Understanding the New VAT Structure in Ghana: Reduced Burden from 2026

Introduction

The Ghana Revenue Authority (GRA) has announced significant changes to the Value Added Tax (VAT) regime, set to take effect on January 1, 2026. Contrary to public fears of increased taxation, these reforms are designed to simplify the tax system and, crucially, lower the effective VAT rate paid by consumers and businesses. Spearheaded by Dr. Martin Kolbil Yamborigya, Commissioner for the Domestic Tax Revenue Division, the new legislation—Value Added Tax Act, 2025 (Act 1151)—promises a more transparent and equitable tax environment. This article provides a comprehensive analysis of these changes, explaining how the decoupling of levies translates to actual savings for taxpayers and what businesses need to do to prepare.

Key Points

Background

Historically, the VAT calculation in Ghana involved a “tax stacking” mechanism where the GETFund Levy (2.5%) and the National Health Insurance Levy (NHIL) (2.5%) were applied cumulatively before the standard VAT rate was calculated. This created an effective tax rate that was higher than the statutory 15% VAT. For example, the previous method meant that the base for VAT included these levies, leading to a higher final cost for the consumer.

The Ghana Revenue Authority (GRA) recognized that this complexity often confused taxpayers and contributed to the perception of an excessive tax burden. Following the passage of the Value Added Tax Act, 2025 (Act 1151), the Authority issued a public notice confirming the timeline for these changes. The delay in implementation from the act’s passage to its enforcement is a strategic move to ensure that businesses—from small retailers to large corporations—can update their point-of-sale systems and accounting software to reflect the new tax calculation methods.

Analysis

The core of the reform lies in the decoupling of the tax base. Dr. Martin Kolbil Yamborigya clarified this shift in an interview with Joy Business, emphasizing that the change restores a previous, more favorable calculation method.

How the Calculation Changes

To understand the financial impact, one must look at the math. Under the old regime, if a taxable supply was valued at GH¢100, the calculation was complex. The levies were added to the base, and VAT was calculated on that increased amount.

Under the revised VAT construction, the calculation is linear and transparent. Dr. Yamborigya illustrated this using a GH¢100 taxable base:

1. GETFund Levy (2.5%): Calculated on GH¢100.
2. NHIL (2.5%): Calculated on GH¢100.
3. VAT (15%): Calculated on GH¢100.

The total tax charged to the consumer is the sum of these three components. By removing the compounding effect where VAT was effectively charged on the levies, the effective VAT rate drops.

Impact on Taxpayers

Dr. Yamborigya stated, “What it implies is that the effective VAT rate will be lower than what it used to be. Taxpayers generally will be paying less than what they previously paid.” This move is significant for taxpayer compliance. When taxpayers perceive the system as fair and the burden as manageable, voluntary compliance tends to increase. This aligns with the GRA’s broader goals of improving tax efficiency and revenue generation without necessarily increasing rates.

Practical Advice

With the January 2026 implementation date set, businesses in Ghana must take proactive steps to align with the new legislation.

For Businesses and Accountants

1. Update Accounting Software: The most immediate action is to reconfigure accounting and billing systems. Software must be programmed to calculate GETFund, NHIL, and VAT separately based on the original taxable amount, rather than cumulatively.

2. Review Pricing Strategies: While the tax burden decreases, businesses should review their pricing models. The reduction in tax liability offers an opportunity to either lower consumer prices to gain a competitive edge or retain margins to improve profitability.

3. Staff Training: Finance teams and customer service representatives should be trained on the specifics of the Value Added Tax Act, 2025. They must be able to explain the tax breakdown on invoices to customers if required.

For Small Enterprises

The increase in the VAT registration threshold from GH¢200,000 to GH¢750,000 is a major relief for small businesses. Enterprises with turnover below this new limit are not required to register for VAT, reducing their administrative burden significantly. However, they must monitor their turnover closely to ensure compliance if they approach the threshold.

FAQ

Conclusion

The revision of the VAT structure in Ghana represents a positive shift toward tax simplification and fairness. By decoupling the GETFund and NHIL levies from the VAT base, the GRA is effectively lowering the tax burden on consumers while streamlining compliance for businesses. As the January 1, 2026, deadline approaches, the emphasis is on preparation. Understanding these changes is not just about regulatory compliance; it is about financial optimization for businesses and cost savings for the general public.

Sources

• Life Pulse Daily: Taxpayers to pay much less beneath revised VAT construction from 2026 — GRA (Published: 2025-12-31).
• Ghana Revenue Authority (GRA): Public Notice on Value Added Tax Act, 2025 (Act 1151).
• Interview with Dr. Martin Kolbil Yamborigya, Commissioner for Domestic Tax Revenue Division.