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A Tax Partner at Price Waterhouse Coopers (PWC), Abeku Guan Quansah, has admonished government to eliminate the cascading effect of levies charged with the Value Added Tax (VAT) – stressing that taxes influence behaviour, investments and business competitiveness. Hence, the cascading effect of these levies scares investors away, impacts business operations and leaves businesses with no choice other than to pass down some of the cost to consumers.
He is therefore calling for simplification of the VAT tax code to attract investments and improve compliance. This comes on the back of government’s announcement in the Mid-year Budget Review of its intention to introduce a unified VAT flat rate – scrapping the 3 and 5 percent flat VAT rates.
Speaking exclusively to Business and Financial Times (B&FT), Mr. Guan Quansah noted that the VAT system’s cascading effect is detrimental to the nation’s economic development, as investors opt for other countries in the region with a more favourable and less complex tax regime.
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He maintained that there’s no country in Africa that charges VAT exceeding 20 percent as opposed to the “almost 22 percent” that Ghana levies. “Investors are considering whether to come to Ghana, Ivory Coast, Morocco, Zambia or wherever. But our tax system will drive their decision,” he said.
The Value Added Tax (VAT) is a consumption tax that is levied on the value added on products and services in the country. Ghana’s VAT system comprises a standard rate, three levies and flat rates.
These include a VAT Standard Rate of 15 percent, National Health Insurance Levy (NHIL) of 2.5 percent, Ghana Education Trust Fund (GETFund) Levy of 2.5 percent and COVID-19 Health Recovery Levy (COVID-19 HRL) of 1 percent. These are all charged together, making a complete VAT of 21 percent.
Also, there’s a separate 3 percent flat VAT rate for small businesses and 5 percent flat VAT rate for the real estate sector. These are however charged with the COVID-19 Levy only. The VAT system also has zero, 7 and 12.5 percent withholding VAT rates.
This explains how complex the VAT system is. According to Mr. Gyan Quansah, this complexity makes it difficult for businesses to comply with the tax – thereby impacting government revenue.
While commending government’s decisive action toward simplifying the complicated tax, he expressed doubt on whether the Standard VAT Rate – and adjoining levies which cause the cascading effect – will also be reviewed.
He said government did not state explicitly wherther it seeks to decouple these levies from the entire VAT system or add them to the standard rate to be charged once.
“Removing the cascading effect is to say that we want the levies to work like VAT, which is a proper tax that does not affect production,” he noted.
Mr. Gyan Quansah acknowledged government’s decision to repeal the COVID-19 Levy, saying: “If government wants to reduce the VAT by repealing its COVID-19 Levy, I think it is a good thing to do”.
However, if the cascading effect remains, he maintained that unifying the flat rate and scrapping the COVID-19 Levy won’t simplify the tax and improve compliance, as it will remain among the region’s highest.
“If the cascading effect is there, businesses will factor VAT into their agreements and costs. But if they know that the cascading will not be there, they are not bothered because they can always remit the net to the [Ghana Revenue Authority] GRA.”
Government announced a decision to scrap the COVID-19 Levy after intense public debate on relevance of the tax, which is still being charged long after the pandemic has gone.