By frederick ASIAMAH
The end of August presents an opportune moment for the Ghana Revenue Authority (GRA) to assess the likely impact of the VAT Flat Rate Scheme (VFRS) on indirect taxes filed by businesses.
For sure, the tax administrator will be looking out for filings by firms of large size whose area of operations (wholesaling and retailing) has necessitated that they be placed on the VFRS under which such taxpayers are required to impose a fixed three per cent Value-Added Tax (VAT) on goods.
This is because some companies, while under the standard VAT rate system (15% VAT + 2.5 NHIL), were short-changing the system, authorities of the GRA have revealed.
Some of these tax evaders and their advocates have also been among the loudest voices opposing the VFRS, according to Emmanuel Kofi Nti, Commissioner General of the GRA.
“Some of the people who were paying monthly, for the whole of 2015, ended up paying only twice. That’s the situation we are in,” the Commissioner General indicated in response to probing journalists at a session that the GRA held in Accra two Fridays ago for media practitioners on the VFRS.
He further said: “So, when you hear them fighting so much, ask yourselves, why is this person fighting the thing so much?
“And then, they have advocates. And sorry to say, look out for the advocates in them and you’ll realise that they have advocates who work to minimise the tax these people pay to [the state]. The people who are involved in tax planning to minimise how much these people pay to the country are the chief advocates in this [opposition to the VFRS].”
He proceeded to disclose that “We know a lot and we are out there, we are monitoring the situation and we will make sure that the right tax that the state deserves, the state will have it.”
The Commissioner General’s comments were a reiteration of remarks by Edward Gyamerah, a Deputy Commissioner of GRA, who had stated that some businesses, although registered under VAT, had been evading paying VAT.
He built his point, saying, “If you do the simulation, you will realise that government may even suffer slightly in terms of revenue but why the complaint from that. It means that they have benefitted from a regime. And that benefit is what is going to be taken away from them. Therefore, they must fight it.”
He then forthrightly said: “Because of the simplification, audit trail of checking how much you are supposed to pay in terms of VAT taxes becomes very, very easy. You can no longer use your input-output to manipulate how much you are supposed to pay to the Ghana Revenue Authority. If you have sold ten computers, how much is your selling price? Three per cent has to be paid to Ghana Revenue Authority.
“Checking it becomes very, very easy. Unlike the former era when you have to go through input-output and for about three years, people have been trading, doing all manner of businesses and always reporting credit input. Can we continue like that?”
The 3% VAT
The VAT was re-introduced to replace the sales tax regime in December 1998, after the first attempt failed in 1995. Consumers pay the indirect tax at 15 per cent with an additional 2.5 per cent as National Health Insurance Levy (NHIL).
In 2007, the VFRS was introduced but was withdrawn six years later. Gyamera alleges that “this same group of people (antagonists) managed and succeeded for the tax to be removed.”
The current VFRS regime came into force on July 1, 2017 after the GRA had issued a circular, advising all retailers, wholesalers, including importers to start implementing the tax.
The GRA explained that the VFRS collection and accounting mechanism under which, a registered taxpayer who is a retailer, wholesaler or importer of goods shall have a marginal Value Added Tax (VAT)/National Health Insurance Scheme (NHIS) levy rate of 3%, representing the net VAT payable on the value of taxable goods supplied.
The tax collector added that the tax is an alternative to the standard Scheme method of accounting.
This is a follow up to government’s indication in the budget presented to parliament in March that VAT would but reviewed from 17.5% to 3% flat rate for certain category of business operators.
Making a presentation to journalists at the GRA’s session with the media on July 28, 2017, Nathan Nettey, Assistant Commission in charge of Policy and Programmes at the Domestic Tax Revenue Division of GRA, said businesses registered under the VFRS are not entitled reclaim input tax.
That notwithstanding, simulations suggest that prices of goods are unlikely to rise because prices, if properly computed, should rather decline.
He also clarified that the VFRS applies to businesses who meet the GHC200,000 VAT threshold and have registered or qualify to be registered. Besides, “what we are saying is that it’s only wholesalers and retailers of goods who will charge three per cent,” he indicated.
Thus, regardless of the wholesaler or retailer engaging in importation, they are still required to charge the three per cent, Nettey emphasised.
The VFRS had barely taken off when the AGI asked government to immediately suspend the implementation of the scheme.
The manufacturers group wanted government to return to the consultation table with stakeholders to address their concerns before resuming the implementation.
Similarly, the Food and Beverage Producers Association of Ghana had indicated that the levy could force businesses to pass on the cost to consumers and lay off workers.
The group’s leadership had reportedly said that the scheme could result in prices going up by as much as 9%, arguing that the rising input cost would force its members to pass on the cost to wholesalers and the final consumer.
But the Ghana Union of Traders Association (GUTA) has fully backed VFRS, describing it as a very good policy that would ensure fairness in the business environment.
The group claimed that the vast majority of traders, wholesalers and retailers who are captured under the VFRS are in support of the arrangement.
It is the GUTA that seems to sit well with the GRA. Gyamera gives credence as follows: “If you talk to groups of tax payers that are affected by the flat rate…, talk to the GUTA people, talk to the small tax payers and they will tell you that this is the best tax that has to be applied because it is so simple.
“Three per cent calculation is very simple. We are talking about abuses and other things. If you are going to buy, and the VAT is 3 per cent, everybody is going to impose but if it is 17 (17.5%) then we will try to find way of evading.”
He then quizzes: “…how many small tax payers can recruit professionals to help them to evade taxes?
“You know that when it comes to tax planning, tax evasion, tax avoidance, this is being done by the big companies, the big multinationals, the big organisations. As for the small ones, how much do they have to employ a professional man to assist?”