A storm is brewing in Ghana's retail market. The Ghana Union of Traders’ Associations (GUTA) is sounding the alarm, warning that the government's proposed value-added tax (VAT) restructuring could wreak havoc on the market and undermine efforts to ensure tax compliance. But why the strong reaction? Let's dive in.
Joseph Obeng, the GUTA president, speaking on the Asaase Breakfast Show, didn't mince words after the 2026 Budget presentation. He directly challenged the idea that traders would automatically lower prices due to the VAT changes. Instead, he painted a picture of potential unfair competition and a decline in tax compliance.
The core of the issue lies in the shift from a 4% flat rate to a standard 20% VAT. This change, coupled with adjustments to the exemption threshold, is where the problems begin. The government has raised the threshold from 200,000 Ghana cedis to 750,000 cedis in annual turnover, according to Dr. Obeng.
And this is the part most people miss... This means some traders in the same market could be exempt from VAT, while others are forced to charge the full 20%. Dr. Obeng argues that such a system creates discriminatory tax treatment, where sellers of the same goods in the same area face different tax burdens. This, he believes, is inherently unfair.
Naturally, consumers, being savvy shoppers, will gravitate towards VAT-exempt traders to get the best deals. This puts VAT-registered sellers at a disadvantage, making it difficult for them to compete. As Dr. Obeng pointed out, consumers will simply go where they can save money, leaving those who must charge VAT to lose customers.
Dr. Obeng also suggested a bolder approach. He argued that the government should have implemented a modified tax system universally across the informal sector instead of creating a split market. In this split market, some traders would pay a 30% turnover tax at year-end, while others would be subject to the full VAT regime.
But here's where it gets controversial... The new threshold also risks incentivizing under-reporting. Consider this: a person selling 2,500 cedis daily must pay VAT, while someone selling 2,200 cedis is exempt. This creates a tempting scenario for traders to manipulate their figures to stay below the threshold, making compliance nearly impossible.
Furthermore, Dr. Obeng addressed the government's plans to combat under-invoicing using digital customs systems and artificial intelligence. He insisted that without first reducing high duty rates, digital enforcement will only lead to mass defaults and seizures of goods. The current duty rates, which can range from 55% to 65% of the invoice value, are a significant burden. He warned that if the system isn't reformed, people simply won't be able to pay.
On a positive note, Dr. Obeng welcomed the recent exchange rate stability, which has offered temporary relief to importers after years of financial losses.
Moving forward, GUTA plans to meet with the Finance Ministry to demand adjustments before the VAT restructuring is implemented. Dr. Obeng emphasized that if the government truly wants compliance, it must first create a fair system. Otherwise, traders will find ways around it, which he described as human nature.
The concerns raised by GUTA highlight the complex relationship between tax policy design and its practical implementation, especially within Ghana's extensive informal sector. As the representative of thousands of traders across the country, GUTA's position is critical for the success of any tax policy.
The Finance Ministry has yet to publicly respond to GUTA's criticisms of the VAT restructuring announced in the 2026 Budget.
What do you think? Do you agree with GUTA's concerns about the VAT restructuring? Do you believe the government's approach is fair and will encourage compliance? Share your thoughts in the comments below!
