Value Added Tax
WHAT IS VAT?
Value Added Tax (VAT) is a tax applied on the value added to goods and services at each stage in the production and distribution chain. It forms part of the final price the consumer pays for goods or services. In some countries it is called 'Goods and Services Tax' or GST.
NATIONAL HEALTH INSURANCE LEVY
1 What is the National Health Insurance Levy (NHIL)?
The National Health Insurance Levy (NHIL) is a levy on goods and services supplied in or imported into Ghana. All goods and services are subject to the levy unless they are exempt. The Levy is charged at a rate of two and one half per cent (15%) on the VAT-excusive selling price of the goods supplied or services rendered.
2 Why the Levy?
The levy is to partly finance the National Health Insurance Scheme (NHIS). The then Cash and Carry System of healthcare financing presented a strong barrier to healthcare access for the majority of Ghanaians, and that if the health of the population is to be secured, then there was an urgent need to replace it with a system that will improve access to health facilities. Healthcare insurance is a risk pooling arrangement by which the cost of healthcare to any single individual in the society, whether rich or poor, becomes a collective responsibility of all the people in the society.
More than 60% of the resources of the Fund are expected to be obtained from the National Health Insurance Levy. The remainder will be obtained through the following:
- Two and one half per cent (2½%) of each person’s contribution to the Social Security and Pensions Scheme Fund;
- Such monies as may be allocated to the Fund by Parliament;
- Money that may accrue to the Fund from investments made by the National Health Insurance Council; and
- Grants, donations, gifts and any other voluntary contribution made to the Fund.
All persons in the informal sector will make direct contributions into their District Health Insurance Fund.
3 How is the Levy collected?
The levy is collected by the Domestic Tax Revenue Division of the Ghana Revenue Authority through VAT-registered persons in the same way that VAT is collected.
The Ghana Revenue Authority (GRA) will pay the collected levy directly into the National Health Insurance Fund within thirty days of collection.
4 Exemptions from NHIL
NHIL covers the sale of goods and services which will not be specifically exempted under the law. The exemptions granted include the following:
- Medical services and essential drugs approved by the Ministry of Health.
- Mosquito nets
- Food stuffs produced in Ghana and sold in their raw state (e.g. rice, millet, cassava, yam, guinea corn, plantain, vegetables, meat and food). The traditional forms of smoking, drying, frying and cooling do not affect the expression “raw state”.
- Agricultural and fishing inputs specified in the law.
- Educational services approved by the Ministry of Education.
- Newspapers and books (this does not make paper used in producing these items exempt).
- Transportation fares – land, sea, and air. (This does not make spare parts exempt).
- Petrol, diesel and kerosene
5 Fraction for extracting VAT and NHIL
The fraction for extracting the total of VAT and NHIL from the VAT and NHIL inclusive price is 7/47. Where the trader has established the practice of VAT inclusive pricing, prices must include both VAT and the levy. The fraction of 7/47 must be used to work out the VAT and NHIL included in the price.
6 Treatment of NHIL Paid on Purchases by Registered Persons
The National Health Insurance Act, 2004 Act 650 makes provision for registered persons to deduct the NHIL paid on purchases and expenses from NHIL charged on sales. Only the difference is to be paid to the GRA.
7 VAT and NHIL Account
To simplify record keeping, VAT and NHIL are to be combined into one account. This account should be treated in exactly the same way as the previous VAT Account which it replaces.
8 Submission of Returns
VAT registered persons are expected to submit a monthly VAT and NHIL return on the modified VAT return on the same basis as the previous VAT return was being submitted.
COMMUNICATIONS SERVICE TAX
The Communications Service Tax (CST) is a tax levied on charges for the use of communications services that are provided by communications service operators. CST is imposed under Section 1 of the Communications Service Tax Act 2008, (Act 754). It is paid by consumers to the communications service providers, who in turn pay all CST collected to the Domestic Tax Revenue Division of the Ghana Revenue Authority on a monthly basis. The GRA is required under the law, to pay the CST collected into the Consolidated Fund.
