Dissecting the Value Added Tax Act, 2025 (Act 1151): Why it matters to every taxpayer

Tax laws shape how governments raise revenue and how citizens and businesses interact with the state.

In Ghana, the Value Added Tax system has long been a central part of public finance, funding critical services such as health, education, and

infrastructure.

Over the years, however, the VAT regime became increasingly complex and polarised, fragmented by multiple amendments, special rates, and overlapping levies.

This complexity created compliance challenges, increased disputes, and

in some cases discouraged voluntary tax compliance.

In response to the above challenges, the Government promised VAT reforms in the 2026 budgets which resulted in Parliament passing the Value Added Tax Act, 2025 (Act 1151), which took effect on 1 January 2026.

The new law repeals and replaces the previous VAT Act, 2013 (Act 870), and brings together several indirect tax reforms announced in the 2026 Budget. It also works alongside amendments to the National Health Insurance Act, and the Ghana Education Trust Fund Act.

This article explains the key features of the new VAT Act in clear terms, focusing on what has changed, why it matters, and how it affects ordinary consumers, small businesses, large companies, and the wider economy. It concludes with practical recommendations for taxpayers and policymakers.

1) Value Added Tax (VAT)

Value Added Tax (VAT), known in some countries as goods and services tax (GST), is a type of tax that is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer. VAT is a consumption tax and as the name suggests, value-added tax is designed to tax only the value added by a business on top of the services and goods itcan purchase from the market.

The history of the tax suggest that Germany and France were the first countries to implement VAT, doing so in the form of a general consumption tax during World War I. The tax was designed separately and unknown to each other by two people namely Wilhelm Von Siemens, a German businessman, and Thomas S. Adams, an American.

The modern variation of VAT was first implemented by France in 1954 in Ivory Coast (Côte dIvoire) colony. Recognizing the experiment as successful, the French introduced it in 1958 and other European countries and the rest of the world followed suit.

Introduction of VAT in Ghana first surfaced in 1995, but it suffered a setback in its implementation, and was reintroduced in 1998 with a successful implementation to date. The VAT regime has seen several changes over the years form revision in some thresholds, to introduction of flat rate schemes, the introduction of associated levies, and the introduction of withholding tax on VAT by some specified taxpayers.

a) Why a New VAT Act Was Necessary

Before Act 1151, Ghana’s VAT system had been amended many times. Flat-rate schemes existed alongside standard VAT rate scheme, different sectors were treated differently, and levies such as the NHIL and GETFund Levy created a cascading tax effect where taxes were charged on top of other taxes. For many businesses, especially small and medium enterprises, understanding their obligations was difficult. For the tax authorities, enforcement was uneven and costly.

The new VAT Act was designed to simplify the system, improve clarity, and strengthen administration. By consolidating VAT laws into a single statute and aligning related levies, the government aims to broaden the tax base, reduce avoidance, and improve revenue collection without necessarily increasing the overall tax burden.

b) A Unified VAT Rate, and the End of Flat Rates, and COVID-19 Health Recovery Levy

One of the most significant changes under Act 1151 is the abolition of the 1 % COVID-19 Health Recovery Levy, and the introduction of a single VAT rate of 15% for all taxable supplies. Previously, some retailers operated under a 3% flat rate scheme, while certain real estate supplies were taxed at 5%. These special rates have now been abolished.

For consumers, this means prices of some goods and services may change, especially where businesses previously charged lower flat rates. For businesses, the change simplifies accounting and reporting, since everyone now applies the same VAT rate. However, it also means that businesses previously under flat-rate schemes must adjust their pricing, invoicing, and accounting systems to reflect the standard VAT regime.

Importantly, although the VAT rate is now unified at 15%, the NHIL and GETFund Levy remain at 2.5% each. Together, these levies bring the total indirect tax burden on most taxable supplies to 20% instead of 21.9% in the previous VAT regime, saving businesses and consumers 1.9% of their indirect tax cost.

c) Removal of Cascading Taxes and Granting of Input Tax Deductions for NHIL and GETFund Levy

A major improvement introduced by the new law is the removal of the cascading effect of certain levies on domestic supplies.

Under the old system, the levies were part of the tax base which VAT was determined, this resulted in tax on tax and the NHIL and GETFund Levy were also not input tax deductible raising the cost of taxable supplies.

Act 1151 changes this by making the invoice amount the tax base for both the levies and the VAT, and allowing both the NHIL and GETFund Levy to be treated as deductible input tax for qualifying domestic supplies. This reform reduces the hidden tax burden on businesses and promotes fairness within the VAT system. It also aligns Ghana more closely with international VAT principles, where value added, not gross turnover, is taxed.

However, the cascading effect has not been completely eliminated. For imports, the law does not clearly allow deductions of NHIL and GETFund Levy at the ports, meaning importers may still face higher VAT costs if no alternative guidance is issued by the Commissioner General. In addition, other taxes such as Communications Service Tax, and Excise Duties continue to form part of the taxable value where applicable.

d) Expanded Scope of Taxable Activities

The new VAT Act broadens what is considered a taxable activity. Notably, exploration of natural resources and the export of certain non-traditional products (except cocoa, coffee, shea butter) are now classified as taxable activities.

This change brings more economic activities into the VAT net and reflects the growing importance of sectors such as mining services, agribusiness, and exports.

