New VAT Regime Will Reduce Prices, Not Increase Them — GRA
The Ghana Revenue Authority (GRA) has dismissed concerns that the newly implemented 2025 Value Added Tax (VAT) regime will trigger price hikes in the spare parts market, insisting that the changes will rather lower costs for consumers if properly applied.
The clarification follows protests by the Abossey Okai Spare Parts Dealers Association over the transition from the 4 per cent Flat Rate Scheme to the 20 per cent Standard VAT Rate under Act 1151. The traders argued that the higher headline rate would increase their tax burden and ultimately push up prices of car parts.
However, the GRA maintains that the new system removes embedded costs that previously inflated prices.
Under the former 4 per cent Flat Rate Scheme, traders paid VAT on their purchases but were unable to reclaim it. According to the Authority, this created a “hidden” tax component of approximately 21.9 per cent within the cost of goods, a cost that was ultimately passed on to consumers.
Under the new Standard Rate regime, although VAT on sales is charged at 20 per cent, traders can now claim back all input VAT paid on their stock. The GRA argues that this shifts VAT from being an unrecoverable expense to a refundable charge.
Using a sample item priced at GH¢500, the Authority demonstrated that when input VAT is properly reclaimed and factored into pricing, the final cost to the consumer should reduce. It stressed that any current increases in prices may stem from “pricing errors”, where traders fail to remove the old embedded tax costs before applying the new VAT rate.
The Abossey Okai dealers also expressed fears that businesses below the VAT registration threshold, currently set at GH¢750,000 in annual turnover, could gain an unfair competitive advantage over larger VAT-registered firms.
The GRA rejected this assertion, explaining that while smaller, non-registered businesses do not charge VAT, they also cannot reclaim input VAT on their purchases. Larger, registered businesses, on the other hand, are able to recover their input VAT, resulting in the same effective final price to consumers when calculations are correctly done.
The Authority emphasised that the revised threshold is intended to ease administrative and compliance burdens for small businesses, not to distort pricing within the market.
Beyond the spare parts sector, the GRA highlighted broader benefits under the new VAT regime. The 1 per cent COVID-19 Health Recovery Levy has been permanently abolished. Additionally, the previous system, which applied certain levies on top of others, has been scrapped in favour of what the Authority describes as a flatter and more transparent structure.
The GRA estimates that for a typical trader, the cost of holding stock could fall by as much as 18 per cent because VAT is no longer treated as a business expense but as a recoverable input.
Acknowledging that the shift represents a significant adjustment for businesses, the GRA said it has established a technical working team in collaboration with the Ghana Union of Traders’ Associations (GUTA) to support traders through the transition.
The team is expected to guide businesses on proper record-keeping, filing input VAT claims, and setting accurate prices under the new regime.
The Authority has also extended an invitation to the leadership of the Abossey Okai association to engage further on the reforms, encouraging traders to adapt to what it described as a more transparent, data-driven tax system.
As implementation continues, the GRA insists that the success of the new VAT framework will depend largely on compliance, accurate pricing and improved understanding among businesses and consumers alike.