1 WHO QUALIFIES TO CHARGE CST?
CST is charged only by a communications service provider who has been granted a Class 1 Licence by the National Communications Authority under the provisions of the National Communications Regulations 2003 (LI 1719) and notified in writing by the Commissioner-General of the GRA to charge the tax.
These businesses include:
- National fixed network and mobile cellular network operators
- Internet Service Providers (ISPs)
- Public/Corporate Data Operators
- Providers of Radio(FM) broadcasting services
- Providers of Free-on-air and Pay-per-view television services
A Class 1 Licencee is required to levy CST on all charges for usage of communications services provided, in accordance with the provisions of the Communications Service Tax Act 2008 (Act 754).
It is unlawful for any individual to charge the CST.
3 BENEFITS OF THE CST
At least 20% of the Revenue generated from the CST will be used by government to finance the National Youth Employment Programme (NYEP) in particular and support the national development agenda of the country in general.
It must be noted that the introduction of the CST coincided with the removal of import duty, VAT and National Health Insurance Levy (NHIL) on the importation and sale of telephone sets including mobile or cellular phones and satellite phones. This has the effect of reducing the cost of telephone sets and generally mitigating the tax burden that may result from the introduction of the CST.
4 PREPAID RECHARGE CARDS
A Class 1 Licencee is required to account for CST on the face-value of prepaid recharge cards sold within the accounting period. The consumer thus pays the tax at the time of purchase of prepaid recharge cards.
5 FREE ZONE OPERATIONS
A Free Zone Enterprise which is also issued with a Class 1 Licence by the National Communications Authority is required to charge CST on all communication services provided to consumers within the domestic economy and account for the tax to the Commissioner-General of the GRA. All such Free Zone Enterprises are required to submit monthly CST returns in accordance with the provisions of the Communications Service Act 2008, (Act 754).
6 RECEIPT OF COMMUNICATIONS SERVICE IN GHANA PROVIDED BY A NON-RESIDENT PERSON
A person, other than a Class I Licencee, who receives communications service from a non-resident person, is required to account for CST on the value of the service received to the Commissioner-General of the GRA, in such form as shall be determined by the Commissioner-General.
7 SUBMISSION OF RETURNS
All communications service providers with Class 1 Licences are required to submit CST returns to the Domestic Tax Revenue Division (DTRD) of the GRA each month to account for CST collected in the month.
The CST Return shows the following details among others:
- Gross Revenue
- Wholesale Revenue
- Other Non-Communications Service Revenue
- Net Revenue
- Communications Service Tax payable
- A signed Declaration confirming that information provided in the Return is true and complete.
The Commissioner-General may require Class 1 Licencees to submit specified Schedules providing further details on the communications services provided in the month, in addition to the CST returns.
The CST Return for any month must be submitted after that month but not later than the last working day of the following month. A Class 1 Licencee who does not provide communications services in any month is still required to submit a “NIL Return” for that month, within the time period for submission of returns as indicated above.
Failure to submit a return by due date attracts a penalty of GH¢2,000.00 and a further penalty of GH¢500.00 for each day that the return is not submitted
8 PAYMENT OF CST DUE
A Class 1 Licencee is required to pay the CST due for each month to the DTRD of GRA after that month, but not later than the last working day of the following month.
Failure to pay CST by due date attracts interest at the rate of 150% of the average of the prevailing commercial banks’ lending rates as published by the Bank of Ghana.
9 SOME INTERPRETATIONS
“Class 1 Licencee” means a communications service provider granted a Class 1 Licence by the National Communications Authority under the provisions of the National Communications Regulations 2003 (LI 1719)
“Gross Revenue” means the total revenue accruing to a communications service provider with a Class 1 Licence from his business operations, exclusive of VAT, NHIL and CST.
“Non-resident person” means a communications service provider who operates from a source outside Ghana.
“Net Revenue” means Gross Revenue less:
- Wholesale Revenue
- Other Non-Communications Service Revenue
“Other Non-Communications Service Revenue” means revenue accruing to a Class 1 Licencee other than revenue from the provision of communications services.
