There is a heated controversy over the impact of the new Value Added Tax (VAT) reforms on small and medium businesses spearheaded by the Ghana Union of Traders Association (GUTA).
The president of GUTA, Joseph Obeng, is warning that the changes could push small businesses to the brink.
But a closer look at the numbers by IMANI Africa tells a very different story, suggesting that the fear may be far from the reality.
The concern of GUTA largely centers on the argument that the reforms will push the rate from a simple 4% to 20% “overnight.” To many shop owners and customers, that sounds frightening.
But according to IMANI’s analysis authored by Sitsofe Mensah, a technology policy enthusiast and a writer for the IMANI Centre for Science, Technology and Innovation Policy (CSTI), the worry may rest on a misunderstanding of how the old system truly worked.
IMANI’s research shows that traders have actually been carrying a heavier tax load all along, one that was simply hidden inside the price of goods. Under the old flat rate system, the 4% charged at the counter looked low and friendly, but in reality, traders had already paid several layers of taxes, adding up to more than 20%, long before the goods ever reached their shops.
And because they couldn’t claim those port taxes back, they quietly folded the cost into the final price customers paid.
To put it plainly, customers were paying more than they realized, and traders were stuck absorbing costs they had no way of recovering.
“Under the Flat Rate Scheme (VFRS), a trader charged you 4% at the counter. But before the goods reached the shop, the trader paid roughly 22% in import taxes and levies at the port. Crucially, they could not claim this 22% back. It was a “sunk cost” that they quietly added to the price of the product before adding their profit margin,” the analysis explained.
The new VAT system attempts to fix that. Instead of those hidden charges, every business now works with a single 20% rate, and, importantly, traders can claim back the VAT they pay at the port.
That means the cost they used to hide in their prices disappears. The tax becomes a transparent part of the shopping experience, not an invisible burden. Sistofe further argues that this is actually a win for both traders and buyers.
“Under the 2026 proposal, the trader pays 20% at the port but claims it back as an input tax credit. They then charge you 20% at the counter. Because they get their port money back, they don’t need to bury that cost in the product price,” it added.
For small businesses, the reform removes the “blocked taxes” that chipped away at their profits. For shoppers, it ends the quiet inflation caused by layered taxes. And with the VAT threshold now set at GH¢750,000, many micro-businesses will not even charge VAT at all.
Based on the analysis, the think tank concludes that while the number “20%” may look big on a receipt, the actual cost on the ground goes down, not up. What traders once paid in hidden taxes plus the 4% at the counter added up to a much heavier burden than the proposed system.
Sistofe maintains that, “While the visible tax rate on the receipt jumps, the total tax burden on the product actually drops from an effective ~26% to 20%.”
And with the COVID levy gone and over GH¢5 billion in tax relief flowing back into the economy, IMANI believes the reform could leave more breathing room, not less, for businesses hoping to grow.
