VAT reforms ease burden on small businesses

Small businesses across the country are benefiting from significant tax relief following the increase in the Value Added Tax (VAT) registration threshold from GH¢200,000 to GH¢750,000 under the new VAT reforms. 

The change means that thousands of traders who previously fell within the VAT net will no longer be required to register for or charge VAT, easing their compliance burden.

In addition, the abolition of the flat rate system removes the automatic three per cent VAT charge that applied to some small businesses, further reducing operating costs. 

It follows the implementation of the new Value Added Tax Act, 2025 (Act 1151), which took effect on January 1 this year.

In an interview with the Daily Graphic in Accra, the acting Commissioner of the Domestic Tax Division at the Ghana Revenue Authority (GRA), Dr Martin Kolbil Yamborigya, stated that the reforms were designed to support small enterprises and simplify tax administration. 

“If your turnover is not up to GH¢750,000, you will not be required to charge VAT at all, which automatically translates into lower prices and relief for small businesses,” he said.

Informal businesses

Dr Yamborigya explained that raising the VAT registration threshold was a deliberate policy choice to protect micro and small enterprises that had struggled under the previous regime.

He said many traders with annual turnovers below GH¢200,000 were previously compelled to register for VAT even though their scale of operations made compliance costly and burdensome. 

Dr Yamborigya said this change was expected to lower prices at the retail level and improve the competitiveness of small traders, particularly those operating in local markets.

“If your turnover is below GH¢750,000, you are no longer required to register for VAT, and that means you don’t have to charge VAT at all,” he said.

He added that the measure would give small businesses breathing space to grow before being brought into the formal VAT system.

Abolition of flat rate

The acting commissioner said the reforms also abolished the VAT flat rate system, which previously applied to businesses with turnovers between GH¢200,000 and GH¢500,000.

Under that system, traders were required to charge a flat VAT rate of three per cent, plus the now-abolished COVID-19 Levy, resulting in higher prices for consumers. 

Dr Yamborigya, however, explained that with the flat rate removed, businesses that fell below the new threshold would no longer charge VAT at all, automatically translating into price reductions of up to four per cent.

For sole proprietors and individuals, he said the GRA was migrating them onto a modified taxation system that required the payment of a simple three per cent turnover tax instead of the complex income tax calculations.

“Under the modified system, you don’t need to prepare profit and loss accounts; you simply pay three per cent of your turnover, and that covers your tax obligation,” Dr Yamborigya said.

He said the approach was a major step towards easing compliance for traders in the informal sector.

Boosting compliance

Dr Yamborigya expressed confidence that the reforms would improve voluntary compliance and reduce tax avoidance, which had been fuelled in the past by the cascading effect of multiple levies.

He said when taxes were perceived as punitive, businesses often devised ways to avoid them, but a simpler and fairer system encouraged cooperation.

By taking small businesses out of the VAT net and allowing larger firms to claim levies as input tax, he said, the new regime would strike a balance between revenue mobilisation and business sustainability.

He emphasised that reduced prices could stimulate demand, resulting in higher sales volumes for traders and, ultimately, stronger economic activity.

“When prices go down, demand is likely to go up, and that is good for both businesses and the economy,” he said.

Dr Yamborigya added that the GRA would continue with education and stakeholder engagement to ensure that traders and consumers fully understood the benefits and obligations under the new VAT law.