“Wholesale Revenue” means the total revenue accruing to a Class 1 Licencee from the provision of communications services to another Class 1 Licencee, other than revenue from interconnection services.
VAT ON IMPORTS
1.1 What this topic covers
This topic deals with the VAT procedures which apply to goods imported into and exported from Ghana. It also deals with the procedures to be used by exporters of services, the recipients of imported services and with goods entering and leaving the Free Zone.
1.2 The law
The law governing VAT is the Value Added Tax Act 1998 (Act 546) and Value Added Tax Regulations 1998 (L.I.1646). Sections 1, 2, 16 and 22 of the Act and Regulation 18 deal with imports. Sections 13, 15 and 25 and Schedule 2 of the Act and Regulation 14 deal with exports.
2 IMPORT OF GOODS
2.1 Liability to VAT
The goods which attract VAT at importation are classified as such in the Customs Division Tariff in accordance with the Harmonised System (HS) Code classification. This classification also includes goods exempted under the law. The taxation of imported services is dealt with in Section 3 below.
VAT is charged on all imports, other than those specifically exempted under the Act, at the time of importation. However, VAT registered importers are entitled to claim this VAT as input tax, unless they make exempt supplies, in which case only the VAT incurred in making taxable supplies will be reclaimable.
2.3 Time of importation
For VAT purposes, the time of importation is when the customs and other duties and taxes become due.
The value for charging VAT on imports is the value for customs duty plus import duties and other taxes which may be chargeable.
2.5 Responsibilities of freight forwarding, shipping and clearing agents
It is important for importers, exporters, freight forwarders and shipping and clearing agents to be aware of the changes brought about by the introduction of VAT.
The services provided by freight forwarding, shipping and clearing agents and port authorities are liable to VAT and providers of these services will be required to register for VAT.
The VAT on imports paid by a freight forwarding or shipping or clearing agent on behalf of an importer is an input tax which can be reclaimed by the importer and not the agent. This also applies to the VAT paid on any other services on behalf of the importer. To facilitate this, agents are required to supply importers with customs entries and assessment notices for imports and tax invoices for services supplied. However, where the agent is charged directly for a service and the tax invoice is in his name, he is entitled to recover the VAT as input tax but he must also account for VAT in full on the services he invoices to the importer.
2.6 Import evidence
Before an importer can reclaim the VAT paid on imports, he must be in possession of a valid customs entry, an assessment notice and any tax invoices for services. The importer should claim any VAT on imports to which he is entitled by including it in box 10 on his next VAT return.
3 IMPORTED SERVICES
This applies to persons, VAT registered or otherwise, who receive supplies of taxable services from outside of Ghana.
Section 1 of the Value Added Tax Act imposes VAT on the supply of any imported service, other than exempt services.
Section 2 makes the recipient of the service liable to pay the VAT.
Schedule 1 to the Act lists those supplies of services which are exempt.
If you are registered for VAT and you receive supplies of services from outside Ghana, you must account for VAT on them as if you had supplied them in Ghana, provided that:
(a) the services are received in Ghana; and
(b) the services would be taxable if supplied in Ghana to a local customer.
3.2 Reverse Charge
A registered person receiving and accounting for VAT on imported services may claim the amount paid as input tax (i.e. reverse charge)
The provision is designed to prevent unfair competition against local supplies of taxable services by avoiding similar imported services being free of VAT.
Even if you are not otherwise registerable for VAT (e.g. if your supplies are exempt from VAT), but receive supplies of imported taxable services, you must apply for registration.
The value of the supply on which VAT must be accounted for is the total amount of the consideration, including any taxes levied abroad but excluding local VAT. However, it is necessary to note that the Commissioner-General can vary this amount using the open market criteria as provided in the Act.
3.4 Time of supply
The time of supply for these services is the date on which you make payment or the last day of each tax period during which the services are performed, whichever comes first.
