Charging VAT

Once you are registered for VAT you must charge for very sale made or service rendered unless the person you are selling to has VAT Relief or the item or service is classified as Exempt. Only persons or businesses that have been registered for VAT can charge VAT.  A VAT invoice or an approved computer-generated invoice must be issued for each transaction. All transactions are to be recorded in a VAT Account.

VAT invoice

A VAT invoice is the approved invoice produced by the Ghana Revenue Authority. It is the official receipt that has to be issued by the registered taxpayer for taxable sales and services. Some businesses are allowed by the Commissioner-General to issue their own computer- generated invoices and till receipts to their clients.

Rates of VAT

Standard Rate- 12.5 %

VAT Flat Rate – 3%

Zero Rate – 0%

VAT Exemptions

Goods and services that do not attract VAT are called exempt goods and services. For a full list of exempt goods and services please click on this link.

What is Input Tax?

Many of the things bought by registered businesses are subject to VAT.  However, a VAT registered trader can usually get back the VAT charged on business purchases and expenses.  This is called Input Tax.  It includes not only the VAT on raw materials or on goods bought for resale but also the VAT on items and services like:

  • Office equipment for use in the business
  • Telephone bills (in so far as they are for calls used for the business purposes).
  • Payments for services to other businesses (such as accountants’ or solicitors’ fees).

Output Tax

Output Tax is the VAT that you, as a VAT registered taxpayer, charge your customers when you sell goods or services to them.

 

Calculating VAT due

The VAT system allows businesses to deduct the VAT paid on purchases (Input Tax) from the VAT charged on sales (Output Tax).  It is only the difference that is paid to the Ghana Revenue Authority.

Output Tax less Input Tax  = Payment due

 

Since businesses are allowed to make this deduction (i.e. take a credit for the Input Tax) it is not necessary to add the Input Tax to other costs in pricing the final product.  When the input tax is added to other costs, the tax would then be charged on the cost plus input tax, instead of a tax on value added only, thereby unnecessarily increasing the final price of the product.

In some cases, the Input Tax may exceed the Output Tax.  The trader can carry the credit forward or apply for a refund provided the required conditions are met.

Should you charge VAT on every sale or service?

You must charge VAT on every sale made or service rendered. All persons who buy goods you sell or enjoy services you render must pay VAT unless they are exempted from doing so.