After back and forth and agitation by the business community, Ghana’s Value Added Tax (VAT) system is undergoing a total overhaul in response to the concerns of the various stakeholders.
Finance Minister, Dr. Cassiel Ato Forson, in presenting the 2026 Budget to parliament, announced that the rules have been rewritten. This means that upon the approval by parliament, the business community and consumers are going to experience a different VAT regime starting January 1, 2026.
Among a number of the reforms introduced are the abolition of the COVID-19 Health Recovery Levy, a new annual turnover threshold for charging VAT at GHC750,000, and others.
The question many Ghanaians are asking following the new reforms is how these new changes affect consumers and businesses.
IMANI CSTI’s Sitsofe Mensah breaks down how the reforms reshape incentives, prices, and business behaviour. Here’s what it means for those at the heart of the economy.
For Consumers: Prices May Fall, But Dependent on the Behaviour of Traders
IMANI’s Sistofe Mensah observes that for everyday shoppers, the reforms should, in theory, bring some relief. He notes that by removing the COVID levy and allowing businesses to reclaim NHIL and GETFund components, the government has eliminated the old “tax on tax” structure that quietly pushed prices upward. This means the cost of standard goods should either drop or at least stop rising as quickly.
However, he was quick to add that the relief is not automatic. There is a real risk that some traders will take advantage of the new 20% VAT system without adjusting their base prices to reflect the tax credits now available to them.
If they pocket the difference instead of passing it on, consumers could end up paying even more. He therefore cautions that consumer vigilance will be very crucial in this situation. It will be very important for shoppers to compare prices, question steep increases, and demand receipts.
“If traders migrate to the 20% system but don’t lower their base prices to reflect the input tax credits they are receiving, prices will spike. Consumer vigilance is key,” he noted.
For Small Businesses: Less Stress, but a Risk of Losing Big Clients
The analysis observes that for small businesses making below GH¢750,000 a year, the new framework brings welcome simplicity. Instead of filing complicated VAT returns, many will now fall under a straightforward 3% turnover tax or corporate tax. This means there are no long forms, no difficult reconciliations, no monthly stress.
But this relief comes with a risk. Small businesses under this regime cannot issue VAT invoices. For individuals, this is no big deal. But for large corporations, who depend on VAT invoices to claim refunds, it becomes a dealbreaker and therefore might look for a different seller that issues the invoice.
Sistofe observed that, “Large corporate clients who need to claim VAT refunds may stop buying from you because your receipts are not VATable.”
This means small firms may lose big corporate customers who will now prefer to buy from VAT-registered suppliers. A stationery shop, bakery, or printing press that relies on institutional clients could feel the pinch.
For Medium-Sized Businesses: The “Split Market” Danger Ahead
Sistofe indicates that the reform might not be good news for businesses in this category. He says medium businesses earning above GH¢750,000 face the sharpest pressure. They must charge the full 20% VAT.
However, their neighbour selling GH¢700,000 doesn’t charge VAT at all. This creates what GUTA has warned as a “Split Market”, a situation where two businesses selling the exact same product have wildly different price tags purely because of tax rules.
Customers who are price-sensitive will naturally drift toward the cheaper, non-VAT shop. This puts VAT-registered businesses at a competitive disadvantage and creates a strong temptation to under-declare sales just to fall below the GH¢750,000 “cliff edge.”
Should this situation be unchecked, it could encourage tax evasion and distort competition, punishing those who choose to comply with the law.
“This group faces the ‘Split Market’ distortion GUTA warned about. A shop selling GH¢800,000 a year must charge 20% VAT. The shop next door selling GH¢700,000 charges 0% VAT,” the analysis noted.
It added, “Price-sensitive customers may abandon the VAT-registered shop, creating a powerful incentive for the larger shop to under-declare sales and hide from the taxman.
The Bottomline
The government’s objective is to move from a confusing “cascading” tax system to a simpler, more neutral VAT structure. Sistofe Mensah admits that for honest businesses, the long-term cost of operations should fall. And for the country, transparency and efficiency should improve.
However, transitions always come with friction. To prevent the market from splitting into the “taxed and untaxed,” the government will need strong enforcement, active monitoring, and clear communication.