3.5 How you must account for the tax
You must account for any tax due by recording the value of these supplies in Box 2 and the amount of VAT chargeable in Box 3 on your VAT return and on the VAT PAYABLE (OUTPUT TAX) side of your VAT account. Unless the imported services relate to exempt supplies, this tax is also deductible as input tax and the value should be included in Box 9 and the VAT recoverable in Box 10 on your VAT return and on the VAT DEDUCTIBLE (INPUT TAX) side of your VAT account.
If you make exempt supplies, you must account for all the tax due but may be entitled to reclaim only the part that relates to taxable supplies. To establish the amount of tax deductible you should refer to Public Notice No. 8. (Partial Exemption)
To support the amounts shown on your VAT return and in your VAT account you should hold an invoice issued by the person supplying the services.
Liability to VAT
Under the VAT Act, VAT is chargeable at 2 positive rates - standard (currently 12.5%) and zero (0%). Schedule 2 of the Act provides for VAT to be charged at a rate of zero on the following supplies:e
- Exports of taxable goods and services
- Goods shipped as stores on vessels and aircraft leaving Ghana. Section 13(h) of the Act makes the export of non-traditional goods a taxable supply. The inclusion of non-traditional goods in the taxable goods category means that exports of all goods (including agricultural produce which otherwise would have been exempt) are zero-rated, with the exception of -
- Cocoa beans which are specifically exempt under Schedule 1 of the Act.
The legal entitlement to zero-rating applies only to direct exports. If you supply goods to a customer in Ghana who then exports them, the supply you make is taxable at the standard rate.
The services provided by freight forwarders and shipping and clearing agents are taxable at the standard rate of 15% VAT/NHIL.
Entitlement to input tax
VAT registered exporters of goods entitled to zero-rating will qualify to claim input tax deduction on purchases and expenses incurred in supplying these exports.
Exporters must issue VAT invoices, showing a tax rate of zero, for all export transactions. To qualify for zero-rating, exporters must hold evidence of export in the form of valid export entries certified by the Customs Division of the Ghana Revenue Authority.
As a further validation of an export, control officers of the Domestic Tax Revenue Division (DTRD) of the Ghana Revenue Authority (GRA) may make selective checks on supporting documents, such as:
- customers’ orders
- sales contracts
- inter-company correspondence
- copy export invoices
- advice notes/consignment notes/packing lists
- insurance and freight charges
- evidence of payment
- evidence of receipt of goods abroad.
This is without prejudice to checks on any other business records.
Exporters who use freight forwarding and shipping and clearing agents must ensure that the agents supply them with the necessary export evidence to enable them to claim input tax credit and refunds, where applicable. If this is not held by the exporter when the relevant VAT return is due to be submitted, the supply is taxable at the standard rate.
Freight forwarding and shipping and clearing agents appointed by exporters must:
a) take reasonable steps to ensure that the goods are as described by the exporter;
b) ensure that the necessary pre- or post-shipment customs requirements are fulfilled;
c) keep records of each export transaction;
d) provide the exporter with valid export evidence once the goods have been exported.
Refunds of VAT
Traders who export more than 70% of their supplies in any month and whose VAT on purchases (input tax) exceeds the VAT on sales will, on submission of the VAT return for that month, normally be entitled to a refund of the excess amount by the Commissioner-General of GRA on submission of a refund claim. Other exporters will be credited with the excess, unless they remain in a credit situation for 3 consecutive months, in which case they will also be entitled to a refund on submission of a refund claim.
Goods shipped as stores on ships and aircraft
VAT registered businesses which make these supplies direct to airline and shipping companies will be entitled to zero-rate them provided they hold evidence of export certified by the Customs Division. Where the goods are first placed in a bonded warehouse of the shipping or airline company, Customs Division certification of receipt will be the required evidence of entitlement.
FREE ZONE GOODS
Goods entering the Free Zone
Goods supplied locally to Free Zone operators are taxable supplies but are treated as if they were exports. Such supplies are entitled to VAT zero-rating provided the procedures required by Commissioner of the Customs Division Order No.3/98 are properly completed and the supplier holds certified evidence of export as defined in Paragraph 4.3 above, plus the Free Zones Board Form 9, certified and endorsed by the proper officer of the Customs Division.
