Adnan Adams Mohammed
A former banker has justified that the Value Added Tax (VAT) charged on goods and services in the country which took effect last weekend, May 1, 2021, is now 19.25 percent.
The government in its 2021 budget statement announced new taxes with one of them being the COVID-19 Health Recovery Levy charged on goods and services, and imports (Except Exempt Supplies and Imports).
According to the Ghana Revenue Authority, this new levy, which comes into effect from May 1, 2021 will be an addition to the sales taxes. However, the former banker gave a detailed explanation in his recent statement shared with the Economy Times on how the VAT System with COVID-19 Levy works.
“How does this change the structure of sales taxes? The COVID-19 Levy is a 1% addition to both the current VAT Standard and the VAT Flat Rates. Currently the VAT Standard works as: GETFUND – 2.5%; NHIL – 2.5%; and VAT – 12.5%”, Former Executive Director of Standard Chartered Bank, Alex Mould emphasized. “With the new levy, this changes to: GETFUND – 2.5%; NHIL – 2.5%; COVID-19 Levy – 1%; and VAT – 12.5.”
Read full details of his calculation and justification below:
How the VAT System with COVID-19 Levy works.
There has been the imposition of a special levy known as the COVID-19 Health Recovery Levy on goods and services, and imports (Except Exempt Supplies and Imports).
This new levy is mainly to help to raise revenue to support COVID-19 expenditures.
According to the Ghana Revenue Authority, this new levy, which comes into effect from May 1, 2021 will be an addition to the sales taxes we currently have.
How does this change the structure of sales taxes?
The COVID-19 Levy is a 1% addition to both the current VAT Standard and the VAT Flat Rates. Currently the VAT Standard works as:
GETFUND – 2.5%; NHIL – 2.5%; and VAT – 12.5%.
With the new levy, this changes to:
GETFUND – 2.5%; NHIL – 2.5%; COVID-19 Levy – 1%; and VAT – 12.5.
What does this mean for prices of goods and services? Let us illustrate how this new change affects prices of products and services. Say a product costs GHS1,000 and you want to determine the VAT to apply on it:
Old system:
Product Gross Cost – GHS1,000
NHIL (2.5% x 1,000) – GHS25
GETFUND (2.5% x 1,000) – GHS25
Sub-total (1,000+25+25) – GHS1,050
VAT (12.5% x 1,050) – GHS131.25
Total price to customer (1,050 + 131.25) – GHS1,181.2
New system:
Product Gross Cost – GHS1,000
NHIL (2.5% x 1,000) – GHS25
GETFUND (2.5% x 1,000) – GHS25
COVID-19 Levy (1% x 1,000) – GHS10
Sub-total (1,000+25+25+10) – GHS1,060
VAT (12.5% x 1,060) – GHS132.50
Total price to customer (1,060 + 132.50) – GHS1,192.5
This means that the new effective compound standard VAT rate is 19.25% (192.5/1,000 x 100), which is 1.125% more than the old effective rate of 18.125% (118.25/1,000 x 100).
Also, the VAT Flat rate changes from 3% to 4%, with the increment being the 1% COVID Levy.
Just like NHIL and GETFUND, the COVID-19 Levy is non-recoverable, meaning GRA will not allow you to deduct it as an input.
