Ghana: How Gov’t Increases VAT Through Backdoor

Ken Ofori-Atta, Minister of Finance, Ghana

Accra, Ghana, July 19, 2018//-The government of Ghana today increased Value Added Tax (VAT) and other taxes through a backdoor. So, businesses in the country should not celebrate yet.

Unmasking the plot,  the immediate former Finance Minister of the previous government, Seth Tekper said the government decision to separate the National Health Insurance Levy (NHIL) and Ghana Education Trust Fund (GETFund) levies from the 17.5% flat VAT rate is actually a VAT increase in disguise.

He explained in a series of tweets on Thursday (today): “Ghana’s VAT rate is 17.5 percent and that includes NHIL (2.5%) and GETFund (2.5 %). Removing them from the VAT base and making them specific rates (instead of ad valorem) and increasing that rate to earn more revenue (quoting Hon Kwarteng) is a ruse”.

“It is a VAT increase in disguise. Businesses should not rejoice yet because they [NPP] cannot claim Input Tax Credit/refunds on 5% of the current 17.5 percent rate. Already, the Flat Rate is denying some registered businesses refunds and Input Tax Credit”.

Mr Terkper continued:  “The measure amounts to a parallel Sales Tax regime that the VAT replaced. It is a retrogressive step and further mutilation of the VAT regime.”

“The removal of Input Tax Credit and Refunds will increase costs and prices. It is not an efficient and business-friendly move,” he stated.

Government increases tax without showing interest in expenditure cut

Prof John Gatsi, University of Cape Coast

Also commenting on the increase, a renowned economist at the University of Cape Coast, Professor John Gatsi further explained: “The straight tax is is an  increase in tax as it makes consumers pay more taxes that the normal VAT of 17.5%”.

“If you purchased a vegetable item for GHC100 and sold at GHC120 under normal VAT of 17.5% , you will pay GHC 3.50 to government but with the split into VAT and Flat rate the taxpayer will end up paying Ghc8.5 hence government has increased tax”, he added.

That consumers are not interested in tax rate increase but whether not what they will pay has increased. It is unfortunate government was not interested in expenditure cut, Prof Gatsi stated.

The current Finance Minister, Ken Ofori-Atta, presented the 2018 mid-year budget review in Parliament on Thursday, July 19, 2018 in a number of revenue mobilisation measures were announced.

He stated based on the fiscal performance for the first five months of 2018, we have programed the underlisted measures to ensure that we meet our fiscal deficit target of 4.5 percent of GDP to end the year.

These he mentioned include:  Conversion of National Health Insurance of 2.5 percent to a straight levy of 2.5 percent;  Conversion of GETFund value added tax rate of 2.5 percent to a straight levy of 2.5 percent;  review of Personal Income Tax to include an additional band of GH¢10,000 and above per month at a rate of 35 percent; and  Intensify tax compliance measures.

Mr Ofori-Atta also imposed tax on people riding luxury vehicles in the West African country.

The move has been welcomed with divergence views. Those who are using luxury vehicles have against the imposition of the  luxury vehicle tax on vehicles with capacity of 3.0 litres and above. While those who can’t afford such vehicles have welcomed the move.

However, the minister did not disclose the percentage of the tax to be charged. The tax, Mr Ofori-Atta revealed would be paid on first registration, and subsequently during annual renewal.

He noted that Commercial vehicles are exempted from this policy which takes off immediately after the approval of the Mid-Year Budget 2018 by Parliament.

According to Mr Ofori-Atta, the introduction of the tax is part of measures aimed at mobilising revenue for the government to implement its programmes in the country.

“Mr. Speaker, as part of efforts to improve revenue performance, we will intensify tax compliance and plug existing revenue leakages.

Investigations we have undertaken show inbound leakages on goods arriving in the country, significant outstanding tax debts, abuse of suspense regime in the area of warehousing, transit trade, and free zones, and tax audit issues such as limited coverage, low auditor productivity, and low audit yields”.

Mr Ofori-Atta was quick to add that the government is rolling out major initiatives to address these tax compliance issues.

“Mr. Speaker, these initiatives will include prosecutions of tax evaders and corrupt tax officials, a special VAT Attack force to ensure enforcement and deepen VAT penetration from the current low levels of 11 percent, and institutional reforms at Ghana Revenue Authority (GRA).”

The tax compliance, he noted would also be boosted by the implementation of the Common Platform for Communications Traffic Monitoring, revenue assurance, mobile money monitoring, and fraud management.

The Common Platform will provide government with an accurate and comprehensive view of telecom revenues in order to verify tax compliance and to ensure the comprehensive billing and collection of all telecom-related taxes, levies, and regulatory fees, Mr Ofori-Atta explained.

African Eye Report

 

 

 

Leave a Reply

*