The Ghana Revenue Authority (GRA) has dismissed concerns over possible increases in consumer prices and market distortions following the implementation of the new Value Added Tax (VAT) regime.
The Authority explained that recent fears expressed by some trader groups, particularly the Abossey Okai Spare Parts Dealers Association, stem from a misunderstanding of how the revised VAT system operates.
Under the Value Added Tax Act, 2025 (Act 1151), major VAT reforms took effect on January 1, 2026, streamlining the system to an effective 20 percent rate.
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As part of the reforms, the COVID-19 Health Recovery Levy and the VAT Flat Rate Scheme (VFRS) were abolished. The registration threshold for goods was also increased to GH¢750,000, while full input tax deductions were introduced for the National Health Insurance Levy (NHIL) and the GETFund Levy.
In a statement dated February 10, the GRA stressed that the shift from the 4 percent Flat Rate Scheme to the 20 percent VAT regime would not lead to higher prices.
“The change from the 4 percent Flat Rate to 20 percent will not result in increased prices,” the Authority stated, adding that the new regime will not distort competition, especially among spare parts dealers.
The GRA explained that under the previous flat rate system, traders paid 21.9 percent input VAT on purchases without the opportunity to deduct it, resulting in embedded taxes within their cost structure.
However, under the new regime, the 20 percent input VAT is fully deductible, allowing traders to reclaim it and operate on a reduced cost base.
Using a practical illustration, the Authority said a product with a base price of GH¢500 and a 20 percent profit margin would sell at GH¢720 under the new system, compared to GH¢760.66 under the old regime.
Addressing concerns about competition, the GRA rejected claims that increasing the VAT registration threshold to GH¢750,000 would create market distortions.
It explained that while non-registered traders still pay VAT on purchases without deductions, registered traders are able to reclaim input VAT and charge output VAT, resulting in similar final prices for consumers.
According to the Authority, the reforms are expected to benefit businesses through reduced tax burdens and lower operating costs.
Key benefits include a reduction in the effective tax rate from 21.9 percent to 20 percent, abolition of the 1 percent COVID-19 levy, full deductibility of input VAT including NHIL and GETFund levies, elimination of cascading “tax-on-tax” effects, lower cost of doing business, and the introduction of a simplified and unified VAT system.
The GRA also disclosed that it has set up a joint technical team with the Ghana Union of Traders’ Associations (GUTA) to offer guidance on VAT compliance, record-keeping, and pricing structures.
It said similar support would be extended to Abossey Okai traders and other business groups.
The Authority noted that the new VAT regime forms part of broader tax reforms aimed at improving transparency, simplifying compliance, and reducing embedded costs in Ghana’s tax system.