Tag: Ghana Revenue Authority (GRA)

The Ghana Revenue Authority (GRA) has rejected claims by the Abossey Okai Spare Parts Traders Association that the new tax regime under the Value Added Tax Act, 2025 (Act 1151), puts a financial burden on both customers and traders.

In a press statement issued on Tuesday, February 10, GRA explained that the traders are making these claims because they lack “fundamental understanding” of how the revised tax system works.

Under the previous 4% flat rate scheme, traders paid 21.9% input VAT on purchases, which was non-deductible and therefore embedded in their cost structure.

Under the new regime, the standard VAT rate is 20%, and input VAT is fully deductible. According to the GRA, this reduces the effective cost base 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, also, the new system, the final price would be GH¢720.

Explaining further, GRA noted that, if businesses correctly subtract the VAT they already paid on the goods they bought (called input VAT) before charging customers, the new tax system should actually make the final price lower, not higher.

“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.

GRA also addressed traders’ concerns on the VAT registration limit. The traders claimed that turnover of over GH¢750,000 is required to register for VAT and charge 20% at the point of sale, while those below the threshold can sell at lower prices, as sourcing from the same importer, for which reason they are unable to claim their money back.

Non-registered traders (small businesses below the threshold) still pay 20% VAT when they buy goods. But they cannot claim that money back. Registered traders also pay VAT when they buy goods, but they can claim it back (deduct it), so their real cost becomes lower.

Even so, the GRA says that in the end, both types of traders would sell the item at the same final price, GH¢720 in the GH¢500 example.

GRA continued that the new system comes with numerous benefits, including a reduction in the overall effective tax rate from 21.9% to 20%, abolition of the 1% COVID-19 Health Recovery Levy, full ull 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 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%.

GRA also contends that the increased prices currently being faced are a result of transitional pricing errors, not the policy itself.

Transitional pricing errors refer to temporary mistakes or distortions in how new prices are calculated and applied during the shift from one pricing system to another.

“The price increases currently being observed are the result of a failure to remove now-deductible input VAT from cost calculations,” the Authority added.

To support businesses during the transition, the GRA has established a joint technical team with the Ghana Union of Traders’ Associations (GUTA) to guide 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.

GRA’s detailed breakdown of how the new tax regime works comes a few days after Abossey Okai spare parts dealers threatened a one-week strike over the new Value Added Tax (VAT) regime under the Value Added Tax Act, 2025 (Act 1151).

The dealers, in a statement shared on Friday, February 8, and signed by the Head of Communications, Takyi Addo, called for a review of the new VAT rate of 20 percent or risk embarking on a strike in protest against the new tax regime.

“This imbalance penalises growth, efficiency, and compliance, while unintentionally rewarding fragmentation and informality,” parts of the statement said.

Even though they acknowledged the government’s efforts to expand the tax net to accrue revenue for national development and economic growth, the Association proposed either a reduced VAT rate of 5–8 percent for spare parts or a simplified sector-specific VAT scheme at a flat rate of 3 percent, applied uniformly regardless of whether goods are imported or sourced locally.

The group argued that such measures would restore price competitiveness, encourage voluntary compliance, protect formal businesses, and ultimately increase net revenue by reducing tax leakage through informality.

The Association concluded by urging the government to review the VAT rate and structure for the spare parts sector, emphasising that larger, compliant businesses should not be disadvantaged.

“We respectfully request a review of the VAT rate and structure as applied to the spare parts sector and remain open to further engagement on this matter,” the statement said.

The government is scheduled to launch a mobile application soon, the Minister of Transport, Joseph Bukari Nikpe, has revealed.

According to him, the app, which is currently being developed, is intended to ensure transparent pricing and easy nationwide access to spare parts, following consistent complaints from drivers about disparities in spare parts prices, which have hindered transport fare reductions despite a drop in fuel prices.

Mr Nikpe announced this in an appearance on Accra-based radio station Asempa FM’s Ekosii Sen show on Thursday, February 5.