At the same time, some exemptions have been removed. Betting, gaming, and lottery activities are no longer exempt from VAT. Management fees for private equity, venture capital, and mutual funds have also lost their exempt status. Businesses operating in these sectors must now assess whether their supplies are taxable and adjust their compliance accordingly.

e) Changes to VAT Registration Rules

Registration rules under Act 1151 are stricter and more far-reaching than before. For suppliers of goods, the registration threshold has been increased from GHS 200,000 to GHS 750,000 in annual turnover. This relieves some smaller traders from the obligation to register.

For suppliers of services, however, the law takes a very different approach. The turnover threshold has been removed entirely.

Any person who begins to supply taxable services in Ghana is required to register for VAT within 30 days, unless the Commissioner-General of the Ghana Revenue Authority grants an exception.

This change has major implications, especially for consultants, professionals, barbers, vulcanizers, hairdressers, tailors, digital service providers, and freelancers. While it broadens the tax base, it also raises concerns about how the rule will be applied in practice, particularly in the informal sector.

Public entertainment promoters are also subject to new rules. They must register for VAT at least 48 hours before an event, regardless of the expected revenue. The previous minimum threshold of Ghs10,000 expected revenue has been removed.

f) Digital Services and the Modern Economy

Recognizing the growth of the digital economy, Act 1151 expands the definition of digital services. It now includes software updates, distance maintenance of equipment, virtual asset management, and digital asset management services. Non-resident persons who supply these services to customers in Ghana are required to register and account for VAT, usually through a tax-registered agent.

This reform ensures that digital businesses contribute fairly to Ghana’s tax system, just like traditional brick-and-mortar businesses. It also aligns VAT rules with recent legislation governing virtual asset service providers.

g) Stronger Enforcement and Higher Penalties

The new VAT Act significantly strengthens enforcement measures. Penalties for failure to register have been increased.

Instead of a maximum penalty of two times the unpaid tax, the law now provides for a minimum penalty of three times the unpaid tax. This gives the tax authority greater leverage against non-compliance.

Upfront VAT payments by unregistered importers have also increased from 12.5% to 20% of the customs value. In cases of

tax evasion, the law introduces minimum penalties and minimum prison terms, signaling a tougher stance on deliberate non-compliance. These measures are intended to encourage early registration and voluntary compliance, but they also raise thestakes for businesses that delay or ignore their VAT obligations.

h) Fiscal Electronic Devices and Electronic Filing

To improve transparency and reduce underreporting, the VAT Act supports the mandatory use of Fiscal Electronic Devices (FEDs) in key sectors from 2026. Businesses that issue fiscal receipts through FEDs are deemed to have complied with VAT invoicing requirements.

The law also allows FED users to file VAT returns electronically. In addition, a reward scheme is planned to encourage consumers to demand VAT invoices or sales receipts. Together, these measures aim to strengthen record-keeping and close revenue leakages.

i) Reliefs, Refunds, Withholding VAT Exemptions, and Cash Flow Challenges

Act 1151 introduces changes to VAT reliefs and refunds. Certain supplies, including those connected with reconnaissance and prospecting in the mining sector, are treated as relief supplies rather than outright exemptions.

This may require affected businesses to pay VAT upfront and apply for refunds later. While the law allows refunds in specific circumstances, the administrative burden and delays associated with refund claims may create cash flow challenges, especially for manufacturers and exporters. Businesses must therefore plan carefully and maintain proper documentation to benefit from these provisions.

Compliant taxpayers may apply and be issued exemptions from the 7% withholding VAT in the current regime. This opportunity for cashflow management was not available in the erstwhile regime.

2 Conclusion

In conclusion, the Value Added Tax Act, 2025 (Act 1151) represents a major shift in Ghana’s indirect tax system. By unifying the VAT rate, reducing cascading taxes, expanding the tax base, and strengthening enforcement, the government has taken steps to modernize VAT administration and improve revenue mobilization.

For businesses, the new law offers both opportunities and challenges. Simplification and input tax deduction can reduce costs, but stricter registration rules, expanded taxable activities, and heavier penalties increase compliance risks. For consumers, the reforms aim to promote fairness and transparency, even if some price adjustments occur in the short term.

Ultimately, the success of the new VAT regime will depend on effective implementation, clear guidance from the Ghana Revenue Authority, and a cooperative approach between taxpayers and the state.

3 Recommendations

I recommend among the following for consideration by taxpayers and policy makers:

Businesses should review their operations carefully to determine whether they are required to register under the new rules, especially service providers and digital businesses. Early registration can prevent costly penalties.

Taxpayers should update their accounting systems and pricing structures to reflect the unified VAT rate and the deductibility of NHIL and GETFund Levy on domestic supplies.

Ghana Revenue Authority should issue clear and practical guidelines, particularly on service registration, compulsory registration, and VAT refunds, to reduce uncertainty and disputes whilst ensuring continuous and sustained public education to ensure taxpayers understand their obligations and the purpose behind the tax reforms, which will improve compliance, and the broader goal of national development becomes easier to achieve.

This article is my personal and professional opinion as a tax practitioner in the discharge of my duties as a GHANAIAN CITIZEN who seeks the success of Ghana, and it is not a representation of the opinion of any institution.

This is the time for taxpayers to reach out to their tax consultants for tailored advice to suit their business to avoid compliance issues. My d