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VAT Standard

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GRA⋅Domestic Tax⋅Tax Types⋅VAT Standard

VAT Standard

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. Click HERE to File and Pay for your VAT Standard Rate.

The 2018 Mid-Year budget amended the VAT rate from 15% to 12.5% and delinked the National Health Insurance Levy (NHIL) and Ghana Education Trust Fund Levy (GETFund Levy) from VAT. Due to this, the NHIL and GETFund Levy cannot be deducted as input VAT.  These changes have implications on the computation of tax for VAT Registered persons.

Note: A standard rated registered taxpayer who deals with a VFRS taxpayer, can deduct the 3% as input tax.  Click HERE to File and Pay for your NHIL/GETFund.

The COVID-19 Health Recovery Levy Act, 2021 (Act 1068), imposes a special levy on the supply of goods and services, and the Import of goods and services into Ghana.
The levy is chargeable at a rate of 1% calculated on the value of taxable supply in respect of:

COVID-19 Health Recovery Levy (COVID-19 HRL)

The COVID-19 Health Recovery Levy Act, 2021 (Act 1068), imposes a special levy on the supply of goods and services, and the Import of goods and services into Ghana.

The levy is chargeable at a rate of 1% calculated on the value of taxable supply in respect of:

  • Supply of goods and services made in Ghana, but excluding exempt goods or services; and
  • Import of goods and services into Ghana.

The COVID-19 Health Recovery Levy is applicable to both Standard Rate and VAT Flat Rate registered persons.

The COVID-19 Health Recovery Levy is not subject to input tax deduction. However, it is an allowable deduction against profit.

Rates

  • Value Added Tax (VAT) – Standard Rate  = 12.5%
  • National Health Insurance Levy (NHIL) = 2.5%
  • Ghana Education Trust Fund (GETFund) = 2.5%
  • COVID-19 Health Recovery Levy (COVID-19 HRL) = 1%

Scope and Coverage

These rates are all chargeable on the value of:
  • Every supply of Goods and services in Ghana.
  • Importation of goods.
  • Supply of imported services, unless otherwise exempted in the VAT Act 2013 (Act 870) or Regulations made under it.

Key Features on the NHIL, GETFund & COVID-19 Health Recovery Levy

  • VAT Registered Taxpayers cannot claim the NHIL, the GETFund, and the COVID-19 HRL charged on their purchases (i.e. the levies are not subject to input tax deduction).
  • Goods charged at the VAT Flat Rate of 4% are not subject to the NHIL & GETFund but are subject to the COVID-19 HRL.
  • The levies are to be charged at every stage that a VAT Standard rated supply is made by VAT Registered Taxpayer.
  • VAT Registered persons are now to account for NHIL, GETFund, and COVID-19 HRL on imported services (which include management and technical services, patents, licenses, etc.) on monthly NHIL, GETFund, and COVID-19 HRL returns.
  • Items that attract a zero rate of VAT also attract a zero rate of GETFund, the NHIL Levy and COVID-19 HRL.
  • VAT Registered Taxpayers who are on the Standard Rated Scheme (SRS) i.e. Manufacturers & Service providers are to account and pay for NHIL, GETFund and COVID-19 HRL.

The Base for Charging the Levies

  • The value of the supply, excluding the chargeable levies and the deductible VAT.
  • All non-deductible levies and taxes should be factored into the cost build up (i.e. treated as costs) to the base to which to compute NHIL, GETFund, and COVID-19 HRL. These cost (levies and taxes) incurred can however be treated as deductible expenses in the financial statements.

Taxable Value for Charging VAT

  • The base for charging VAT is the value of the supply (Goods or services) Including the chargeable levies And excluding the deductible VAT
  • All levies that CANNOT be deducted should be factored into the cost building (i.e. treated as costs) and added to the base before computing the VAT.
  • The 2.5% NHIL, the 2.5% GETFund, and COVID-19 HRL 1% shall be computed on the value of the taxable supply which includes all costs incurred except deductible VAT.
  • The 12.5% VAT shall be computed on the NHIL, GETFund, and COVID-19 HRL charged inclusive value of the taxable supply
  • These costs (levies and taxes) can be presented as deductible expenses in a financial statement.

Responsibilities of Standard Rate Supplier

  • Account for the full output tax at 12.5% on the monthly VAT return
  • Account for NHIL 2.5%, GETFund 2.5% and COVID-19 HRL 1% on monthly NHIL, GETFund and COVID-19 HRL return.
  • Retain withholding VAT credit certificate 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.

