Ghana Value Added Tax (VAT)
What Is VAT?
Generally speaking, VAT is a tax on the expenses incurred by consumers when they
pay for goods or services. However, it's not all goods and services which attract
VAT; some will be exempted by law. VAT is therefore a tax on expenditure. It will
replace other taxes on expenditure including the sales and services taxes. VAT is
called a general consumption tax.
The standard rate for all goods & services will be fixed by law. It will be
applied as a percentage of the selling price or import value of the item. However,
a zero-rate is normally applied to all goods sold outside the country. No rate is
applied to goods which are exempted
Importance Of VAT:
Currently, there is no uniform way of collecting the general consumption taxes.
A large portion of tax on expenses incurred by consumers is collected under the
Sales Tax regime by Customs Excise and Preventive Service(CEPS). Since the sales
Tax is collected on only goods, the Internal Revenue Service(I.R.S) is also charged
with collecting a number of expenditure taxes on some selected services. Under the
VAT all the goods and services taxes will be administered under one regime. Moreover,
to ensure fairness to all taxpayers a number of goods and services which were not
previously covered by the sales or Services taxes will be brought together under
the VAT regime. It's only fair that one citizen pays a tax on his or her expenses,
then other citizens must also pay the same on their expenses. The only exception
will be those goods and services which will be exempted under the VAT law. It's
also important to note that by extending the tax to cover all services and the retail
sector, the base of the tax system will be widened. At the moment, the tax system
depends on only a few goods like cocoa, beer cigarette and petroleum for a large
amount of revenue accruing to the state. This makes the tax system rather unstable
and unfair because it's over-dependent on these goods.
Are There Other Expenditure Taxes?
Yes. but they are not collected on all goods and services as the VAT seeks to do.
Often the reasons given for imposing these taxes go beyond merely raising revenue
Excise Duty: is collected on only petroleum, tobacco(i.e. cigarettes),
beer, spirits and some soft drinks. It can be seen from these goods are often discouraged
by society and therefore the rate of excise duties tend to be high.
Import Duty:is collected on only goods imported into the country.
In other words, there is no equivalent import duty on similar goods produced within
Ghana but sometime the raw materials which are imported may attract import duty.
Special Taxes:- Occasionally these taxes are imposed for specific
reasons only. A notable example is the luxury tax which CEPS collects on very expensive
commodities imported into the country. Another example is the Purchase Tax on imported
VAT is the only tax impose on a wide-range of goods and services
without undue attention being given to the place of manufacture of the item(local
or imported) or the peculiar nature of the commodity(luxury and harmful products).
Exemptions From VAT:
VAT covers the sale of goods and services which will not
be specially exempted under the law. The exemptions granted under the previous VAT
law include the following:
- Food stuffs produced and sold in the raw state(e.g. rice, millet, cassava, yam,
guinea corn, plantain, vegetables, meat, etc). The traditional forms of smoking,
drying, frying and cooling didn't affect the expression "raw state"
- Agricultural and fishing inputs specified in the law.
- Newspapers and books(this does not make the paper used in producing these items
- Petrol, diesel and kerosene.
- Essential drugs approved by the Ministry of Health.
- Transport fares - Land, sea and air(This does not
How Is VAT Collected:
It's only businesses which will be registered by the VAT authority which can collect
VAT from customers. All businesses which have annual sales above a certain limit
to be fixed by law are required to register to collect VAT. However the law will
permit businesses with lower amounts of annual sales to register voluntarily. This
means that most artisans and petty traders will not be registered for VAT because
they will be exempted. It's important to note that
these businesses will pay VAT on their taxable purchases and expenses but cannot
charge VAT on sale. The VAT paid on purchases by these small firms may therefore
be added to cost (compare this with the explanation below for registered businesses).