Ghana’s New VAT Regime Explained: What the 20% VAT Means for Businesses and Consumers

The implementation of Ghana’s Value Added Tax Act, 2025 (Act 1151), effective January 1, 2026, has sparked widespread public discussion—especially around invoices now showing a 20% tax charge, compared to the familiar 4% many consumers were used to seeing.

For business owners, customers, and professionals alike, a key question keeps coming up:

Has VAT in Ghana really increased, or does it just look that way?

At CETECH Ghana, we work closely with manufacturers, retailers, contractors, and institutional clients across the country. We see first-hand how tax policy affects pricing, compliance, and consumer confidence. This article explains the new VAT system in clear, practical terms and separates perception from economic reality.

Why Ghana Reformed Its VAT System

VAT is one of Ghana’s most important revenue sources. It funds healthcare, education, infrastructure, and other essential public services. However, for years, parts of the VAT system—especially the VAT Flat Rate Scheme (VFRS)—created unintended problems:

• Hidden taxes embedded in prices
• Unfair competition between compliant and non-compliant businesses
• Limited input tax recovery
• Confusion for consumers about what they were really paying

The new VAT Act was designed to address these structural weaknesses, not to raise tax rates.

Yet the visible 20% VAT on invoices has understandably caused concern.

Key Changes Under the VAT Act, 2025 (Act 1151)

The new law introduces several important reforms that businesses and consumers should understand clearly.

1. Abolition of the VAT Flat Rate Scheme

The VFRS—under which many traders charged 3% VAT without claiming input VAT—has been abolished.

2. Removal of the 1% COVID-19 Health Recovery Levy

The pandemic-era levy has been completely removed.

3. VAT Rate Remains at 15%

The core VAT rate has not increased.

4. NHIL and GETFund Levies Remain

• National Health Insurance Levy (NHIL): 2.5%
• GETFund Levy: 2.5%

These levies were always part of Ghana’s indirect tax structure.

5. Recoupling of VAT, NHIL, and GETFund

All three components are now treated as creditable input taxes, rather than separate, unrecoverable charges.

6. Full Input Tax Credit System

Registered VAT businesses can now recover:

• VAT
• NHIL
• GETFund

This is a major improvement in how tax costs flow through the economy.

7. Higher VAT Registration Threshold

The compulsory registration threshold has increased from GH₵200,000 to GH₵750,000, easing compliance for small and micro enterprises.

How the Old Flat Rate System Really Worked

Under the previous system:

• Goods were charged 3% VAT
• COVID levy added 1%
• Total visible tax: 4%

However, businesses under the flat rate scheme could not reclaim VAT paid on their inputs—including fuel, utilities, rent, transport, packaging, and imports.

The Hidden Problem: Tax Cascading

Because input VAT was unrecoverable:

• Taxes became part of the cost base
• Prices increased quietly
• VAT was charged on top of VAT

This meant consumers were already paying more tax than the invoice showed, but they could not see it.

The 4% figure looked low—but it understated the true tax burden.

How the New VAT System Works

Under Act 1151, Ghana now operates a standard, globally recognised VAT system.

Why Invoices Now Show 20%

Invoices display:

• VAT: 15%
• NHIL: 2.5%
• GETFund: 2.5%

Total: 20%

This does not mean taxes have suddenly increased. It means they are now transparent and creditable.

Input Tax Credits: The Key Difference

Businesses deduct taxes paid on inputs from taxes charged on sales. They remit only the net amount to the Ghana Revenue Authority.

Only Value Added Is Taxed

Each business is taxed only on the value it adds—not on the full selling price.

Cascading Taxes Are Eliminated

This is the most important economic improvement under the new system.

Did VAT Actually Increase?

The Short Answer

• Visibly: Yes, invoices now show a higher rate.
• Economically: For most transactions, the real tax burden has not increased.

A Simple Illustration

Old System

• Cost of goods (with hidden taxes): GH₵100
• VAT + COVID levy (4%): GH₵4
• Final price: GH₵104

But that GH₵100 already contained unrecoverable VAT.

New System

• Cost of goods (without hidden taxes): GH₵85
• VAT + NHIL + GETFund (20%): GH₵17
• Final price: GH₵102

The tax looks higher, but the final price can be lower because inefficiencies have been removed.

Who Benefits from the New VAT Structure?

VAT-Registered Businesses

• Full recovery of input taxes
• Improved pricing accuracy
• Fairer competition

Consumers

• Greater transparency
• Reduced hidden taxes
• More stable long-term pricing

Small Businesses

• Many are now outside the VAT net
• Lower compliance costs
• Simpler operations

The Economy as a Whole

• Broader tax base
• Reduced tax avoidance
• Improved revenue efficiency

Why Prices May Still Feel Higher in the Short Term

Despite the economic logic, perception matters.

Prices may feel higher because of:

• Initial price adjustments by businesses
• Compliance learning curves
• Margin corrections previously masked by flat rates
• Opportunistic price increases wrongly blamed on VAT

This is why public education and responsible business practices are essential during the transition.

CETECH Ghana’s Perspective

At CETECH Ghana, we believe strong economies are built on transparent systems, informed stakeholders, and responsible implementation.

Tax reform works best when:

• Businesses understand how to apply it correctly
• Consumers understand what they are paying for
• Policymakers communicate clearly
• Industry players act ethically

The new VAT regime, while imperfect like any reform, is a step toward a fairer and more efficient tax system—one that rewards compliance and removes hidden distortions from pricing.

Final Thoughts

The shift from a 4% flat rate to a 20% visible VAT is not a tax shock—it is a structural correction.

Ghana has moved from a low-visibility, inefficient system to one that is transparent, creditable, and aligned with global best practice.

As the system stabilizes, the benefits—fair pricing, reduced hidden taxes, and improved economic efficiency—will become clearer.

For businesses and consumers alike, understanding the reform is the first step to making it work.

CETECH Ghana remains committed to clarity, compliance, and contributing positively to Ghana’s economic development.