Ghana to tie VAT exemptions for vehicle assemblers to local production

President John Dramani Mahama says vehicle manufacturers will be required to meet a minimum local assembly threshold before they can qualify for VAT exemptions under a new automotive incentive regime.

The planned requirement is intended to prevent companies from importing almost-complete vehicles, performing limited work in Ghana and still receiving tax benefits meant to promote domestic manufacturing.

President Mahama announced the policy at the commissioning of Phase Three of the Zonda Tech Ghana Limited Vehicle Assembly Plant at Tema Golf City.

He said the Ministries of Finance and Trade and Industry were finalising discussions on an incentive framework for semi-knockdown vehicle assembly.

The framework will specify the minimum proportion of assembly that must take place locally before a manufacturer can access VAT relief. The President did not disclose the proposed percentage or when the requirement would take effect.

“We don’t want manufacturers who bring the whole car, they just remove the steering and the tyres, and they bring it here, put the tyres and put the steering, and say we’ve assembled this vehicle in Ghana,” he said.

The President argued that such limited operations do not deliver the same economic benefits as substantial manufacturing and assembly activities carried out within the country.

He said the proposed threshold would encourage manufacturers benefiting from public incentives to increase local value addition, create jobs and support Ghanaian suppliers.

Push for locally made components

President Mahama also urged vehicle assemblers to invest in the local production of components, including batteries, tyres, wiring harnesses, seats, glass, plastics and metal parts.

He said producing these items in Ghana would strengthen domestic supply chains and allow more of the economic value generated by the automotive sector to remain in the country.

The government’s stated ambition is to move beyond vehicle assembly towards an integrated automotive industry in which Ghanaian materials and components feed directly into manufacturing.

“The goal is to develop an integrated automotive industry in which locally produced materials and components feed directly into vehicle manufacturing,” President Mahama said.

According to the President, the new approach should also promote technology transfer and create opportunities for Ghanaian companies to participate in the automotive supply chain.

Details expected in national budget

The full incentive regime is expected to be included in the national budget to be presented to Parliament by the Ministry of Finance.

However, the President did not provide details about how compliance with the local assembly threshold would be assessed, which models of vehicle would be covered or whether existing manufacturers would be given time to meet the requirement.

Those details will be important for assemblers planning investments and for authorities responsible for determining which companies qualify for VAT exemptions.

President Mahama said Ghana had already attracted several global vehicle manufacturers through its automotive development policy but argued that assembly plants should not be the country’s final objective.

He said Ghana should eventually manufacture vehicles and components for both its domestic market and export to other African countries.

The President pointed to the African Continental Free Trade Area, whose secretariat is headquartered in Accra, as an opportunity for Ghana to serve a market of more than 1.4 billion people.

He said the government would continue to create an enabling environment for investors but would expect vehicle manufacturers to increase local content, transfer technology and develop Ghanaian suppliers.

The policy, he said, was intended to ensure that automotive tax incentives delivered measurable benefits through increased production, employment and reduced dependence on imported vehicles.