VAT REFORMS IN GHANA:

THE WAY FORWARD

ICA-G WORKSHOP

SETH TERKPER, October 4, 2017

Introduction
■ VAT [re]introduced in Ghana in 1998
– Attempt in 1995 failed; planned since mid-1980s
■ Replaced [selected] existing sales & service tax regime[s]
– Sales tax on imports and manufacturing
– VAT: tax on all transactions to distribution stage
– Collection in multiple [VA] stages, not single
■ VAT Service [1998 to 2013]: Integration [IRS/VATS to DTD]
■ VAT reforms? Not an isolated event
– Must be part of comprehensive tax reforms

10/4/2017 VAT reforms [ICAG Workshop] 2

Original Sales Tax regime
Original Sales Tax regime
(goods)
Net/
Value ex Taxable Output Input Gross Price [tax
Tax value Tax/VAT Tax/vAT Tax/VAT plus] Comments
Importer 1000 1000 175 175 1175
M’facture
r 800 1975 346 346 2321
Wholesal
er 600 2921 2921 Not covered
Retailer 400 3321 3321 Not covered
Consume
r 2800 3321 521

Note: different service tax

Rate [standard]17.50% rates/regimes

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What is the ideal consumption tax
[under any method of collection]?
What is a fair and efficient consumption tax?
Value Ideal Tax
Taxpayers ex Tax Stages Final
Importer 1000 175 na
Manufacturer 800 140 na
Wholesaler 600 105 na
Retailer 400 70 na
Consumer 2800 490 490
Rate [standard] 17.50%

10/4/2017 VAT reforms [ICAG Workshop] 4

Cascading is not an option
Full cascading to retail stage
Net/
Value Taxable Output Input Gross Price [tax
ex Tax value Tax/VAT Tax/vAT Tax/VAT plus] Comments
All registered
Importer 1000 1000 175 175 1175 taxpayers
M’facture pay sales tax
r 800 1975 346 346 2321 without
Wholesal
er 600 2921 511 511 3432 recourse to ITC
Retailer 400 3832 671 671 4502
Consume
r 2800 4502 1702 4502

Rate
[standar
d]
10/4/2017 17.50%
VAT reforms [ICAG Workshop] 5
Features of VAT regimes
What is [generally-accepted] “best practice”?

■ Collection in multiple stages on “value added”

■ Broad-based “inclusive” approach
– Prerequisite: making “taxable” supplies
■ “Transaction-based”—“invoice-credit” method
– Compare “Addition” and “Subtraction” methods
– Input Tax Credit [ITC] allowed to avoid “cascading”
– Pre-requisite: evidence of “sales” and “purchases” invoices
– Standard [single rate], with “zero-rating” for exports
■ Invoices: Business-to-Business [B2B] & Business-to Consumer [B2C]

10/4/2017 VAT reforms [ICAG Workshop] 6

VAT—registration at every stage
Why ITC? Consumption, not business, tax

Value Added Tax [All Registered]

Net/
Value ex Value Output Input Gross Price [tax
Tax Added Tax/VAT Tax/vAT Tax/VAT plus] Comments
Importer 1000 1000 175 175 1175 B2B [ITC]
M’facture
r 800 1800 315 175 140 2115 B2B
Wholesal
er 600 2400 420 315 105 2820 B2B
Retailer 400 2800 490 420 70 3290 B2B
Consume B2C [terminates;
r 2800 490 3290 no ITC]

Rate [standard] 17.50%

10/4/2017 VAT reforms [ICAG Workshop] 7
Invoice-credit method
Main advantages
■ “Audit trail” of [sales/purchase] invoices &records
■ Self-accounting—needs a purchase [input tax] invoice to
claim VAT credit on a sales [output tax] invoice
■ VAT registration threshold: main “barrier” to keeping
invoice/records
– “Voluntary” registration is key to all Tax
Administrations encouraging [not discouraging]
recordkeeping

10/4/2017 VAT reforms [ICAG Workshop] 8

Features of VAT regimes
Exceptions to “best practice”

■ Registration “threshold”
– Level of “turnover” or sales below which no registration required
– Neutral—simply turnover; not category of taxpayer, sector or commodity
– Sufficiently high to eliminate taxpayers who cannot keep “adequate”
records [and of real “nuisance” value?]
■ Exemptions—a limited “schedule” of taxable supplies
– Social intervention tool [education & health “supplies”]
– Technical reasons [financial services; owner-occupied housing}
■ Zero-rating—application of zero-rate to exports
– So we do not export our taxes and be competitive

