Ghana is an emerging middle-income market to look out for in Africa. The country is one of the top 20 largest economies on the African continent and the second largest economy in West Africa. The Ghanaian economy is fueled by taxes with the country having an over 13% tax-to-GDP ratio in 2018 and 2020.
Value-added tax (VAT) collection is one significant tax that drives the Ghanaian government revenue, in November 2022, the Ghanaian government increased VAT collections from 12.5% to 15%. This article outlines how VAT in Ghana has metamorphosed over the years and expounds on the situation the current VAT regime finds itself in and all there is to know now.
What is Value-added tax?
VAT, in layman’s terms, is money paid to the government on the price of products and services at each stage of production, distribution, and sale to the final consumer. VAT is an indirect type of taxation because the business or person who ultimately bears the weight of the tax is not the same person or business as the one who remits the tax to the appropriate authorities.
VAT can also be seen as a consumption tax levied based on the value added at each stage of the production of a good or service. In Ghana, all businesses along the value chain receive a tax credit for all VAT already paid.
A brief history of value-added tax in Ghana
Ghana’s legislature propounded a value-added tax (VAT) in December 1994, with its implementation beginning on March 1, 1995. The swiftness of the Ghanaian VAT collection period of implementation became crucial for increased tax revenue collections by the Ghanaian government. The VAT collection intended to take over both sales and services taxes in Ghana, although tax policy experts analyzed that it created inflation and pressure on the prices of goods and services, experts had further predicted that the VAT culture would collapse because of the stress it has caused on the general economy, and true to experts prediction, as time went on, the nation’s fiscal quagmires continued which led to the failure of the 1995 VAT collection and cancellation of VAT in Ghana. The sudden two-month period of implementation and the absence of public awareness were the major causes of the colossal failure. Ghana’s experiences with the value-added tax can hold great lessons for nations contemplating enacting such a tax law.
The value-added tax was brought back again in 1998 following a series of public awareness campaigns to educate citizens on the general advantages of the VAT collection to the country. Following the Ghanaian government’s failed attempt at implementing the tax failed, legislators decided to prioritize public awareness and enlightenment. The section of the law detailing the commencement made provisions suggesting the minister in charge of finance to broadcast in the media houses how and when the tax can be paid by Ghanaians. The result of this style of awareness and taxpayers’ education proved worthy and the VAT collection became a success.
Position of retailers
Retailers have been significant to the discussions relating to the VAT amendments in Ghana. The question raising the dust about retailers is, “What is a retailer and how important are they to VAT collection?”. Accordingly, experts agree that retailers are business people who purchase items from wholesalers and sell them to the final consumers. Nonetheless, persons conversant on how the economy of Ghana functions will understand that retail distribution and trading have gained momentum over the years. It, therefore, is understandable why retailers are given real attention to all necessary amendments to the value-added tax laws in Ghana.
Firstly, the VAT law of 1998 recommends turnover registration parameters exclusively for retailers. The remainder of taxpayers were asked to register without much attention placed on their turnovers. This baseline was dropped in 2001, with the expectation of having more retailers register for the VAT collection in Ghana. In 2007, there was introduced a 3% flat-rate scheme for retailers. The scheme brought back the unique feature of the sales tax and refused retailers the right to claim VAT inputs.
The new era of VAT Collection in Ghana
Finally, the 2013 law brought the 1998 Ghanaian VAT law to an end and Ghana possessed a defined value-added tax plan based on the estimated input-output style for businesses having a GHS90,000 (an equivalent of $7,964) annual returns or more and the existence of a flat-rate regime disallowing deductions on inputs, for example, the sales tax for people holding a GHS90,000 (an equivalent of $7,964) and GHS10,000 (an equivalent of $844).
The VAT law enacted in 2013 but came into force in 2014 was intended to seamlessly take over the old law, but some existing core processes were altered. Then again, by April 2015, a real estate unique flat-rate scheme of 5% was brought into law, since real estate was gathering significant attention in the Ghanaian market, but it was removed in April 2017 and replaced by the 3% flat-rate plan for retailers which was introduced for all parties including the real estate industry. In 2017, Ghana had a retailer’s 3% flat-rate and also a vivid value-added tax for all taxpayers meeting the required benchmark. As per the 2017 law, the general understanding of retailers was taken into clarity but also stretched to include wholesalers. The 3% flat rate was equivalent to the taxes paid by traders under the income-credit scheme which was 12.5% and was the official standard VAT rate at the time.
Value-added tax rate in Ghana
Ghana has a standard VAT rate of 15% for all transactions that are done within the country, except for those that are exempted by law. The current VAT rate was amended in November 2022 following the amendment of the value-added tax law by Act No. 1087 and has been in effect since January 1, 2023.
How to register for VAT in Ghana
To be eligible for VAT submission in Ghana, businesses must be within the VAT mark. Businesses must also have an established place of business for dealing in taxable goods. To register for VAT, businesses must:
- Have a Taxpayer Identification Number (TIN)
- Fill out the VAT registration form on the Ghanaian VAT registration website on gra.gov.gh and get copies of business registration documents with it.
- Submit registration forms to the nearest Domestic Tax Revenue office.
- A VAT certificate will be given to businesses. This must be displayed at every business premises.
VAT is money paid to the government on the price of services and products at each stage of production, distribution, and sale to the final consumer. Many critics of VAT collection in Ghana see it as an unjust burden on businesses, especially retailers.
Nonetheless, it must be understood as a source of revenue to nations and therefore must be embraced. Ghana’s VAT regime has gone through a series of amendments. It is expedient that businesses in Ghana become aware of the current VAT system and the processes involved in registration for it to work.
Frequently Asked Questions
Businesses which are eligible for VAT in Ghana but do not register are subject to being fined. The Commissioner-General for tax collections in Ghana will compulsorily register such business. In addition, the business will pay a fine of up to two (2) times the amount of tax due from the time it ought to have registered.
VAT withholding agents are people or businesses required by law to withhold 7% of the taxable amount and submit that amount to the Revenue Authority.