What is Value Added Tax (“VAT”)?
The Value Added Tax (“VAT”) is a tax levied and paid on
the consumption of VAT able supplies of goods or services. VAT is required to
be paid at every stage of the supply chain where value is added. Being a
consumption and transferable tax, the incidence of VAT is borne by final
consumers.
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| Mr Ken Ofori- Atta — Minister of Finance |
The re-introduction of the three per cent VAT flat rate scheme
The VAT Flat Rate Scheme (“VFRS”) has recently become one
of the topical issues for most taxpayers in Ghana, particularly large sized
wholesalers and retailers.
The government’s 2017 budget
statement which was centered on the theme, “Shifting the Focus of Economic
Management from Taxation to Production” reintroduced the three per cent VFRS as
part of the taxes reviewed in the budget.
Hitherto, all VAT registered
taxpayers were required under the VAT Act, 2013 (Act 870) to charge VAT at the
standard rate of 17.5 per cent and were allowed input tax deductions on costs
incurred.
On April 7, 2017, the government
passed the VAT Amendment Act 2017 (Act 948) to give legislative backing to the
VAT proposals in the 2017 budget including the reintroduction of the VFRS.
The effective date of
implementation of the VFRS was June 1, 2017 but was subsequently postponed to
July 1, 2017. The VFRS requires a VAT registered wholesaler or retailer of
tangible goods to charge and account for VAT on taxable goods at a flat rate of
three per cent. VAT costs incurred in making the supply of tangible goods are
not deductible for VAT purposes.
VAT registered wholesalers and
retailers will be automatically migrated to the scheme. In accounting for VAT
under the VFRS, affected taxpayers will now be required to charge VAT on
supplies made and account for the VAT using a simplified VFRS return issued by
the Ghana Revenue Authority (“GRA”).
All fully or partly used (after
verification) standard rate scheme invoice booklets are to be kept and unused
booklets returned to the GRA.
A key observation with the
introduction of the VFRS is the various changes in the categories of taxpayers
the scheme applies to. The initial definition in the NPP’s manifesto referred
to “micro and small enterprises” which shifted to “traders” in the budget
statement and then to “retailers” in the Tax Amendment Bill and then
“wholesalers” and “retailers” of goods when the law was finally passed.
Is the three per cent VFRS new?
The VFRS is not a new scheme in
the history of Ghana’s tax laws. Historically, the scheme has been applicable
to retailers and with a defined revenue threshold which is absent in its
current version.
What does the re-introduced three
per cent VFRS mean for businesses?
For most businesses, the impact
of the VFRS depends on several factors including:
• Price elasticity of demand of
their products.
• Risk appetite of the business.
• Whether or not the customers
are price takers or price setters.
The VFRS may ultimately affect
business profit margins and business leaders may need to re-negotiate contracts
and employ other measures to ensure they stay afloat.
The way forward
In light of the above, we
recommend that the government should consider the following options for
effective implementation of the VFRS:
• Re-implementing the VFRS
provision in the VAT Act, 2010 (Act 810) repealed, with slight modifications.
Act 810 provided for thresholds which made it easier to administer. As such,
the threshold should be reintroduced and this could be based on the presumptive
tax threshold provided for in the Income Tax Act, 2015 (Act 896).
• Limiting the VFRS to only micro
and small enterprises as it has proven to be a useful way of expanding the tax
net.
• For manufacturers whose
businesses span more than one sector (i.e. wholesaling and retailing), for whom
both 17.5 per cent and three per cent will apply,the government should put in
place methods that allow such manufacturers to apportion supplies made and
account for VAT separately under both VFRS and standard rate scheme. The
dominant business line could also be considered in determining the VAT scheme
such manufacturers should operate. To this end, the definition provided for a
“wholesaler” and “retailer” should be updated to consider the status of such
manufacturers who operate multiple business lines and the general deductible
input tax in respect of the apportionment should be made public in a practice
note.
• Businesses should be given the
opportunity to choose whether to exclusively operate the standard rate scheme
or the flat rate scheme to make accounting easier.
• If the expansion has been made
because of abuses in the system as a result of business claiming undeserved
credits,the government should identify those entities through tax audits and
enforce the law strictly.
Credit: Graphic Online
Email: ayesha.a. bedwei@pwc.com
or regina.oppong@pwc.com
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