10/4/2017 VAT reforms [ICAG Workshop] 9

VAT Threshold
Taking of the “small” taxpayer
Value Added Tax [Exempt
retailer]
Net/
Output Gross Price
Value Taxable Tax/VA Input Tax/VA [tax
ex Tax Value T Tax/vAT T plus] Comments
Importer 1000 1000 175 175 1175 B2B
Manufacturer 800 1800 315 175 140 2115 B2B
Wholesaler 600 2400 420 315 105 2820 B2B
Retailer [non- B2B [Input tax is
regustered] 400 3220 na 420 na 3640 cost]
Consumer 2800 420 3640 B2C

Rate
Rate [exemp
[standard] VAT reforms
10/4/2017 17.50% t]
[ICAG Workshop] Nil 10
VAT refunds:
Zero-rating exports
Value Added Tax
[Exporter]
Net/
Value ex Value Output Input Gross Price [tax
Tax Added Tax/VAT Tax/vAT Tax/VAT plus] Comments
Importer 1000 1000 175 175 1175 B2B
M’facture
r 800 1800 315 175 140 2115 B2B
Wholesal
er 600 2400 420 315 105 2820 B2B
Exporter 400 2800 0 420 (420) 2800 B2B
Consumer
[foreign] 2800 0 2800 B2B [Foreigner]

Rate
[standard Rate
] 17.50% [export] 0%
10/4/2017 VAT reforms [ICAG Workshop] 11
Basic VAT supply rules

■ Supplies ■ Time of supply

– Refers to goods and – At the time of issuing
services invoice or removal of
– Only “taxable goods (earliest)
supplies” attract VAT ■ Value of supply
(caters for exempt – Open market, at
supplies) arms-length
■ Place of supply ■ Taxpayer
– Where the supply is – Anybody making
made [key to exports] taxable supplies

10/4/2017 VAT reforms [ICAG Workshop] 12

Summary and comparison
Price Price Tax/VAT Tax/VAT
Method Value Price Tax/VAT
[Deviatio [Deviatio
[Ideal] n] [Ideal] n]
Original Sales
Tax 2800 3321 3080 241 521 280 241

VAT: Ideal 2800 3290 3080 210 490 280 210

VAT: Exports 2800 2800 3080 (280) 0 280 (280)

VAT: Threshold 2800 3640 3080 560 420 280 140

VAT: Full
cascading 2800 4502 3080 1422 1702 280 1422

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VAT Flat Rate Scheme [VFRS]
and other Amendments
■VAT flat rate scheme introduced
– GRA Public Notice [24 April 2017]
provides the necessary guidelines the
VAT (Amendment) Act 2017 (VATAA).
– VATAA provides for the introduction of
the VAT flat rate scheme (the scheme)
with respect to VAT and the National
Health Insurance Levy (NHIL)

10/4/2017 VAT reforms [ICAG Workshop] 14

VAT Flat Rate Scheme [VFRS]
and other Amendments
■ Rates
– Retailers and wholesalers of goods to replace the
Standard rate 17.5% (VAT 15% plus NHIL 2.5%) with
flat rate of 3%
– Standard rate of 17.5% remains applicable to imports
– VFRS not applicable to supply of any form of power,
heat, refrigeration or ventilation under S27 of VAT Act
2013
■ Input tax
– Taxable persons making taxable supplies under VFRS
are ineligible ITC.
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VAT Flat Rate Scheme [VFRS]
and other Amendments
■ Exemptions [VAT/NHIL]
– Domestic air transport
– Immovable property, including land to be used
for, or intended to be used for, a dwelling
– Financial services
– Crude oil and residual fuel oil
– These amendments became effective from 7
April 2017 (i.e., the date of Gazette
notification).

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VFRS
Impact of exempting
wholesale/retail
Value Added Tax [VFRS
wholesale/retail]
Net/
Value ex Taxable Output Input Gross Price [tax
Tax Value Tax/VAT Tax/vAT Tax/VAT plus] Comments
B2B [Standard
Importer 1000 1000 175 175 1175 17.5%]
B2B [Standard
Manufacturer 800 1800 315 175 140 2115 17.5%]
Wholesaler B2B [VFRS 3%; no
[VFRS] 600 2715 81 na 81 2796 ITC]
B2B [VFRS 3%; no
Retailer [VFRS] 400 3196 96 na 96 3292 ITC]
Consumer 2800 492 3292 B2C

