New Ghana VAT Act promulgated

26 February 2014: The controversial Value Added Tax (Amendment) Bill that was approved by the Ghana Parliament on 15 November 2013 despite a walkout by minority members received Presidential assent on 30 December 2013 and was gazetted on 31 December 2013.

As a result, the Value Added Tax Act, 1998 (Act 546) as amended, has been repealed and replaced by the Value Added Tax Act, 2013, (Act 870) (the new VAT Act).  The new VAT Act does not provide for an effective date of commencement and, consequently, becomes effective on 31 December 2013.

One of the most significant amendments is the increase in the standard VAT rate from 12.5% to 15%.  The National Health Insurance Scheme Levy (NIHL) charged on goods and services supplied in or imported into Ghana and collected with VAT remains at 2.5%.  As a result, the standard aggregate VAT and NHIL rate on the taxable supply of goods and services is increased from 15% to 17.5%.

Per official guidelines on the application of the New VAT Act issued by the Ghana Revenue Authority (GRA) in January 2014, the VAT rate on GRA VAT/NIHL invoices issued in respect of taxable supplies is to be manually adjusted from 12.5% to 15%.

Taxpayers who have been authorised by the GRA to use their own computer-generated invoices or electronic cash registers are required to re-programme their equipment to ensure that VAT is charged at the rate of 15%.  Where these taxpayers are unable to use such computer-generated invoices or electronic cash receipts, they must use the manually adjusted GRA invoices as set out above.

A second significant change effected by the new VAT Act is the reduction of the allowable period for claiming input VAT in respect of expenses incurred from three years to six months.  In practice, all taxpayers who are in possession of valid VAT/NIHL invoices for input claims which are more than six months old (i.e. dating from before 31 July 2013) should claim such amounts in their December 2013 VAT returns, which are due for submission by no later than 31 January 2014.

The new VAT Act also extends the application of VAT to the following business activities which hitherto fell outside the VAT net:

 - the sale of immovable property by an estate developer.  'Estate developer' is defined as a commercial establishment engaged in the business of the construction and sale of immovable property;

 - the supply of financial services rendered for a fee, commission or similar charge, including the provision of insurance, issue transfer, receipt of, or dealing with money, whether in domestic or foreign currency or any note or order of payment of money, provision of credit, or operation of a bank account or an account of a similar institution.  Life insurance and reinsurance services are exempt;

 - a supply of domestic transportation of passengers by air and the supply of haulage as well as the rental or hiring of passenger and other vehicles;

 - the business activities of auctioneers and promoters of public entertainment;

 - the business of a gymnasium and spa; and

 - the manufacture or supply of pharmaceuticals listed under Chapter 30 of the Harmonized Systems Commodities Classification Code, 1999, other than supplies at the retail stage.

All businesses engaged in these activities that have not been registered for VAT/NIHL are obliged to contact their GRA local offices for VAT/NIHL in accordance with the provisions of the VAT Act.

All persons registered for VAT/NIHL that are authorised to operate under the VAT Flat Rate Scheme (VFRS) are to continue charging and accounting for VAT at the rate of 3% of the taxable value of their supplies until otherwise advised by the GRA in writing.

In other recent taxation developments in Ghana, Parliament has rejected the National Fiscal Stabilisation Levy (NFSL) (Amendment) Bill presented to it in November 2013.  The NFSL, levied at 5% on profits before tax of specified companies, was reintroduced in June 2013 to apply to the 2013 and 2014 years of assessment.  The Bill sought to revise the effective end date of the NFSL Act, 2013 from December 2014 to June 2014.

Parliament has passed the Customs and Excise Duties and other Taxes Amendments No 2 Bill on 13 December 2013, amending the Customs and Excise (Duties and Other Taxes) Act, 1996 (Act 512).  In terms of the amendment, raw materials used for the manufacture of HIV/AIDS drugs and the printing of textbooks and exercise books are to be exempted from import duty.

The Bill is aimed at increasing competitiveness of local manufacturers.  Currently, the importation of raw materials used in the manufacture of HIV/AIDS drugs and the printing of text and exercise books are subject to significant import duties, while the importation of the corresponding final products are zero rated.  The relevant exemptions will be under the supervision of the Minister of Health and Education respectively.

Further proposed taxation amendments presented for parliamentary approval as part of the 2014 Budget and Financial Statement on 19 November 2013 include increasing the withholding tax rate on rental income from commercial buildings from 8% to 15% and the withholding tax rate on management and technical service fees from 15% to 20%, expanding the scope of capital gains tax to cover petroleum operations, increasing the road fund levy, reintroducing the Windfall Tax Bill on mining activities in for parliamentary consideration after due consideration with relevant stakeholders, introducing a Construction Industry Scheme (CIS) to regulate payments made by contractors to subcontractors in the building and construction industry and harmonizing and simplifying tax laws under a single Tax Administration Act.

An official at the Small Tax Office of the Domestic Tax Revenue Division of the Ghana Revenue Authority also announced at a seminar on 4 December that, with effect from the end of 2014, the possession of an 11-digit unique Taxpayer Identification Number would be a prerequisite for individuals earning taxable income to, inter alia, obtain travel visas.

The Ghana government is evidently serious about implementing its fiscal policy aimed at revenue mobilisation through tax effectiveness and efficiency and delivering on Minister Seth Terkper's pledge to narrow the budget gap by boosting revenue.