The Value Added Tax Act, 2025 (Act 1151) came into force on 1 January 2026. It came with some reforms such as removing the GETFund and NHI levies from the base of the calculation of the VAT and allowing deduction of the input GETFund and NHI levies. The effect of all the reforms taking effect in 2026 is the reduction of the effective tax rate from 21.9% to 20%. One major reform which does not benefit taxpayers is the removal of threshold for services. This article discusses the unexpected change.
While the business community will undoubtedly welcome these developments, it is worth remembering that the previous effective tax rate of 21.9% was partly caused by the interpretation adopted by the Ghana Revenue Authority. With the proper interpretation, the effective tax rate should have been 21%, made up of 15% VAT and combined levies of 6%. On 24 August 2018, after the levies became straight levies with no ability to be deducted, the GRA issued Administrative Guidelines and needlessly sought to clarify some issues.
One of the issues was the taxable value for VAT. The GRA relied on the definition of the word ‘tax’ in the Revenue Administration Act, 2016 (Act 915) to interpret taxable value in Value Added Tax Act, 2013 (Act 870). The specific provision in Act 915 on which the GRA relied was explicit that the definition applied solely for Act 915 purposes. However, the GRA chose to ignore this caveat and relied on an inapplicable definition to insist that the levies must be included in the base of the VAT. Had the GRA not applied this wrong interpretation, the effective tax rate would have been 21%, which would have reduced to the current 20% with the abolition of the COVID levy.
A key change introduced by the new law is the burden on service providers. Under Act 870, service providers in Ghana had to make an annual revenue of GHS200,000 before qualifying to register to charge VAT. However, the new law does not contain any revenue threshold for service providers. The threshold in the law is exclusive to suppliers of goods. This means every service provider who was not already required to register under Act 870 is now required to apply for registration within 30 days regardless of the revenue they make. The Commissioner-General is empowered to make directions to vary the 30-day requirement. It is not clear what directions the Commissioner-General will make.
This significant change in the registration threshold for services was not discussed during the policy announcement. During the presentation of the 2025 Budget, the Minister of Finance said:
Mr. Speaker, the VAT registration threshold has declined in real terms from GH¢200,000 in 2015 to approximately GH¢48,000 in current values. This means that small and micro businesses that were exempt in 2015 from VAT registration are now compelled to register and charge VAT. This has placed an undue burden on small and micro businesses and also increased the cost of administering VAT. The increase in the VAT threshold is expected to address this problem and make VAT administration simpler and easier to implement.
The Minister highlighted the need to increase the threshold to remove the unnecessary burden on small and micro businesses. A higher threshold is also supposed to make VAT administration simpler and easier to implement. However, when it came to formulating the law, the Minister made a U-turn on the threshold for services. By removing the threshold for services, even service providers who were not covered by the old law will now be required to register for VAT. It is unclear why the Minister believes the undue burden that was mentioned in the 2026 budget only applied to suppliers of goods and that every service provider is immune from the hardship identified for suppliers of goods.
The Minister of Finance was still touting the importance of increasing the threshold in the Memorandum to the VAT Bill. He said:
The reforms also provide for a reduction of the effective rate of the Value Added Tax to ease the burden on households and businesses, eliminate the flat rate scheme of the tax in favour of a unified and transparent structure, make provision for an upward revision of the registration threshold for the Value Added Tax in order to exempt micro and small enterprises from Value Added Tax obligations as well as improve taxpayer compliance through enhanced public education and awareness campaigns.
This won’t be the first time all service providers would be required to register for VAT. In the repealed Value Added Tax Act, 1998 (Act 546), the threshold provided applied only to suppliers of goods. This position was reversed when Act 870 came into force in 2014. Between 2014 and 2025, a threshold existed for service providers. This reversal wouldn’t be of much concern had the Government explained why the threshold was being removed for service providers. The conversation has always been the need to increase this threshold to ease the burden. Removal of the threshold is the opposite of this pronouncement.
Imported services
The new VAT law finally fixes a mismatch relating to imported services. As mentioned above, under Act 546, all service providers were required to register for VAT. To that end, any resident person in Ghana who received a service from a foreign service provider was required to self-charge the VAT and pay it. This requirement had nothing to do with whether the resident person itself was registered for VAT. If they were registered for VAT, they were entitled to claim the VAT they ended up paying on the foreign service. So, regardless of whether the service provider was in Ghana or not, VAT was expected to be collected on every service provided to a resident person.
However, when Act 870 came, due to its blanket threshold levels, some local service providers were not required to charge VAT. There was still no threshold for imported services and every foreign service attracted VAT subject to whether that VAT is claimable by the resident company or not. For VAT registered persons, if they were entitled to claim the VAT on the imported service, then they were not required to self-charge and pay the imported service VAT.
Act 1151 moves us back to the days of Act 546. Now, there is no more mismatch and every service is potentially vatable, regardless of whether the service provider is in Ghana or not. Persons and businesses who are not registered for VAT will need to ensure they are compliant with the requirements of the law to avoid disputes.
Conclusion
Businesses need to be aware of the new regime for service providers. Service providers who were not required to register now have no choice than to register. To prevent unnecessary issues, all unregistered service providers should submit their applications for VAT registration by the end of January 2026. This fulfils the law’s requirement and requires the Ghana Revenue Authority to refuse or postpone the registration if necessary.
