The Ghana Revenue Authority (GRA) has debunked the erroneous impression that the implementation of the 3% VAT Flat Rate Scheme (VFRS) would lead to increase in prices of goods and services in the country.
According to senior officials of GRA, the newly introduced consumable tax would not lead to increase in prices of goods and services going up. It would rather lead to prices going down.
Speaking to journalists and hosts of radio and TV programmes at a GRA session with the media on the VAT Flat Rate Scheme in Accra on Friday, Assistant Commissioner Policy and Programmes at Domestic Tax Revenue Division (DTRD) of the GRA, Nathan Nettey maintained that the 3% VAT flat rate is not going to add any burden to the producers, wholesalers, retailers and the consumers.
He explained that the VFRS which was reintroduced in July 1, 2017, aimed at addressing the loopholes in the collection of some taxes from businesses, especially those in the wholesale category.
Mr Nettey said: “The Value Added Tax Act, 2013 (Act 870) imposes VAT on all supplies of goods or services made in Ghana and on all imports of goods or services other than supplies or imports of goods and services that are exempt under the Act”.
He added that VAT is chargeable on taxable supplies at a positive rate of 15%-Standard rated Supplies; a flat rate of 3%; or a rate of zero percent.
Mr Nettey was quick to explain: “The VFRS is a tax mechanism that applies a marginal tax percentage representing VAT on taxable goods supplied and from which no input tax deduction is allowed”.
It is an alternative to the invoice credit method of VAT accounting, he added.
“In Ghana, the Flat Rate Scheme (FRS) is a simplified way of accounting for VAT ( VFRS) and is operating concurrently with the current invoice credit method of charging and accounting for VAT. In UK similar schemes exist for the various sectors of the economy”, he stated.
Features of the VFRS
One of the distinguishable features of the VFRS is the marginal tax rate of 3% applied to the value of taxable supply of goods.
Another feature, according to Mr Nettey is that VFRS operators shall not be entitled to input tax claims. Additionally, the VFRS is restricted to only wholesalers and retailers of taxable goods in the country.
VFRS operators shall issue a simplified VAT and National Health Insurance Levy (NHIL), he said.
Benefits
The VFRS which has been resisted by wholesaling and retail companies since its implementation is easier to record. It is also simpler to operate that is no more problems about what input tax one can or cannot claim.
The rate is said to be social acceptability and simplified and easy to complete return form. Besides, it increases tax base of VAT registered traders and non-submission of repayment return, according to the officials of GRA.
The VFRS is also a convenient rate as the rate of 3% lends itself readily to splitting between VAT (2.5%) and NHIL (0.5%).
Scope & coverage
The VAT (Amendment) Act, 2017 (Act 948), amends section 3 of the principal Act (Act 870) by providing that……(2) A taxable person who is a retailer or wholesaler of goods shall account for the Value Added Tax payable under this section at a flat rate of three percent calculated on the value of the taxable supply”.
The VFRS is restricted to all wholesalers (including importers) and retailers of taxable goods. It covers the supply of all taxable goods covered by the current Standard Rate Scheme (SRS), except the supply of any form of power, heat, refrigeration or ventilation.
Also, VFRS operators are not entitled to input tax credit. Section 2 (b) of Act 948 amends section 48of Act 870 and states in part “A taxable person to whom subsection (2) of section 3 applies does not qualify for input tax deduction in respect of a supply of goods”.
Excluded from VFRS
Manufacturers-VAT & NHIL rate is equal to 17.5%. Service providers-VAT & NHIL rate is also equal to 17.5%. Similarly, others (not wholesalers and retailers is equal to 17.5%.
Scenarios
Anki Motors sells (retails or wholesales) automobiles and also operates a motor vehicle servicing and repair shop on the same premises. The operations of the part of the business which sells vehicle parts are separate and distinct from the servicing and repairs section.
In other words, no part of the supply (sale of motor vehicle or servicing and repairs of automobiles is incidental to the other.
In that case, the retail and wholesale part of the business will be accounted for at the flat rate of 3% whereas the servicing and repairs portion will be accounted for under the SRS (at 17.5%).
Anki Motors will then have to file separate returns in respect of the two schemes; SRS and VFRS.
Computing the VAT payable under the VFRS GH ¢
(a) Cost price of item – 100.00
(b) Input Tax (17.5%*100) – 17.50
(c) Value Added (10% *117.50) (i.e. margin and other overheads) – 11.75
(d) Taxable Value (a+b+c) – 129.25
(e) Output tax @ 3% Flat Rate – 3.88
(f) VAT/NHIL payable (i.e. 3% Flat Rate) – 3.88
(g) Cost to Consumer (tax inclusive) (d+f) – 133.13
Deepening public education
The Commissioner General of GRA, Kofi Nti said the authority would continue to engage the manufacturers and other businesses on their concerns to aid the smooth implementation of the tax.
By Masahudu Ankiilu Kunateh, African Eye Report
