Amazon Web Services (AWS) has announced that, starting March 1, 2025, it will implement a 21% tax on cloud services for customers in Ghana.
The tax comprises of 15% Value Added Tax (VAT) and an additional 6% in levies, including the National Health Insurance Levy, the Ghana Education Trust Fund Levy, and the COVID-19 Health Recovery Levy.
Industry experts are worried that the hefty tax will impact tech start-ups negatively and also affect overall digital growth in Ghana, a country that has been in a digitalization drive for years now.
Founder and CEO of EDEL Technologies, Ethel Dela Cofie noted in a LinkedIn post that the introduction of this tax is poised to significantly impact Ghana’s burgeoning tech start-up ecosystem and its overall digital transformation efforts in the following areas:
- Increased Operational Costs: Cloud services are integral to start-ups, offering scalable infrastructure without the need for substantial upfront investments. -An additional 21% tax on these services will elevate operational expenses, potentially straining the limited budgets of early-stage start-ups.
- Competitive Disadvantage: Higher costs may deter start-ups from adopting essential cloud technologies, hindering innovation and scalability. This could place Ghanaian start-ups at a disadvantage compared to regional competitors operating in more cloud-friendly financial environments.
- Potential Slowdown in Digital Adoption: Increased expenses associated with cloud services might discourage businesses from transitioning to digital platforms, potentially slowing the country’s digital growth trajectory.
She noted that, Ghana hosts over 55 active tech hubs, fostering a vibrant start-up scene that heavily relies on affordable cloud services for development and deployment.
Ethel Cofie therefore proposed some ways to mitigate the adverse of such taxes on start-ups and protect them from same.
Steps to Protect Startups
To mitigate the adverse effects of the new tax regime on startups, the following measures could be considered:
- Government Subsidies or Tax Reliefs: Implementing subsidies or tax incentives for startups could offset the increased costs, encouraging continued investment in cloud technologies.
- Promotion of Local Cloud Providers: Supporting and developing local cloud service providers could offer more affordable alternatives
- Negotiation for Tax Reductions: Engaging in dialogue between government bodies and industry stakeholders might lead to a reassessment of the tax rates or the introduction of tiered taxation that considers the size and revenue of startups.
“While the taxation of digital services aligns with global trends aiming to capture revenue from the digital economy, it’s crucial to balance this with the need to foster innovation and support emerging businesses. Strategic interventions can help mitigate potential negative impacts on Ghana’s tech startups and sustain the momentum of its digital growth,” she stated.
She however noted that despite these challenges, Ghana’s public cloud market is projected to grow by 19.78% between 2025 and 2029, reaching a market volume of a little over US$630 million by 2029.
