WITHHOLDING VAT

The Value Added Tax Act, 2013 (Act 870)

And Withholding VAT Introduction 

The VAT Act, 2013 (Act 870) was recently amended (VAT Amendment-No.2 Act 2017 (Act 954) to provide for the introduction of a VAT withholding scheme as a compliance tool and not a new tax among other things. The Amendment empowers the Commissioner-General to appoint a person as an agent to withhold VAT on payments made to suppliers who are VAT registered

This comes against the backdrop of the difficulty associated with the unfairness that is created by VAT registered taxpayers who charge VAT on their sales but do not comply with their filing and payment obligations This scheme enables the Commissioner General recoup the tax from VAT registered suppliers who supply inputs to VAT registered entities whose end products are zero-rated for example, and for which reason VAT refunds arising from the purchase of such inputs are paid to them.

WHAT IS WITHHOLDING VAT (WHVAT)?

WHVAT is a mechanism to account for and pay Value Added Tax on the supply of goods and services by the person making the payment. Commissioner General appoints Withholding VAT agents to withhold a portion of VAT on payments made to a VAT registered supplier and then the Agent remit to GRA

The scheme involves the declaration of VAT by the supplier and the withholding VAT agent.

HOW THE SCHEME WORKS

The scheme begins with the appointment of withholding VAT agent by the Commissioner-General.At the time of payment, an appointed VAT withholding agent must withhold 7% of the taxable value of all local taxable supplies made by a Standard Rated taxable person/supplier and the difference of 10.5% of the taxable value, along with the taxable value is paid to the taxable person/supplier.

By implication the withholding VAT scheme operate like a two cheque system where a supplier’s payment is split into two.  When the appointed agent makes payment to suppliers, they deduct 7% VAT on the taxable value and remit directly to the Ghana Revenue Authority.

The balance of the payment that is the taxable value of the supply  and the 10.5% VAT of the taxable value is paid to the supplier to enable him recover his taxes paid on purchases or inputs.

The withholding VAT agent immediately issues to the supplier withholding VAT certificate showing the amount of VAT withheld.  The certificate is used as input tax to reduce the total tax liability payable by the supplier on the VAT return.

It must be indicated that Under the scheme a VAT registered supplier who makes taxable supplies in respect of which VAT is to be withheld shall issue an invoice showing separately the total amount of VAT chargeable, that is using the VAT rate of 17.5% and declaring same on the VAT return

It must be also noted that exempt supplies do not qualify for withholding VAT provisions.

The scheme dose not interfere with the agreed payment arrangements and credit terms between the supplier and their customers

THE APPOINTMENT OF WITHHOLDING AGENTS 

The Commissioner General shall in writing appoint withholding agents and they would include   VAT registered entities whose supplies are zero rated and then selected Government and other VAT registered entities

The names of these agents will be published in the media.

A withholding VAT agent continues to be an agent until the appointment is revoked by the Commissioner General

FILING OF RETURNS BY SUPPLIERS TO WITHHOLDING VAT AGENTS

The introduction of the scheme does not change the procedures for submitting VAT returns and accounting for VAT charged by VAT registered suppliers of VAT withholding agents.

The VAT registered taxpayer who is making supplies and has suffered withholding VAT would continue to file their VAT returns and account for VAT in accordance with the provisions of the VAT Act ,2013 (Act 870) to the Ghana Revenue Authority which is by the last working day of the month immediately following the month to which the return relates. These supplies would continue to account for VAT on its sales at 17.5%

FILING OF RETURNS BY WITHHOLDING VAT AGENTS

The appointed withholding VAT Agent is also required to file a Withholding VAT returns by the 15th of the month immediately following the month to which the return relates

Where no tax is withheld with respect to a period for which the withholding agent would otherwise remit tax to the Commissioner General under the provisions of the VAT Act ,2013 (Act 870), the tax withholding agent shall furnish the Commissioner General with a return showing that no tax was withheld in that period. That is would file a NIL Return

RESPONSIBILITIES OF AGENTS

i. Withhold from payment to a VAT registered supplier, 7%  of the taxable output value of standard rated supplies;

ii. Issue a withholding VAT credit-certificate at the time of making payment for the standard rated supplies

iii. Not later than the 15th day of the month immediately following the month to which the returns relates:

a. Submit to the Commissioner General a Withholding VAT returns relating to the VAT & NHIL withheld for each period

b. Pay the amount withheld for each period to the Commissioner General.

Discharge all other duties and obligations applicable to them under the VAT law

RESPONSIBILITIES-SUPPLIER

i. Account for the full output tax (at 17.5%) charged to withholding VAT agents on standard rated supplies on their monthly VAT & NHIL returns

ii. Retain the withholding VAT credit-certificates issued to them by withholding VAT agents as proof for qualification for input tax deduction

Discharge all other duties and obligations applicable to them under the VAT law

It must be noted that failure to register for VAT, failure to charge the tax, failure to issue the VAT invoice for taxable supplies made, failure to submit returns, failure to provide information requested by the Commissioner-General and evasion of tax payment all constitute offences under the VAT Act 2013 (Act 870). Offenders are liable for various sanctions including seal off or closure of business premises, imposition of penalties and legal prosecution.