The Abossey Okai Spare Parts Dealers Association has called on the government to review the newly implemented Value Added Tax (VAT) regime under the Value Added Tax Act, 2025 (Act 1151), warning that the policy is hurting competitiveness, distorting prices and weakening compliance within the spare parts trade.

The Association says it may embark on a one-week strike if authorities fail to address its concerns over the effective VAT rate, which has risen from about four per cent under the previous arrangement to 20 per cent.

In a press statement issued on February 8, and signed by the Head of Communications of the Association, Takyi Addo, the dealers said the sharp increase has significantly altered pricing dynamics and placed a heavy burden on both traders and consumers.

To illustrate the impact, the Association noted that an item that previously sold for GHS 500 attracted GHS 20 in VAT, bringing the total price to GHS520.

Under the current regime, the same item now attracts GHS100 in VAT, pushing the final price to GHS600 — an additional GHS80 cost to consumers for the same product.

According to the group, this steep increase is driving customers toward informal sellers who do not charge VAT, thereby undermining compliant businesses and reducing overall tax collection.

The Association also raised concerns about what it described as unequal treatment among dealers who source goods locally from the same importers.

It explained that while some traders are required to register for VAT and charge 20 per cent due to higher annual turnover, others below the GHS750,000 threshold are not required to register and therefore sell the same products without VAT.

This, the dealers say, creates a structural imbalance that penalises growing and compliant businesses.

“A VAT-registered dealer who buys locally cannot claim input VAT but is still required to add 20 per cent at the point of sale, making his products more expensive than those of a non-registered competitor,” the statement said.

“This discourages growth, efficiency and compliance, while unintentionally rewarding informality.”

The Association warned that the current system has increased incentives for businesses to remain below the VAT registration threshold, discouraged formalisation and expansion, and reduced overall compliance within the sector.

While expressing support for the government’s efforts to broaden the tax base and strengthen revenue mobilisation, the group argued that the 20 per cent rate is too high for the spare parts trade, which typically operates on thin profit margins.

As a solution, the dealers proposed either a reduced VAT rate of between five and eight per cent for spare parts businesses or the introduction of a sector-specific simplified VAT scheme with a flat rate of about three per cent, applied uniformly regardless of whether goods are imported directly or sourced locally.

They believe such measures would restore fairness, encourage voluntary compliance, protect jobs, and ultimately increase net government revenue by reducing tax leakages.

The Association said it remains open to dialogue with authorities but cautioned that failure to review the VAT structure could lead to a one-week industrial action.