Goods supplied locally by Free Zone operators
Unless qualified for exemption under Schedule 1 of the VAT Act, goods supplied within Ghana by Free Zone operators are liable to VAT at the standard rate. Free Zone operators do not need to register for VAT in Ghana if all their local supplies are properly cleared through Customs Division and are covered by the Customs Division documentation as imports into Ghana. VAT registered local customers of Free Zone operators, who must ensure that their importations are properly cleared through Customs Division, are entitled to reclaim the VAT paid at importation as input tax provided they hold the evidence referred to in paragraph 2.6 above.
A number of goods and services are exempt from VAT under the VAT law (S. 15/ Schedule 1). This classification should, however, be distinguished from zero-rated supplies described later in this booklet. (All goods and services exempt from VAT are also exempt from the NHIL).
A summary of the goods and services which are exempt from VAT/NHIL include:
This classification includes all live animals such as cattle, sheep, goats, swine and poultry, but excludes horses, asses, mules, hinnies and similar exotic animals.
Goods for the disabled
Articles designed exclusively for use by the disabled.
Educational Items / Services
The supply of educational services at any level by an educational establishment approved by the Minister for Education. Laboratory equipment for educational purposes and library equipment.
Medical supplies and services – Pharmaceuticals
Medical services, essential drugs as listed under Chapter 30 of the ‘HS Code’ produced or supplied by retail in Ghana, specified active ingredients for essential drugs, and selected imported special drugs determined by the Minister for Health and approved by Parliament.
Includes transportation by bus and similar vehicles, train, boat and air.
Machinery, apparatus, appliances and parts thereof, designed for use in
a) agriculture, veterinary, fishing and horticulture
c) mining (as specified in the mining list) and dredging; and
d) railway and tramway.
Crude oil and hydrocarbon products
Petrol, diesel, liquefied petroleum gas, kerosene and residual fuel oil.
Land Building and Construction
Land and buildings: - the granting, assignment or surrender of an interest in land or buildings; the right to occupy land or buildings excluding hotel accommodation, warehousing, storage and similar occupancy incidental to the provision of the related services. Civil engineering works.
This exemption excludes professional services such as architectural or surveying (i.e. these are taxable services).
Provision of insurance; issue, transfer, receipt of, or dealing with money (including foreign exchange) or any note or order of payment of money; provision of credit; operation of any bank (or similar institution) account.
This exemption excludes professional advice such as accountancy, investment and legal (i.e. these are taxable services).
Animals, livestock, poultry and fish imported for breeding purposes
Live asses, mules, and hinnies, live bovine animals, live swine; live sheep and goats; live marine mammals, live fish and aquatic invertebrates.
Animal product in its raw state produced in Ghana
Edible meat and offal of the animals, livestock and poultry earlier listed, provided any processing is restricted to salting, smoking, freezing or similar simple processes of preparation or preservation.
This exemption excludes pate, fatty livers of geese and ducks and similar products (i.e. these are taxable).
NOTE: These items are considered to be in their raw state even if they have undergone simple processes of preparation or preservation such as freezing, chilling, drying, salting, smoking, stripping or polishing.
Agricultural and aquatic food product in its raw state produced in Ghana.
Fish, crustaceans and molluscs, vegetables, fruits, nuts, coffee, cocoa, shea butter, maize, sorghum, millet, tubers, guinea corn and rice.
This exemption excludes ornamental fish (i.e. the supply of ornamental fish is taxable).
Seeds, bulbs, rooting, and other forms of propagation;
Of edible fruits, nuts, cereals, tubers and vegetables.
Chemicals including all forms of fertilizers, acaricides, fungicides, nematicides, growth regulators, pesticides, veterinary drugs and vaccines, feed and feed ingredient.
Boats, nets, floats, twines, hooks and other fishing gear as well as imported inputs for fishing nets and twines.
Supply of water. The exemption excludes packaged and distilled water (i.e. they are taxable).
Domestic use of electricity up to a specified consumption level prescribed in regulations by the Minister (i.e. all commercial use of electricity and domestic consumption above the limit specified is taxable).