Note: apportionment/allocation of
Rate [standard] 17.50% input VAT
Rate [VFRS]
10/4/2017 3.00%
VAT reforms [ICAG Workshop] 17
VFRS
Registered Service Provider
VAT [VFRS + registered Service
Provider]
Net/
Value ex Taxable Output Input Gross Price [tax
Tax value Tax/VAT Tax/vAT Tax/VAT plus] Comments
B2B [Standard
Importer 1000 1000 175 175 1175 17.5%]
B2B [Standard
Manufacturer 800 1800 315 175 140 2115 17.5%]
Wholesaler B2B [VFRS 3%; no
[VFRS] 600 2715 81 na 81 2796 ITC]
B2B [Standard
Service provider 400 3196 559 na 559 3756 17.5%]
Consumer 2800 956 3756
Note: apportionment/allocation of input
Rate [standard] 17.50% VAT
Rate [VFRS] 3% Can Service Provider claim ITC for 3% on an invoice?

10/4/2017 VAT reforms [ICAG Workshop] 18

VFRS
Registered Exporter
VAT [VFRS + Exporter]]
Net/
Value ex Taxable Output Input Gross Price [tax
Tax value Tax/VAT Tax/vAT Tax/VAT plus] Comments
B2B [Standard
Importer 1000 1000 175 175 1175 17.5%]
B2B [Standard
Manufacturer 800 1800 315 175 140 2115 17.5%]
Wholesaler B2B [VFRS 3%; no
[VFRS] 600 2715 81 na 81 2796 ITC]
Exporter 400 3196 0 na 0 3196 B2B [Exports 0%]
Consumer 2800 396 3196

Note: apportionment/allocation of
Rate [standard] 17.50% input VAT
Rate [VFRS] 3% Can Service Provider claim ITC for 3% on an invoice?
Exports 0%
10/4/2017 VAT reforms [ICAG Workshop] 19
VAT in Ghana
Some issues to ponder about
■ Breaking the “value added” chain
– Exemption for wholesalers and large retailers
– Not consistent with GRA “segmentation” & “integration”
■ 3 rates applicable to small entities?
– Original threshold in VAT Act [Ghc200,000] not amended
– Income Tax Act [presumptive tax]—6% partly in lieu of VAT
– Flat rate [3 percent]—could mean 9 percent for some small
taxpayers

10/4/2017 VAT reforms [ICAG Workshop] 20

VAT in Ghana
Some issues to ponder about
■ To keep or not to keep recordsF
– Presumption that “flat rate” means minimal or no records
– Then “flat rate” not consistent with ITA
■ Denial of ITC & exporting means “cascading” & inefficient regime
– Inability to secure invoices from “flat rate” beneficiaries
– Some benefiaries are large and in LTO already?
■ Administration & compliance costs: records, systems, evasion &
avoidance
■ Exports may not be competitive

10/4/2017 VAT reforms [ICAG Workshop] 21

Way forward for VAT reforms?
Think “enhancements”
■ Put VERY BASIC VAT issues settled 20 years ago [1988 to 2018] to
rest: will allow time to think about “enhancements”
– Tax policy: primacy of VAT as the ultimate consumption tax
[compare basic objectives for income tax, excise, and tariffs]
– Organizational issues:
■ Segmentation [client-focus]: VAT must be consistent with
GRA’s goal for Large, Medium, and Small taxpayer/offices
■ Integration: make recordkeeping in particular easy for
income tax and VAT taxpayers, based on segmentation

10/4/2017 VAT reforms [ICAG Workshop] 22

Way forward for VAT reforms?
Think “enhancements”
■ Electronic invoicing—going “paperless”, including invoice matching
■ e-commerce—taxation of the internet [now “apps’]
– Significant transactions being done via the internet
– Internet merging sectors of the economy
■ are telcos also banks and vice versa?
■ Cross-border issues
– physical as well as electronic [ECOWAS and various trade
agreements]
– Where is the place of supply
■ Who are suppliers and registered taxpayers?

10/4/2017 VAT reforms [ICAG Workshop] 23

Conclusion
■ Focus on enhancements, not brood over basic
principles that do not reflect “best practice”
■ Time to settle for the KISS [keep it simple, stupid] rule
■ Ghana is not an “island”, lets take a cue
– Why is there no rush to introduce flat rate
schemes?
■ Hopefully, on the 20th anniversary of VAT in 2018 we
will meet to discuss ICAG’s “standards on VAT”

10/4/2017 VAT reforms [ICAG Workshop] 24

 THANK YOU

10/4/2017 VAT reforms [ICAG Workshop] 25