1. Impact at the Firm Level: Efficiency vs. Complexity
The commencement of the Value Added Tax Act, 2025 (Act 1151) on January 1, 2026, marks the most significant tax reform in a decade for Ghana. For the construction and real estate industry, these changes are not merely administrative, they fundamentally alter pricing strategies and cash flow management.
The most profound shift for construction firms and estate developers is the abolition of the VAT Flat Rate Scheme (VFRS).
- The Shift to Standard Rate: Developers who previously accounted for tax at a 5% flat rate must now transition to the standard VAT rate of 15%. While the headline rate appears higher, it is offset by a major win: Input Tax Deductibility.
- Recoupling of Levies: Unlike the previous regime, the National Health Insurance Levy (NHIL) and GETFund Levy (2.5% each) are now "recoupled." This allows firms to claim these as input tax credits.
- Cash Flow & Working Capital: Firms can now deduct VAT paid on raw materials (cement, steel, equipment) and professional services against the VAT charged on sales. This "credit system" reduces the tax embedded in production costs, potentially improving margins for efficient firms.
- Compliance Burden: The registration threshold for goods has risen to GHS 750,000, but service providers (consultants, contractors etc) remain registrable regardless of turnover.
2. Impact on Customers: The Real Estate Space
For homebuyers and commercial tenants, Act 1151 presents a mixed bag of pricing adjustments
- Residential Sales: Historically, the 5% flat rate was designed to keep housing affordable. With the transition to a 15% standard rate, the "sticker price" of new homes may appear higher. However, because developers can now reclaim input VAT on construction costs, the net increase passed to the consumer might be lower than expected if developers pass on their tax savings.
- The "Cost-Plus" Effect: Since the 1% COVID-19 Health Recovery Levy has been abolished, the total effective tax rate (VAT + Levies) has been unified at 20%.
In conclusion, Act 1151 reshapes Ghana’s construction and real estate sector by replacing the flat rate system with a creditable VAT regime, improving input tax recovery but increasing compliance demands. While pricing dynamics may shift, enhanced efficiency, better cash flow management, and strategic tax planning will determine firms’ competitiveness and long-term sustainability.
Richard Dwumor is a Chartered Accountant and Tax Consultant, holding professional membership with ACCA, ICAG, and CITG. He brings over 18 years of combined experience in audit, tax, and advisory services. He is also a technology enthusiast with a keen interest in leveraging digital solutions to enhance business and tax processes.