Printed matter (books and newspapers)
These must be fully printed or produced by any duplicating process. It includes atlases, books, charts, maps and music.
The exemption excludes imported newspapers, plans and drawings, scientific and technical works, periodicals, magazines, price lists, greeting cards, almanacs, calendars and stationery. These are taxable.
Transfer of a Going Concern
The supply of goods as part of the transfer of a business as a going concern by one taxable person to another taxable person.
Supply of postage stamps (i.e. other commercial services rendered by postal agencies are taxable).
VAT/NHIL is not chargeable on the sale of exempt supplies but at the same time no credit may be allowed to the business making exempt sales for the VAT/NHIL paid on purchases or expenses applied for the purpose of the exempt sales – S. 24(3). The business can however recover these input taxes by including it in the cost of production and distribution. It must be noted that businesses which make only exempt supplies cannot register for VAT.
VAT Retail Scheme - GENERAL
Under the VAT system the normal method of accounting for the output tax due on supplies is by the issue of “tax invoices”. These invoices must by Law include details/information specified in the regulations and this includes the tax value, rate of tax and the actual amount of tax charged. This is important because it shows the amount of tax that the supplier must account for as output tax and the amount that the customer, if he is registered for VAT, may be able to claim as input tax.
In certain business circumstances it is recognised that invoices are not normally issued for individual supplies and that it would be impracticable to do so. These circumstances normally apply to retailers (for example: supermarkets) who sell high volume, low value goods to customers who are themselves not registered for VAT.
It is for this reason that the retail schemes have been designed. They enable certain eligible VAT registered traders to calculate the output tax due on their supplies without having to issue the normal tax invoices.
WHAT THIS NOTICE EXPLAINS
- Who is eligible to use a retail scheme?
- What schemes are available?
- How the schemes are operated?
WHO IS ELIGIBLE TO USE A RETAIL SCHEME?
The schemes normally apply to retailers of goods only. If you make both retail and non-retail sales, you will be able to use a retail scheme for your retail sales only. If you make any other supplies, for example to other VAT registered businesses, you must account for them outside the scheme. Any supplies which you deal with outside a scheme must be dealt with in the normal way, i.e. by issuing tax invoices. You must therefore follow the rules in the General Guide (Public Notice No 3 (PN3) on the download section for that part of your output tax. For example, the tax charged on most supplies of hotel accommodation and restaurant meals will be accounted for by the issue of tax invoices in the normal way. However, if you supply catering services and also have a retail outlet, such as a retail shop, which makes non-catering supplies, you may use a Retail Scheme for that part of the business provided you can keep completely separate records for both activities.
APPROVAL TO USE A RETAIL SCHEME
Before using a retail scheme you must obtain written approval from the Commissioner-General.
WHAT SCHEMES ARE AVAILABLE?
This scheme is for calculating VAT when all of your supplies are at the general or standard rate only. If all your supplies are standard-rated, this is the only scheme you can use.
This scheme is for use when the supplies you make are of mixed liability (i.e. both taxable and exempt supplies). Under this scheme you have to separate your takings at the point of sale, for example, by using separate or multi-total tills. Provided you can do this accurately, the scheme is very simple to operate.
The third scheme can be used as an alternative to Scheme 2 where a person cannot differentiate at the point of sale between the different types of goods sold (taxable or exempt supplies). This scheme bases the proportion of taxable goods sold on the proportion that the taxable goods form out of the total value of all goods purchased for resale in the same state. This assumes that if goods for resale are purchased in a certain proportion then they are sold in the same proportion.
HOW DO THE SCHEMES OPERATE?
Each of the schemes has three common components:
- Daily Gross Takings (DGT) – is a record of the payments received from customers for supplies made (see Part II)
- Retail Scheme Calculation (RSC) – is a calculation necessary to determine what proportion of the Gross Takings is from the sale of taxable supplies (see Part III)
- VAT Fraction – is applied to the Taxable Proportion of the Gross Takings (calculated above) to obtain the VAT content of the Takings – this is the Output tax due on the sales (see Part IV)