VAT, NHIL, GETFund Levy, & COVID-19 Levy Invoice

  • The Commissioner General’s invoice should contain fields for NHIL, GETFund levy, COVID-19 levy and VAT.
  • No invoice other than the new VAT/NHIL invoice is acceptable for use by registered traders as from the Effective Date of Collection (EDC) of the COVID-19 Levy.
  • In completing the invoice, the field for total of NHIL, GETFund Levy, COVID 19 Levy and VAT is mandatory. It is obligatory however for every taxpayer to enter on the invoice, the total of NHIL, GETFund Levy, COVID-19 Levy and VAT without which the vouching of invoices during audit visits would be made extremely tedious.
  • Points (1 to 3) above relating to NHIL, GETFund Levy, COVID-19 Levy and VAT invoice equally apply to the Hotel and Restaurant Receipt/Invoice

Return Filing and Payments

Taxpayers are to file their returns and make payments by the last working day of each month immediately following the month to which the returns relate. For example, October returns must be submitted by the last working day in November. If payment is due on the returns submitted, it must be made not later than the date the return is submitted.

The return must be on the form prescribed by the Commissioner General. Copies of the tax returns form can be downloaded from www.gra.gov.gh.

The following returns will be submitted by the VAT registered taxpayer
• A VAT returns for standard rates supplies
• A VAT flat rate scheme (VFRS) Returns for (VFRS Taxpayer only)
• A NHIL, GETFund, and COVID-19 HRL Return.

Offences and Penalties

Failure to register, failure to issue a VAT invoice, failure to submit returns, failure to maintain proper records, tax Evasion are all offences under the law. Taxpayers who go contrary to the law will face penalties as prescribed in the law.

Invoices

A modified VAT invoice isolating the levies from VAT will be issued to taxpayers.

Own computer generated invoices –taxpayers authorized to use them must be modified to provide separate lines for NHIL at 2.5%, GETFund levy at 2.5%, COVID-19 HRL 1% and a line for the VAT at 12.5%.

Determination of the Taxable Value

a. The 2.5% NHIL and 2.5% GETFund Levy shall be computed on the value of the taxable supply exclusive of COVID-19 Levy and VAT.

b. The 1% COVID-19 Levy shall be computed on the value of the taxable supply exclusive of NHIL, GETFund Levy and VAT.

c. The 12½% VAT shall be computed on the value of the taxable supply inclusive of NHIL, GETFund Levy and COVID-19 Levy.

Illustration 1

Dzolali Limited is a VAT registered textile manufacturing company. The company made the following sales during the month of May, 2021.

  • Domestic sales GHS89,000.00
  • Sales to diplomatic community GHS40,000.00
  • Export to Togo with relevant customs documentations GHS124,000.00
Solution

Compute the relevant taxes payable

Tax computation Taxable supply =                                        89,000.00

GETFund levy = 89,000.00 * 2.5% =             2,225.00

NHIL = 89,000.00 * 2.5% =                            2,225.00

COVID-19 Levy = 89,000.00 * 1% =              890.00             5,340.00

Taxable Value                                                                         94,340.00

VAT @ 12.5% (94,340.00*12.5%)                                         11,792.50

106,132.5

 

Note: 1. Sales to the diplomatic community are relief supplies.

           2.  Exports to Togo is a zero rated supply; Hence their exclusion from the computation of the levy

Transitional Provisions

Field for COVID-19 Levy

Commissioner- General's Invoice

To ensure a smooth transition, as VAT Registered Taxpayers should make arrangements to either acquire the modified Commissioner General’s Invoice or modify your accounting software to accommodate these levies. You should insert on your existing VAT invoices or approved Computer Generated invoices/ sales receipts: a field for COVID-19 Levy after the NHIL and GETFund Levy fields.

Inclusive Amounts

Where the amount is inclusive of NHIL, GETFund Levy, COVID-19 Levy & VAT, you must indicate the amount in the field labelled total tax inclusive value.

Computer Generated Invoice

Authorized computer generated invoice must be modified to provide specifically for the following in addition to the VAT of 12½%:

  • a separate line for NHIL at a rate of 2½%
  • A separate line for GETFUND Levy at a rate of 2½%
  • A separate line for COVID-19 Levy at a rate of 1%
  • A line for the total of NHIL, GETFund Levy, COVID-19 Levy
Derivation of the Various Fractions

The standard rate VAT fraction

C = Cost

1% = 0.01 = COVID-19 Levy

2.5% = 0.025 = NHIL

2.5% = 0.025 = GETFund Levy

12.5% = 0.125 = VAT

If C = the value of the service without taxes and the levies,

Then:

0.01C = the COVID-19 Levy charged

0.025C = the GETFund Levy charged

0.025C = the NHIL charged

(0.125) (1.06C) = 0.1325C= the VAT charged

Therefore:

Total Inclusive Value              = C+0.01 + 0.025C + 0.025C + [ (1.06C) *(0.125)]          = 1.1925C

                                                   Cost + (COVID-19 Levy + NHIL + GETFund Levy) + VAT =1.1925C

The COVID-19 Levy fraction:

Given               1%       =           0.01

1.1925             1.1925

then multiply both the numerator and the denominator by 10,000 to remove the decimals = 0.01 * 10000   = 100

 1.1925*10000     11925

 

To reduce to the lowest fraction, divide both the numerator and the denominator by 25

 = 100 / 25   = 4         

   11925/25      477

 

COVID-19 Levy fraction =      4/477

Illustration 1

  1. Dzolali Limited is a VAT registered textile manufacturing company approved by the Ministry responsible for Trade and Industry. The company made an all-inclusive tax payable of GH¢94,340.00 for the month of May, 2021.

