The Ghana Revenue Authority (GRA) has firmly rejected claims by the Abossey Okai Spare Parts Dealers Association that the newly implemented 20 per cent Value Added Tax (VAT) regime under the VAT Act, 2025 (Act 1151), will drive up consumer prices, distort competition and increase the cost of doing business.
The Authority described the concerns as stemming from a “fundamental misunderstanding” of how the revised VAT system operates, insisting that the new structure is designed to lower the effective tax burden on traders rather than increase it.
In a detailed statement, the GRA explained that the transition from the previous 4 per cent Flat Rate Scheme to the standard 20 per cent VAT regime does not automatically translate into higher prices.
Under the former flat-rate system, traders paid input VAT of 21.9 per cent on purchases, which was not deductible. This meant the tax formed part of their cost base. However, under the new regime, input VAT of 20 per cent is fully deductible, allowing registered traders to reclaim the tax paid on their inputs when filing returns.
The change from the 4% Flat Rate to 20% will not result in increased prices,” the GRA emphasised.
Pricing Illustration
To demonstrate its position, the Authority provided a pricing comparison using a base cost of GH¢500 and a 20 per cent profit margin.
Under the new VAT regime, the final selling price would be GH¢720 — approximately GH¢40.66 lower than under the previous flat-rate system, where non-deductible input VAT inflated the cost base.
According to the GRA, price increases will only occur if traders mistakenly continue to factor in input VAT as a cost, despite it now being deductible.
The price increases currently being observed are the result of a transitional pricing error — the failure to remove now-deductible input VAT from cost calculations — and not a consequence of the policy itself,” the statement said.
Competition and Registration Threshold
Responding to concerns that the revised VAT registration threshold of GH¢750,000 could distort competition, the GRA maintained that the threshold adjustment is a deliberate relief measure aimed at reducing administrative burdens on smaller traders.
It clarified that non-registered traders still pay the 20 per cent VAT on their purchases, but cannot claim it back, while registered traders recover their input VAT and price their goods on a lower cost base.
The final price to the customer is identical: GH¢720,” the Authority noted, dismissing fears of unfair market advantage.
Benefits of the New Regime
The GRA outlined several benefits under the VAT Act, 2025, including:
- Full input VAT deductibility
- Abolition of the COVID-19 Health Recovery Levy
- Elimination of cascading taxes
- Simplified tax structure
- Lower effective tax rate
- Reduced cost of doing business
- Built-in, self-reporting system for seamless VAT recovery
The Authority described the reform as a significant step toward removing hidden tax burdens and improving efficiency within Ghana’s tax system.
Emergency Talks Amid Strike Threats
The clarification comes amid agitation and threats of strike action by Abossey Okai traders, who have expressed dissatisfaction with the new VAT structure.
In response, the GRA has invited the leadership of the Abossey Okai spare parts dealers and other trade groups to an emergency engagement to address their concerns.
Commissioner-General of the GRA, Anthony Kwasi Sarpong, told Joy Business in a phone interview that the new VAT regime is ultimately more beneficial to traders than the previous flat-rate system.
We have called our development partners, the traders, for an engagement so we have a mutual understanding… because we believe that when we all engage, then there will be a better understanding of policies and roles to be played by each party,” he said.
He added that a joint technical team has already been established in collaboration with the Ghana Union of Traders’ Associations (GUTA) to guide traders on proper record-keeping, input tax claims and correct pricing under the new system.
Not also forgetting that we have set up a technical team aimed at assisting the traders on how the new tax will be calculated,” Mr. Sarpong noted.
The GRA reiterated its readiness to extend similar technical support to the Abossey Okai traders and other associations to ensure a smooth transition.
As discussions continue, the Authority is urging stakeholders to engage constructively and take full advantage of what it describes as a reform intended to reduce costs, enhance compliance and strengthen Ghana’s tax administration framework.
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