A storm is brewing in Ghana's retail sector. 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 boost tax compliance.
Joseph Obeng, the GUTA president, voiced his concerns on the Asaase Breakfast Show following the unveiling of the 2026 Budget. He sharply disagreed with the notion that traders would automatically lower prices due to the VAT changes. Instead, he fears the adjustments could fuel unfair competition and discourage businesses from complying with tax regulations.
So, what's the core of the problem? The shift from a 4% flat rate to a standard 20% VAT is expected to significantly increase operating costs for many traders. This is especially concerning given the government's decision to raise the exemption threshold from 200,000 Ghana cedis to 750,000 cedis in annual turnover, according to Dr. Obeng.
He paints a picture of a market divided, where some traders will be exempt from VAT while others are forced to charge the full 20%. "Taxes shouldn't be discriminatory," he argues, "with people selling the same goods in the same area facing different tax treatments."
And this is the part most people miss... Rational consumers, seeking the best deals, will naturally gravitate towards VAT-exempt traders. This will leave VAT-registered sellers struggling to compete, as they risk losing customers to those who can offer lower prices by not charging the tax. The consumer always has a choice, and they will go where they can get the best price.
Dr. Obeng suggests the government should have implemented a modified tax system across the informal sector, rather than creating a split market. In this scenario, some traders would pay a 30% turnover tax at the end of the year, while others would be subject to the full VAT regime.
But here's where it gets controversial... The new threshold also incentivizes under-reporting. Imagine this: someone selling 2,500 cedis daily must pay VAT, while someone selling 2,200 cedis is exempt. This creates a strong incentive for traders to manipulate their figures to stay below the threshold, making tax compliance nearly impossible.
Addressing the government's plans to combat under-invoicing through digital customs systems and artificial intelligence, the GUTA president insists that without first reducing duty rates, digital enforcement will only lead to mass defaults and seizures of goods. He explained that people under-declare because duties are between 55% and 65% of the invoice value. If you bring AI without reforming the system, people simply cannot pay.
Dr. Obeng did acknowledge the recent exchange rate stability, which has provided temporary relief to importers after years of significant financial losses.
GUTA is planning to meet with the Finance Ministry to request adjustments before the implementation of the VAT restructuring. Dr. Obeng cautioned that if the government truly wants compliance, it must first create fairness. Otherwise, traders will find ways to circumvent the system, which he described as human nature.
The concerns raised by GUTA highlight the complex relationship between tax policy design and its practical application, particularly within Ghana's vast informal sector. The association represents thousands of traders across the country, making its stance crucial for the success of any policy.
The Finance Ministry has yet to publicly respond to GUTA's criticisms.
What do you think? Do you agree with GUTA's concerns, or do you believe the VAT restructuring is a necessary step? Share your thoughts in the comments below!
