The Ghana Revenue Authority (GRA) has dismissed concerns that the revised Value Added Tax (VAT) system will inflate consumer prices or distort competition, particularly within the spare parts sector. In a statement issued on Tuesday, February 10, 2026, the Authority addressed claims by the Abossey Okai Spare Parts Traders Association that the new VAT framework under the Value Added Tax Act, 2025 (Act 1151) unfairly burdens traders and risks driving up costs.
The GRA described these assertions as a “fundamental misunderstanding” of how the updated regime functions. Under the previous 4% flat rate scheme, traders incurred a non-deductible 21.9% input VAT on purchases, which was embedded in their cost base. By contrast, the new system applies a standard VAT rate of 20%, with full deductibility of input VAT—effectively lowering the cost structure for traders.
Using an illustrative example of a GH¢500 product with a 20% profit margin, the Authority showed that:
• Under the old system, the final consumer price would be GH¢760.66.
• Under the new system, the final price would be GH¢720.
The GRA argued that once input VAT deductibility is properly applied, the new regime actually results in lower final prices. “The appearance of higher prices is the result of traders applying the new 20% output VAT on top of a cost base that still includes non-deductible input VAT,” the statement said. Under the new structure, businesses declare input and output VAT in the same return and remit only the difference.
VAT Threshold Increase
The Authority also dismissed suggestions that increasing the VAT registration threshold to GH¢750,000 would distort market competition. It explained that non-registered traders still pay 20% VAT on their purchases but cannot claim deductions, while registered traders are able to recover input VAT and therefore price goods from a lower cost base. Using a GH¢500 example, the GRA noted that both registered and non-registered traders would ultimately sell at GH¢720. The Authority emphasised that the threshold adjustment is intended as a relief measure, easing administrative demands on small businesses rather than creating unfair advantages.
Key Features of the New VAT Regime
The GRA outlined several benefits under the new system:
• Reduction in the overall effective tax rate from 21.9% to 20%.
• Abolition of the 1% COVID-19 Health Recovery Levy.
• Full deductibility of input VAT, including NHIL and GETFund levies.
• Elimination of cascading “tax-on-tax” effects.
• Lower cost of doing business due to the removal of embedded VAT in cost structures.
• A simplified and unified VAT system.
• Higher registration threshold to ease compliance for small traders.
According to the Authority, a trader’s cost on a GH¢500 item falls from GH¢609.50 under the old regime to GH¢500 under the new system — a reduction of nearly 18%.
Transitional Pricing Errors
The GRA insists that recent price hikes are the result of transitional pricing errors rather than the VAT policy itself. “The increases currently being observed stem from a failure to remove now-deductible input VAT from cost calculations,” the Authority explained. To ease the transition, the GRA has partnered with the Ghana Union of Traders’ Associations (GUTA) to form a joint technical team that will guide businesses on VAT record-keeping, input tax claims, and proper pricing structures.
The Authority added that it is ready to extend similar support to the Abossey Okai traders and other groups. The new VAT regime forms part of broader tax reforms aimed at simplifying compliance, improving transparency, and reducing embedded costs within Ghana’s tax system.
Source: Nerteley Nettey
