The Ghana Revenue Authority (GRA) has rejected concerns raised by the Abossey Okai Spare Parts Traders Association over the Value Added Tax (VAT) Act, 2025 (Act 1151), describing the claims as a “fundamental misunderstanding” of the new tax regime.
The response follows a threat by the Association, led by its Head of Communications, Takyi Addo, to embark on a one-week strike over fears that the shift from a 4 per cent flat VAT rate to a 20 per cent standard rate would significantly increase prices.
According to the traders, the new system would push the price of a GH¢500 item from GH¢520 to GH¢600, placing an additional burden on consumers.
However, in a detailed rebuttal, the GRA explained that although the headline VAT rate has increased, the full deductibility of input VAT under the new regime actually reduces the overall cost of doing business.
Under the previous flat-rate system, traders paid a non-deductible effective tax of about 21.9 per cent on purchases, which was embedded in their cost structure and passed on to consumers.
Using a GH¢500 base price, the GRA illustrated the difference:
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Old Regime: Traders incurred a total cost of GH¢609.50, leading to a final consumer price of GH¢760.66.
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New Regime: Traders reclaim the 20 per cent input VAT, reducing their cost base to GH¢500. With a 20 per cent profit margin and 20 per cent output VAT, the final consumer price is GH¢720 — about GH¢41 cheaper than under the old system.
Competition and Compliance
The GRA also dismissed concerns that increasing the VAT registration threshold to GH¢750,000 would create unfair competition.
It explained that while non-VAT-registered traders are exempt from charging VAT on sales, they are unable to reclaim the 20 per cent VAT paid on their purchases, which naturally aligns their pricing with that of registered businesses.
According to the Authority, recent price increases in the market are largely due to “transitional pricing errors,” where some traders are incorrectly applying the new 20 per cent VAT on costs that already include old, non-deductible taxes.
To ease the transition, the GRA said it has set up a joint technical team with the Ghana Union of Traders’ Associations (GUTA) and has invited the leadership of the Abossey Okai Spare Parts Traders Association for hands-on guidance on correct pricing and VAT recovery under the new law.
