GRA debunks price hike claims of new VAT regime

By Wisdom JONNY-NUEKPE

The Ghana Revenue Authority (GRA) has debunked and clarified concerns over a possible increase in consumer prices and market distortion following the implementation of the new Value Added Tax (VAT) regime.

The GRA rolled out major VAT reforms effective January 1, 2026, under the Value Added Tax Act, 2025 (Act 1151), streamlining the system to a 20 percent effective rate.

The reforms abolished the COVID-19 Health Recovery Levy and the VAT Flat Rate Scheme (VFRS), raised the registration threshold for goods to GH¢750,000, and allowed full input tax deductions for the National Health Insurance Levy (NHIL) and the GETFund Levy.

The response comes after the Abossey Okai Spare Parts Dealers Association raised concerns that the new regime would lead to higher consumer prices, distort market competition and unfairly burden spare parts traders.

In a statement dated February 10, the GRA said the claims were based on a misunderstanding of how the revised VAT system operates.

“The change from the 4 percent Flat Rate to 20 percent will not result in increased prices,” the Authority stated, adding, “the new VAT regime will not lead to higher consumer prices and distort market competition, particularly among spare parts dealers”.

It explained that under the old flat rate scheme, traders paid 21.9 percent input VAT on purchases which was not deductible, thereby embedding the tax in their cost.

Under the new regime, the 20 percent input VAT is fully deductible, allowing traders to reclaim it and operate on a lower cost base.

Using an illustration of a GH¢500 base price with a 20 percent profit margin, the GRA said the final price to consumers under the new regime would be GH¢720, compared to GH¢760.66 under the old system.

The Authority also rejected claims that raising the VAT registration threshold to GH¢750,000 would distort competition.

According to the GRA, non-registered traders still pay 20% VAT on purchases but cannot claim deductions. Registered traders, however, recover input VAT and price their goods from a lower cost base.

It said non-registered traders will still pay VAT on purchases but cannot claim input tax, while registered traders reclaim input VAT and charge output VAT, resulting in similar final prices for consumers.

Key benefits of the new VAT regime according to the GRA, include, reduction in the overall effective tax rate from 21.9 percent to 20 percent, abolition of the 1 percent 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 removal of embedded VAT in cost structures, a simplified and unified VAT system and possible higher registration threshold to ease compliance for small traders.

The GRA said it has established a joint technical team with the Ghana Union of Traders’ Associations (GUTA) to provide guidance on VAT record-keeping, input tax claims, and correct pricing structures.

The Authority said it is prepared 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.

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