable of competing with similar incentives being offered by other African countries seeking to attract automobile manufacturers.
They argue that sudden policy reversals could discourage future investments and slow the momentum built over the past several years.
Beyond taxation concerns, vehicle assemblers are also grappling with operational challenges at the country’s ports.
Deputy Factory Manager of Toyota Tsusho Manufacturing Company Limited, Nii Arday Arday, expressed concern about persistent delays in clearing imported components required for vehicle assembly.
According to him, the delays continue to disrupt production schedules and affect operational efficiency.
Manufacturers rely heavily on timely clearance of imported components, engines and other parts needed to maintain continuous production lines. Any disruptions at the ports can result in delays, increased costs and reduced productivity.
“We sometimes face challenges at the ports in clearing our goods. The delays slow down our production, but we continue to work hand in hand with the government to resolve these issues and stabilise operations,” he explained.
The concerns raised by industry players come at a time when Ghana is seeking to deepen local manufacturing, reduce dependence on imports and create sustainable industrial jobs.
The automotive assembly sector has been identified as one of the strategic industries capable of driving economic diversification, skills development and technology transfer.
Government officials have repeatedly highlighted the sector’s potential to create thousands of direct and indirect jobs while positioning Ghana as a regional center for automotive production and exports.
However, industry stakeholders insist that achieving these objectives will require consistent policies, competitive incentives and efficient trade facilitation measures.
They argue that preserving the gains made under the Ghana Automotive Development Policy is critical if Ghana is to realize its ambition of becoming a leading automotive manufacturing hub in Africa.
