New Value Added Tax Won’t Increase Prices- GRA
The Ghana Revenue Authority (GRA) has insisted that the migration from 4% Value Added tax Flat Rate to 20% will not result in upward adjustment of prices of goods.
It explained that under the Flat Rate Scheme, traders paid input VAT of 21.9% on every purchase, and that was not deductible, while under the new regime, input VAT of 20% is fully deductible as the trader can claim it back from the GRA, resulting in lower costs.
“When input VAT deductibility is properly accounted for, the customer’s final price under the new regime (GHф720) is GH¢40.66 lower than under the old regime (GH¢760.66). This advantage holds at any profit margin because the new regime’s lower cost base (GHф500 vs. GH¢609.50) more than offsets the higher output VAT rate.”
It noted that 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 Authority stated that under the new regime, traders simply enter the VAT input they paid on purchases alongside the output they charged on sales, and remit only the difference to the GRA.
The deduction happens automatically as traders file their returns, it emphasised.
Market Distortion
In addition, the GRA denied fears that the increase in the VAT registration threshold will lead to price and market distortions, saying a non-registered trader still pays 20% VAT on every purchase but cannot claim any of it back.
“VAT is permanently embedded in their cost. By contrast, a registered trader claims back all input VAT and builds pricing on a lower cost base. Using the same GH$500 item with a 20% profit margin: a non-registered trader bears a cost of GH$600, adds a 20% margin of GHф120, and sells at GHф720 (with no output VAT).
“A registered trader, on the other hand, bears a cost of GHф500, adds a 20% margin of GHф100, and sells at GHф720 (GHф600 plus GHф120 output VAT). The final price to the customer is identical: GH¢720,” it explained.
It noted that the threshold has always been a feature of Ghana’s VAT system, adding that its increase to GH¢750,000 is a deliberate relief measure to free smaller traders from the administrative burden of VAT registration and filing.
“It does not create a meaningful competitive distortion,” the Authority affirmed.
Benefits of New VAT Regime to Businesses
* Lower effective tax rate. The overall rate has been reduced from 21.9% to 20%, saving 1.9 percent on every transaction.
* Abolition of the COVID-19 Health Recovery Levy. The 1% COVID-19 has been permanently removed, reducing the cost burden on both businesses and consumers.
* Full input VAT deductibility. VAT-registered businesses can claim back the entire 20% input VAT, including the NHIL and GETFund levies, which were previously non-deductible.
* Elimination of cascading taxes. The old system charged levies on top of other levies, creating a tax-on-tax effect. The new regime calculates VAT, NHIL, and GETFund on the same base, removing this hidden cost escalation.
*Reduced cost of doing business. With input VAT no longer forming part of the cost base, businesses operate on lower costs. Using the GHф500 example, the trader’s cost drops from GHф609.50 under the old system to GHф500 under the new system – a reduction of nearly 18%.
*Simplified and unified structure. The abolition of the flat rate scheme means one transparent system for all VAT-registered taxpayers, therefore improving compliance. A higher registration threshold. Small traders with annual turnover below GHф750,0 are freed from VAT obligations entirely, reducing their administrative costs.
*Frictionless input VAT recovery. Claiming back input VAT is built into the existing reporting process. Traders declare input and output VAT on the same return form that they have always used, retain the input VAT, and remit only the net amount.
Technical Team Support
To ensure proper application of the regime, the Authority said it has established a joint technical team with the Ghana Union of Traders Associations (GUTA) to support businesses through this transition.
The team will assist businesses with practical guidance on VAT record-keeping, input tax claims, and correct pricing.
“The GRA stands ready to extend this support to the Abossey Okai Spare Parts Traders Association and any other trade group for assistance.”
It comes after the Abossey Okai Spare Parts Traders Association raised concerns about the new Value Added Tax regime under the Value Added Tax Act, 2025(Act 1151).
Story by Hajara Fuseini
Click to read more: https://opemsuo.com/author/hajara-fuseini/
