The Ghana Revenue Authority (GRA) has moved to calm nerves and correct what it describes as a “fundamental misunderstanding” regarding the newly implemented Value Added Tax (VAT) Act, 2025 (Act 1151).
Responding to concerns raised by the Abossey Okai Spare Parts Traders Association, the Authority has released a detailed breakdown proving that the transition from the 4% Flat Rate to the 20% Standard Rate will actually lower consumer prices and reduce the cost of doing business, provided traders price their goods correctly.
The “Pricing Error” Behind Rising Costs
According to the GRA, the current spike in some market prices is not caused by the law itself, but by a “transitional pricing error.” Many traders are mistakenly applying the new 20% VAT on top of old prices that still include non-deductible taxes.
Under the old 4% Flat Rate system, traders were hit with a hidden 21.9% input tax on their purchases which they could not claim back. This forced them to pass that cost onto consumers. Under the new regime, the 20% VAT paid by a trader at the port or from a supplier is fully deductible. This means the trader gets that money back from the GRA, effectively lowering their actual cost of goods.
The Math: How 20% is Better Than 4%
The Authority provided a striking illustration using a GH¢500 item:
Under the Old System: The trader’s actual cost jumped to GH¢609.50 because they couldn’t claim back the 21.9% input tax. After adding profit and the 4% flat tax, the customer paid GH¢760.66.
Under the New System: The trader’s cost remains at GH¢500 because the 20% input tax is refunded. Even after adding the same profit and a higher 20% output tax, the final price to the customer is GH¢720.00.
In this scenario, the consumer saves over GH¢40, while the trader’s cost of doing business drops by nearly 18%.
Leveling the Playing Field
The GRA also addressed fears that increasing the VAT registration threshold to GH¢750,000 would disadvantage smaller traders. The Authority explained that whether a trader is registered for VAT or not, the final price to the consumer remains identical.
While a non-registered trader doesn’t charge VAT on the final sale, they also cannot claim back the VAT they paid on their purchases. This “embedded tax” balances out the price against registered traders who charge VAT but build their pricing on a much lower cost base. The higher threshold is simply a relief measure to save small businesses from the paperwork of monthly filings.
A Leaner, Greener Tax Structure
Beyond lower prices, the GRA highlighted several key benefits of the 2025 reforms:
Permanent Removal of the COVID-19 Levy: The 1% health levy has been abolished.
End of “Tax-on-Tax”: The new regime eliminates cascading taxes, where levies were previously calculated on top of other levies.
Simplified Compliance: One unified system replaces the confusing mix of flat rates and standard rates.
Support for Traders
To ensure the benefits reach the pockets of Ghanaians, the GRA has partnered with the Ghana Union of Traders’ Associations (GUTA) to form a technical team. This team is tasked with teaching traders how to properly adjust their pricing and file for their VAT refunds.
The Authority urged the Abossey Okai traders and other groups to engage with these support systems rather than raising prices based on a misunderstanding of the law. The message from the GRA is clear: the new VAT regime is a win for both the merchant’s bottom line and the consumer’s wallet.
Source: Felix Nyaaba/expressnewsghana.com