The Ghana Revenue Authority (GRA) has pushed back against concerns raised by the Abossey Okai Spare Parts Traders Association over the newly introduced Value Added Tax (VAT) regime, insisting that the reform will lower costs for businesses and not lead to higher consumer prices.

In a statement issued by its Communication and Public Affairs Department, the Authority said claims that the new system would increase prices, distort market competition, and unfairly burden spare parts dealers stem from “a fundamental misunderstanding” of how the VAT structure works.

The concerns follow the implementation of the Value Added Tax Act, 2025 (Act 1151), which replaces the 4 per cent flat rate scheme with a standard 20 per cent VAT regime that allows full input tax deductions.

According to the GRA, traders under the previous flat rate system paid an effective 21.9 per cent input VAT on purchases, which could not be reclaimed, thereby increasing their cost base.

Under the new regime, however, the 20 per cent input VAT is fully deductible, allowing traders to claim it back when filing returns.

Using an illustration of a GHS500 item with a 20 per cent profit margin, the Authority explained that a trader’s actual cost under the old system would rise to GHS609.50 due to non-deductible VAT, resulting in a final consumer price of GHS760.66.

Under the new system, the trader’s cost remains GHS500 because the VAT is deductible, leading to a lower final price of GHS720 — a difference of GHS40.66 in favour of consumers.

“The appearance of higher prices is the result of traders applying the new 20 per cent output VAT on top of a cost base that still includes non-deductible input VAT,” the statement said.

The Authority also dismissed arguments that the increase in the VAT registration threshold would distort competition.

It explained that unregistered traders still pay VAT on their purchases but cannot reclaim it, while registered traders benefit from deductions and therefore operate on a lower cost base.

Both, however, could arrive at the same final selling price.

The registration threshold has been raised to GHS750,000 in annual turnover to relieve smaller traders from administrative burdens associated with VAT filing.

The GRA listed several advantages of the new system, including:

A reduction in the overall effective tax rate from 21.9 per cent to 20 per cent

Permanent removal of the 1 per cent COVID-19 Health Recovery Levy

Full deductibility of input VAT, including NHIL and GETFund levies

Elimination of cascading “tax-on-tax” charges

Lower operating costs for businesses

A simplified, unified VAT structure

Easier and automated input VAT recovery through existing filing processes

The Authority said the reforms would reduce the cost of doing business and improve compliance across the tax system.

To ease the transition, the GRA disclosed that it has set up a joint technical team with the Ghana Union of Traders’ Associations (GUTA) to provide guidance on VAT record-keeping, input claims, and correct pricing.

It added that similar support would be extended to the Abossey Okai Spare Parts Dealers 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 stressed.

The Authority urged stakeholders to engage constructively and take advantage of the benefits offered by the reform.