The Ghana Revenue Authority has firmly pushed back against assertions by the Abossey Okai Spare Parts Traders Association that the country’s new VAT regime will trigger price hikes and create an uneven playing field for businesses.
In a detailed rejoinder issued Monday, the GRA described the concerns as rooted in a fundamental misreading of the Value Added Tax Act, 2025 (Act 1151), which introduces a standard 20 per cent VAT rate.
Contrary to claims of added burden, the Authority argued that the new structure actually lowers the effective tax burden on businesses—from 21.9 per cent under the old Flat Rate Scheme to 20 per cent—while eliminating the much-criticised “tax-on-tax” effect.
Understanding the Math
Under the previous 4 per cent Flat Rate regime, the GRA explained, traders paid 21.9 per cent input VAT on their purchases with no opportunity for deduction. This irrecoverable cost was simply passed on to the consumer.
The new regime changes that calculus entirely. Registered traders can now claim full deduction of the 20 per cent input VAT they pay, significantly reducing their cost base.
In a worked example provided by the Authority, a product with a base price of GH¢500 and a 20 per cent profit margin would have retailed at GH¢760.66 under the old system. Under the new regime, the same product sells for GH¢720—a reduction of GH¢40.66.
“The impression that prices are rising stems from traders applying the 20 per cent output VAT on a cost structure that still includes non-deductible input VAT from the old system,” the GRA stated. “Once the transition is complete and input VAT claims are properly lodged, prices should reflect the true efficiency gain.”
No Competitive Distortion—GRA
The Authority also moved to calm fears that raising the VAT registration threshold to GH¢750,000 would allow larger, registered firms to underprice their smaller, unregistered competitors.
According to the GRA, non-registered traders still bear VAT on their purchases but cannot reclaim it, meaning tax remains embedded in their cost. Registered traders, by contrast, recover their input VAT and price competitively from that lower base.
Using identical product and margin assumptions, the GRA demonstrated that both registered and non-registered traders would arrive at the same final selling price of GH¢720. This, it said, confirmed the absence of any inherent competitive advantage.
The threshold increase, the Authority stressed, is an administrative relief measure designed to free small businesses from cumbersome VAT compliance obligations—not a distortionary policy tool.
A Leaner, Cleaner Tax Architecture
The GRA enumerated several structural gains under the new regime:
· Reduction in effective tax rate from 21.9% to 20%
· Repeal of the 1% COVID-19 Health Recovery Levy
· Full deductibility of input VAT, including NHIL and GETFund components
· Elimination of cascading tax-on-tax effects
· A unified, simplified VAT framework
Joint Transition Team Established
To ensure a smooth transition, the GRA disclosed that it has constituted a joint technical working group with the Ghana Union of Traders’ Associations (GUTA). The team is tasked with assisting businesses in navigating record-keeping requirements, input tax claims, and accurate pricing during the changeover period.
“Properly applied, this reform does not increase consumer prices, nor does it distort competition,” the Authority reiterated. “We call on all stakeholders to engage constructively and seize the benefits this new regime offers.”
The GRA’s intervention follows days of agitation by spare parts dealers who had warned of impending price hikes and market distortions. It remains unclear whether the technical engagement with GUTA will satisfy the more vocal factions within the trading community.
