VAT FLAT RATE SCHEME (VFRS)
The VFRS is a special method of collecting and accounting for VAT/NHIL. It is designed for all VAT registers retailers and wholesalers (including importers) of taxable goods. These registered taxpayers shall charge VAT/NHIL at marginal rate of 3% on the value of their taxable sales.>
Purpose of VFRS
- VFRS is simpler to operate
- Eliminates the difficulty of obtaining invoices to support input tax claims and
- Has the potential to expand the tax net and create a level playing field for all registered taxpayers
The VFRS is an alternative to the standard VAT/NHIL, and a simplified method of accounting for VAT/NHIL. This means that VAT registered taxpayers who are exclusively wholesale and/or retailers of taxable goods cannot operate the standard VAT/NHIL Scheme.
A FLAT RATE OF 3%
The tax payable at a flat rate of 3% is equivalent in value to the effective tax payable by traders on the current invoice-credit scheme at a rate of 17.5% which employs the input-output mechanism.
WHO QUALIFIES TO OPERATE THE VFRS
All VAT registered retailers and wholesalers (including importers) of taxable goods qualify to operate the VFRS.
NOTE: It is important to note that persons who are not registered by GRA to operate either the VFRS at 3% or the standard VAT scheme at 17.5% cannot by law charge VAT/NHIL.
SALES WITH VAT FLAT RATE
The VFRS does not change the tax status of goods and services supplied. Goods and services specified as exempt supplies under the VAT Act 2013 (Act 870) as amended remain exempt. In the same way, the status of zero-rated and relief supplies remain unchanged. Therefore, a VFRS operator is not required to charge the tax on exempt items such as:
- Agricultural products in their raw state produced in Ghana
- Agricultural inputs
- Fishing equipment
- Mosquito nets
- Postage stamps
- Goods designed for the exclusive use of the disabled
- Petrol, diesel, kerosene and LPG
- Medical services and Medical supplies
AS A VFRS OPERATOR, IS IT AN OBLIGATION TO ISSUE AN INVOICE FOR EVERY TRANSACTION?
Yes. VFRS businesses are required by the VAT law to issue the VAT/NHIL Flat Rate Scheme invoice for all transactions. However, businesses authorized by the Commissioner-General to operate the Special Retail Scheme could use electronic means to record their sales and issue till receipts for their sales.. The till receipt will show the rate and amount charged for the VAT/NHIL.
REFUSAL TO USE VFRS INVOICE
You would be committing an offence under the VAT Act, 2013 (Act 870) punishable by a fine not exceeding 100 penalty units or imprisonment for a term of six (6) months or both if you fail to issue a VFRS invoice to cover each transaction.
WHEN DO I, AS A VFRS OPERATOR CHARGE THE TAX?
VFRS is chargeable when taxable goods are sold by a registered VFRS business who must issue a tax invoice to cover such sales.
SPECIAL RECORDS FOR VFRS PURPOSES
You must keep at least the minimum records required to be kept by VAT registered businesses. The type of record to be kept will depend on the nature and size of your business, but will include books of accounts such as:
- Sales Books
- Purchase Books
- Cash Books and
- Cheque Payment Books.
These records must be kept in such a way that your VAT/NHIL position can be clearly and easily established. You should also ensure that these records are properly written up and readily made available for inspection by tax officers if required. The above records and all other supporting documents such as:
- Bank statements
- Cheque stubs
- Till rolls
- Receipts etc,
relevant for the establishment of VAT/NHIL positon must be retained and made available on request by tax officers for a period of six (6) years unless the Commissioner-General advises otherwise.
The VAT law enjoins all VFRS operators:
I. To keep basic standard records such as:
- Sales Records
- Invoices received and issued
- VAT/NHIL account
II. To submit monthly VFRS returns to their Local Tax Office. Each return is to be submitted not later than the last working day of the month immediately following the month to which the return relates.
III. To pay the tax due to the GRA not later than the last working day of the month immediately following the accounting period to which a return relates.
IV. To issue VFRS invoices for all transactions.
Outstanding credit balances on the ledgers of the GRA which are mainly as a result of input taxes on unsold stocks of goods of persons migrating from the standard VAT scheme to VFRS shall be reversed since VFRS operators shall not take credit for input taxes.
Such credit will then have to be recovered as part of the VFRS operator’s cost build up to the selling prices of the unsold stocks of goods.
WHAT IF I HAVE AN OUTSTANDING VAT/NHIL LIABILITY TO HONOUR INSTEAD?
All outstanding VAT/NHIL liabilities of standard VAT scheme operators must be paid. Failure to do so will compel GRA to employ its normal debt recovery tools to recover such outstanding debts.
WHAT IF I HAVE OUTSTANDING VAT/NHIL RETURNS TO FILE?
All standard VAT scheme wholesalers and retailers who are to change over to VFRS but have outstanding VAT/NHIL returns to file are required to file all such outstanding returns for the periods preceding the months in which their status changes to VFRS operators.
WHAT ABOUT STOCKS OF OUTSTANDING VAT/NHIL INVOICE BOOKLET IN MY POSSESSION?
Persons whose status will change from standard VAT scheme operators to VFRS operators and who have in stock quantities of VAT/NHIL invoice booklets should do the following:
- Fully used invoices – to be kept for audit purposes.
- Unused invoices – to be retrieved and replaced with VFRS invoices at no cost to the taxpayer.
- Partially used invoices – tax officers will cancel out the unused leaflets and booklets returned by taxpayers.
WHAT RESPONSIBILITIES DO I HAVE AS A CONSUMER?
It is the responsibility of the consumer to:
- Pay the tax when supplied with goods by the VFRS operators and
- Insist on taking a VFRS VAT/NHIL invoice for each taxable transaction.
Insisting on the invoice would ensure that taxes paid by the consumer to the VFRS operators of goods are in turn paid to the Government. This is because the amount of tax paid for each sale of goods by the VFRS operators would reflect on the duplicate and triplicate copies of the original invoice issued to the consumer. The duplicate and triplicate copies of each original invoice issued out to the consumer are by the VAT law, to be kept by the VFRS operators for inspection by Tax Officers.