Compute the relevant COVID-19 Levy tax payable

 

Tax computation – COVID-19 Levy

COVID-19 Levy fraction = 4/477

 

GH¢94,340.00 (excluding the tax)

 4   *106,132.50 (including the tax) = GH¢ 890.00

477

Total COVID 19 Levy= GH¢ 890.00

The NHIL fraction:

Given               2.50% =           0.025

1.1925             1.1925

then multiply both the numerator and the denominator by 10,000 to remove the decimals = 0.025 * 10000   = 250

 1.1925*10000         11925

 

To reduce to the lowest fraction, divide both the numerator and the denominator by 25

 = 250 / 25   = 10       

   11925/25      477

NHIL fraction = 10/477

 

Illustration 2.

Dzolali Limited is a VAT registered textile manufacturing company approved by the Ministry responsible for Trade and Industry. The company made an all-inclusive tax payable of GH¢94,340.00 for the month of May, 2021.

Compute the relevant NHIL Levy tax payable.

Tax computation – NHIL

NHIL Levy fraction = 10/477

GH¢94,340.00 (excluding the tax)

10   *106,132.50 (including the tax) = GH¢ 2,225.00

477

 

Total NHIL Levy = GH¢ 2,225.00

The GETFund Levy fraction:

Given               2.50% =           0.025

1.1925             1.1925

then multiply both the numerator and the denominator by 10,000 to remove the decimals = 0.025 * 10000   = 250

 1.1925*10000         11925

 

To reduce to the lowest fraction, divide both the numerator and the denominator by 25

 = 250 / 25   = 10       

   11925/25      477

GETFund Levy = 10/477

 

Illustration 3

Dzolali Limited is a VAT registered textile manufacturing company approved by the Ministry responsible for Trade and Industry. The company made an all-inclusive tax payable of GH¢94,340.00 for the month of May, 2021.

Compute the relevant NHIL Levy tax payable.

Tax computation – GETFund Levy

GETFund Levy Fraction = 10/477

GH¢94,340.00 (excluding the tax)

10   *106,132.50 (including the tax) = GH¢ 2,225.00

477

 

Total GETFund Levy = GH¢ 2,225.00

VAT fraction:

(12.5%) (1.06) = (0.125 1.06) = 0.1325

   1.1925               1.1925           1.1925

 

then multiply both the numerator and the denominator by 10,000 to remove the decimals = 0.1325 * 10000   =    1325

  1.1925*10000            11925

 

To reduce to the lowest fraction, divide both the numerator and the denominator by 25

= 1325 / 25   = 53      

   11925/25       477

 

VAT fraction = 53/477

 

Illustration 4

Dzolali Limited is a VAT registered textile manufacturing company approved by the Ministry responsible for Trade and Industry. The company made an all-inclusive tax payable of GH¢94,340.00 for the month of May, 2021.

Compute the relevant NHIL Levy tax payable.

Tax computation – VAT

VAT Fraction = 53/477

GH¢94,340.00 (excluding the tax)

53   *106,132.50 (including the tax) = GH¢ 11,792.50

477

Total VAT Payable = GH¢ 11,792.50

Impact on the Withholding VAT Scheme

VAT Withholding agents will continue to withhold at the time of payment 7% of the taxable value (the base on which VAT is computed) of all local taxable supplies made by a standard rated taxable person/suppliers, and the difference of 5.5% of the taxable value, along with the taxable value, will continue to be paid to the taxable person /supplier.

The withholding VAT agent will continue to issue to the supplier withholding VAT certificate showing the amount of tax withheld. These Certificates are to be used for purposes of showing as proof of advanced payment of both the VAT and the levies.

The VAT registered taxpayer who has made supplies and has suffered withholding VAT will continue to file both their VAT and levy returns and account for these imposts in accordance with the provision of the VAT Act, 2013, (Act 870), NHIL, GETFund, and COVID-19 HRL Act respectively to the Ghana Revenue Authority.

Withholding VAT agents will continue to file withholding VAT returns by the 15th of the month immediately following the month to which a return relates and make payments of VAT withheld to the commissioner General.

Relevant VAT downloads

click below to download a VAT doc

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