The Ghana Revenue Authority (GRA) has dismissed concerns by the Abossey Okai Spare Parts Traders Association that the newly implemented Value Added Tax (VAT) regime will increase consumer prices, distort market competition and unfairly burden traders.
In a statement issued Tuesday, the Authority said the concerns stem from “a fundamental misunderstanding” of how the new VAT system under the Value Added Tax Act, 2025 (Act 1151) operates.
The Association had argued that replacing the 4 percent flat rate scheme with a 20 percent standard VAT rate would drive up prices of spare parts and negatively affect traders. But the GRA maintained that, when properly applied, the new regime does not result in higher prices.
Under the previous flat rate system, traders paid a 21.9 percent input VAT on purchases, which was not deductible. Under the new system, input VAT of 20 percent is fully deductible, allowing VAT-registered traders to claim it back and reduce their effective cost base.
Using an example of a GH¢500 base price and a 20 percent profit margin, the GRA said the final price to the consumer under the new regime would be GH¢720, compared with GH¢760.66 under the old system — a difference of GH¢40.66.
According to the Authority, perceived price increases are occurring because some traders are applying the 20 percent output VAT on top of cost calculations that still include previously non-deductible input VAT.
“The deduction happens automatically as traders file their returns,” the statement said, explaining that businesses are required to declare both input VAT paid on purchases and output VAT charged on sales, remitting only the difference.
The GRA also rejected claims that the increase in the VAT registration threshold to GH¢750,000 would distort competition.
It explained that non-registered traders still pay 20 percent VAT on their purchases but cannot claim it back, meaning the tax becomes part of their cost. By contrast, registered traders deduct input VAT and charge output VAT, but the final price to the customer can remain the same.
The Authority described the higher registration threshold as a relief measure designed to reduce the administrative burden on small businesses rather than create competitive advantages.
Among the benefits cited under the new VAT regime are a reduction in the overall effective tax rate from 21.9 percent to 20 percent, the abolition of the 1 percent COVID-19 Health Recovery Levy, full deductibility of input VAT — including NHIL and GETFund levies — and the elimination of what it described as “cascading” tax effects.
The GRA said the reforms would lower the cost of doing business and simplify compliance by abolishing the flat rate scheme in favor of a unified system for all VAT-registered taxpayers.
To ease the transition, the Authority 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 pricing adjustments. It also expressed readiness to extend similar support to the Abossey Okai Spare Parts Traders Association and other trade groups.
“The new VAT regime, when properly applied, does not increase prices for consumers and does not distort competition in the marketplace,” the statement said.
The GRA called on stakeholders to engage constructively and take advantage of the reforms, which it described as beneficial to both businesses and consumers.
Source: www.kumasimail.com
