What Is Input Tax Recovery, Who Benefits, and How to Claim It Under Ghana’s New VAT Regime (Act 1151)

Introduction: Why Input Tax Recovery Matters More Than Ever

Ghana’s Value Added Tax (VAT) system has undergone one of its most significant reforms in decades with the passage of the Value Added Tax Act, 2025 (Act 1151), which took effect on 1 January 2026. While public attention has largely focused on the new 20% effective VAT rate and the abolition of the VAT Flat Rate Scheme (VFRS), one reform stands out as particularly transformative for businesses: the full restoration and expansion of input tax recovery.

For the first time in years, VAT-registered businesses can now recover not only the 15% VAT paid on their inputs, but also the 2.5% National Health Insurance Levy (NHIL) and the 2.5% GETFund levy. This reform corrects long-standing distortions in the tax system, reduces hidden costs, and aligns Ghana’s VAT regime with international best practice.

Properly understood and applied, input tax recovery can significantly reduce the real tax burden on businesses, improve cash flow, lower prices over time, and promote fairness across the economy. This article explains what input tax recovery is, who benefits, and—most importantly—how to claim it correctly under Act 1151.

1. What Is Input Tax?

In simple terms, input tax is the VAT and related levies a VAT-registered business pays when it purchases goods or services for use in its business.

Under Ghana’s new VAT system, input tax includes:

• 15% VAT
• 2.5% NHIL
• 2.5% GETFund levy

Practical Ghana-Specific Examples

Input tax commonly arises from:

• Purchasing inventory or trading stock for resale
• Buying raw materials for manufacturing
• Paying for professional services such as accounting, legal, IT, or consultancy services
• Importing goods through the ports
• Paying business overheads such as rent (where taxable), utilities, security services, or equipment leases

Input Tax vs Output Tax

• Input tax: Tax you pay on your business purchases
• Output tax: Tax you charge customers on your sales

VAT works on the principle that businesses act as tax collectors for the state, remitting only the net tax after deducting what they have already paid on inputs.

2. What Is Input Tax Recovery (Input Tax Credit)?

Input tax recovery—also known as an input tax credit—is the mechanism that allows a VAT-registered taxpayer to deduct input tax paid on business purchases from output tax collected on sales.

Under Act 1151, this deduction now applies to:

• VAT (15%)
• NHIL (2.5%)
• GETFund (2.5%)

This is a major improvement over the previous system, where NHIL and GETFund were largely non-recoverable, creating a cascading tax effect.

Eliminating the Cascading Tax Effect

A cascading tax occurs when tax is charged on top of tax, increasing costs at every stage of production and distribution. By allowing full recovery of VAT, NHIL, and GETFund on inputs, the new system ensures that tax is borne primarily by the final consumer, not embedded repeatedly in business costs.

3. Who Benefits From Input Tax Recovery?

a) VAT-Registered Businesses

Traders, manufacturers, wholesalers, retailers, and service providers benefit directly through:

• Lower effective tax costs
• Improved cash flow
• More accurate pricing

b) Importers and Exporters

Import VAT and levies paid at the ports can now be credited against output tax, reducing the cost of doing business and improving competitiveness.

c) SMEs Above the GH₵750,000 Threshold

With the VAT registration threshold for goods increased from GH₵200,000 to GH₵750,000, smaller businesses below the threshold are spared compliance costs, while growing SMEs that register can now recover full input taxes.

d) Accountants, Finance Managers, and Tax Consultants

The new regime increases the importance of proper VAT accounting, strengthening the role of tax professionals in ensuring compliance and optimization.

e) Consumers (Indirectly)

When businesses are not forced to absorb unrecoverable taxes, pricing pressure eases, benefiting consumers over time.

4. Step-by-Step Guide: How Businesses Recover Input Tax in Ghana

This section is critical. Input tax recovery is not automatic—it must be earned through compliance.

Step 1: Confirm VAT Registration Status

Only VAT-registered taxpayers can claim input tax. Ensure your business has:

• A valid VAT Registration Number
• An active Tax Identification Number (TIN)

Step 2: Buy from VAT-Registered Suppliers

Input tax is only recoverable if the supplier is VAT-registered and legally authorized to charge VAT.

Step 3: Obtain Valid VAT Invoices

A valid VAT invoice must include:

• Supplier’s name and VAT Registration Number
• Supplier’s TIN
• Invoice date and serial number
• Value of supply
• VAT, NHIL, and GETFund amounts shown separately or clearly indicated

Without a valid VAT invoice, no input tax claim is allowed.

Step 4: Record Transactions Properly

All purchases must be recorded accurately in:

• Accounting software
• Manual ledgers (where applicable)
• VAT control accounts

Step 5: Separate Input Tax and Output Tax

Maintain clear separation between:

• Input VAT / NHIL / GETFund paid
• Output VAT / NHIL / GETFund charged

This separation is essential for accurate VAT returns.

Step 6: File VAT Returns on Time

VAT returns must be filed monthly, even if no VAT is payable. Late filing attracts penalties and interest.

Step 7: Offset Input Tax Against Output Tax

Example:

• Output tax for the month: GH₵8,000
• Input tax incurred: GH₵5,000

VAT payable to GRA = GH₵3,000

Step 8: Handle Excess Input Credits

If input tax exceeds output tax:

• Excess credits may be carried forward to offset future liabilities
• Refunds may apply in specific cases, subject to GRA procedures

Step 9: Maintain Documentation for Audits

Keep invoices, receipts, and records for the statutory period. GRA audits rely heavily on documentation.

5. How Individuals Can Benefit

Individuals can benefit from input tax recovery only when they operate VAT-registered businesses.

Who Qualifies?

• Sole proprietors
• Self-employed professionals
• Landlords making taxable supplies
• Consultants, contractors, and traders

Who Does Not Qualify?

• Salaried employees
• Individuals not registered for VAT
• Consumers purchasing goods for personal use

Why Registration Matters

Formalization allows individuals to:

• Recover input taxes legally
• Access business financing
• Build credible financial records

6. Common Mistakes to Avoid

• Claiming input tax without valid VAT invoices
• Buying from non-VAT-registered suppliers
• Incorrectly claiming input tax on exempt supplies
• Late filing of VAT returns
• Poor or incomplete record-keeping
• Confusing VAT with non-recoverable taxes such as income tax or withholding tax

7. Compliance, Record-Keeping, and GRA Expectations

The Ghana Revenue Authority expects:

• Accurate records
• Transparent reporting
• Timely filing and payment

Accountants and tax consultants play a critical role in:

• Ensuring compliance
• Managing audits
• Advising on proper VAT treatment

The new regime emphasizes voluntary compliance backed by strong administration.

8. Why the New VAT System Is a Win for Ghana

Act 1151 delivers:

• Greater fairness and neutrality
• Reduced cost of doing business
• Improved revenue efficiency
• Stronger support for NHIS and education funding
• Alignment with global VAT best practices

By eliminating hidden taxes, Ghana strengthens its economic competitiveness.

Conclusion

Input tax recovery is the backbone of a fair and effective VAT system. Under Ghana’s new VAT regime, businesses that understand the rules, keep proper records, and comply fully can legally reduce their tax burden, improve cash flow, and operate more competitively.

Act 1151 marks a decisive shift toward a modern, transparent, and pro-business VAT system—one that rewards compliance and supports sustainable economic growth. For VAT-registered taxpayers, the message is clear: learn the system, apply it correctly, and benefit fully.