Abossey Okai Spare Parts Dealers call for review of 20% VAT hike
The Abossey Okai Spare Parts Dealers Association has appealed to the government to reduce the recently increased 20 per cent Value Added Tax (VAT) on spare parts to between five and eight per cent, warning that failure to do so could trigger a one-week strike action.
The Association said the VAT hike —from 4 per cent to 20 per cent—poses a serious threat to the survival of its members’ businesses and will significantly increase the cost of spare parts to consumers.
In a press statement issued in Accra on Monday, the Communications Officer of the Association, Mr Takyie Addo, warned that dealers would embark on strike action if the government failed to review the tax rate.
He lamented that the 20 per cent VAT would severely disrupt operations within the spare parts trade, describing the sector as highly competitive and characterised by low profit margins.
"Under the previous VAT arrangement, spare parts dealers effectively operated within a lower VAT framework of four percent (4 per cent), which allowed prices to remain relatively competitive while maintaining compliance. Under the current regime, however, the effective VAT charge on taxable supplies has increased to twenty percent (20%), significantly altering pricing dynamics within the market."
According to Mr Addo, the tax increase would lead to sharp price hikes, making spare parts unaffordable for many consumers and negatively affecting the transport sector.
He cited an example where a spare part that sold for GH¢520 under the four per cent VAT regime would now sell for about GH¢600 under the current tax structure, placing an additional GH¢80 burden on consumers.
Mr Addo expressed concern about the practical impact of the new VAT regime under the Value Added Tax Act, 2025 (Act 1151), particularly with respect to fairness, competitiveness and voluntary compliance in the spare parts sector.
He explained that under the previous system, dealers operated under a lower effective VAT framework, which allowed prices to remain relatively competitive while ensuring compliance.
However, he noted that the jump to an effective 20 per cent VAT had significantly altered market dynamics and increased the cost of doing business.
Mr Addo further explained that while some dealers import spare parts directly and are able to claim import VAT credits, others source their goods locally from importers and are unable to claim input VAT.
"This imbalance penalizes growth, efficiency, and compliance, while unintentionally rewarding fragmentation and informality."
"We therefore propose either a reduced VAT rate for spare parts dealers in the range of five to eight percent (5 per cent-8 per cent), or the introduction of a sector-specific simplified VAT scheme applied uniformly at a flat rate of about three percent (3 per cent), regardless of whether goods are imported directly or sourced locally."
Despite this, VAT-registered dealers sourcing locally are still required to charge the full 20 per cent VAT at the point of sale.
He pointed out that this situation has created a structural imbalance in the market, forcing VAT-registered dealers to sell at higher prices than non-registered dealers whose annual turnover falls below the GH¢750,000 VAT registration threshold.
According to him, this unfairly penalises compliant and growing businesses while encouraging fragmentation and informality within the sector.
The Association warned that the current VAT structure could reduce compliance, discourage business expansion and push consumers towards non-VAT-charging sellers.
While reaffirming its support for the government’s efforts to broaden the tax base, the Association described the current VAT rate as excessively high for the spare parts trade.
It therefore proposed either a reduced VAT rate of five to eight per cent for spare parts dealers or the introduction of a simplified, sector-specific VAT scheme with a flat rate of about three per cent to ensure fairness, competitiveness and sustainability in the industry.
"While government seeks to support small businesses to grow, it is equally important that larger and more compliant businesses are not disadvantaged or pushed out of the market."
"We respectfully request a review of the VAT rate and structure as applied to the spare parts sector and remain open to further engagement on this matter."
