What You Need To Know About Ghana’s VAT Reduction From 21.9% to 20%
Ghana’s Finance Minister, Dr. Cassiel Ato Forson presented the 2026 National Budget to the parliament in November 2025. In this proposed budget, the government introduced major changes to its Value Added Tax, VAT, system as part of wider economic reforms. One headline reform was reducing the effective VAT rate from 21.9% to 20% starting in January 2026.
This reduction was accompanied by other VAT-related changes, including:
- Abolishing the COVID-19 Health Recovery Levy, which had previously raised the overall VAT burden.
- Raising the VAT registration threshold from GHS 200,000 to GHS 750,000, easing compliance for small businesses.
- Reintegrating levies like the Ghana Education Trust Fund (GETFund) and National Health Insurance Levy (NHIL) into the VAT system so businesses can claim them as input tax.
- Eliminating VAT on mineral prospecting and reconnaissance and extending zero-rating on locally manufactured textiles until 2028.
Government officials said these reforms would return an estimated 5.7 billion Ghana cedis to households and businesses in 2026 through tax relief and lower costs of doing business.
What Is The Rationale Behind This Policy?
By lowering the VAT rate and scrapping the COVID-19 levy, Ghana is planning to put more money back into the hands of consumers and businesses. This is because lower indirect taxes can stimulate consumption and investment, especially when household budgets are tight and private sector growth is sluggish. The reforms are also part of a broader effort to simplify VAT compliance and remove distortions (like levies outside the main VAT base that couldn’t be claimed as input tax). This is meant to make the tax system fairer and more efficient.
Raising the VAT registration threshold reduces the administrative burden on micro-businesses that previously had to comply with VAT simply because inflation eroded the value of the old threshold. The VAT cut is one component of Ghana’s wider “reset” budget strategy for 2026, which also focuses on fiscal discipline, stabilising debt, safeguarding macroeconomic stability, and encouraging investment-led growth.
Immediate Impacts Being Reported
Some companies, like MTN Ghana, have already passed on savings from the VAT cut to consumers through lower tariffs. Consumer prices on essentials at formal retailers are starting to reflect relief from the reforms.
Industry bodies like the Association of Ghana Industries (AGI) support the VAT reforms but stress that additional measures (e.g., import controls, stronger local industry support) will be needed to fully boost competitiveness. Some parts of the business community emphasise the importance of smooth implementation, especially for traders transitioning from older VAT schemes.
Essentially, Ghana’s VAT reduction to 20% as part of the 2026 fiscal reforms is designed to spur
