The Ghana Revenue Authority has addressed concerns raised by the Abossey Okai Spare Parts Traders Association regarding the new Value Added Tax regime.
The GRA, in a statement issued on Wednesday, 11 February, described the Association’s fears that the policy will lead to higher consumer prices, distort competition, and unfairly burden traders as based on a fundamental misunderstanding of the new system.
The Authority explained that the shift from the old 4% Flat Rate Scheme to the 20% Standard VAT rate will not result in increased final prices for consumers. Under the previous system, traders paid a non-deductible input VAT of 21.9% on purchases, which became part of their costs.
Under Act 1151, the 20% input VAT paid on purchases is fully deductible. This means registered traders can claim this amount back from the GRA, leading to a lower cost base for their goods.
Using an illustrative example with a base price of GHC500 and a 20% profit margin, the GRA demonstrated that the final customer price under the new regime is actually GHC40.66 lower than under the old system. This is because the trader’s actual cost drops from GHC609.50 to GHC500.
The GRA attributes any current price increases to a transitional error where traders are applying the new 20% output VAT to a cost base that still incorrectly includes the old, non-deductible input VAT.
On the increased VAT registration threshold of GHC750,000, the GRA stated it does not create price or market distortions. While a non-registered trader pays the 20% input VAT without reclaiming it, a registered trader reclaims it and bases their selling price on the lower net cost.
The Authority showed that for the same item and profit margin, both a registered and non-registered trader would arrive at an identical final selling price of GH¢720 to the customer. The raised threshold is intended as a relief measure to free smaller traders from VAT administrative duties.
The GRA outlined several benefits of the new regime for businesses, including a lower effective tax rate from 21.9% to 20%, the permanent removal of the 1% COVID-19 Health Recovery Levy, and full deductibility of input VAT including the previously non-deductible NHIL and GETFund levies.
The reform also eliminates cascading taxes, reduces the cost of doing business by nearly 18% in the provided example, and simplifies the tax structure into one transparent system for all VAT-registered entities.
The Authority reiterated that when correctly applied, the new VAT regime does not increase consumer prices or distort competition. It has established a joint technical team with the Ghana Union of Traders’ Associations to support businesses during the transition and has offered to extend similar practical guidance on record-keeping, input tax claims, and correct pricing to the Abossey Okai Spare Parts Traders Association.
The GRA is calling for constructive engagement from all stakeholders to take advantage of the reform’s benefits.
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