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Analysis of the 2023 Tax Amendment Acts and my take on the way forward

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Analysis Of Tax Amendment
Analysis Of Tax Amendment

Introduction

 

From my recent article on the tax highlights of the 2024 budget statement read by the Minister for Finance on 15th November 2023, I enumerated some tax measures which were under consideration for implementation in 2024. Some of these measures requires amendments in existing tax laws. The executive tabled the various amendment bills they required to operationalise the implementation of their budget proposal to Parliament of which Parliament duly passed these bills on 29th December 2023 into Acts.

 

After the passage of those bills by Parliament, the President assented to them on the same date, and they were duly gazetted on the same date (29th December 2023) to enter them into force. This article is to peruse the amendment Acts which became enforceable from the gazette date to evaluate the impact of the laws on taxpayers and to set the tone for discussions on ensuring compliance by taxpayers.                                                 

  • Analysis of the Acts are set out below   

 

Below are highlights of the various amendment Acts:

  • Value Added Tax (Amendment) Act, 2023 (Act 1107) (to implement VAT enhancement measures)

 

The Value Added Tax (Amendment) Act, 2023 (Act 1107) provides as follows:

  1. Section 1 of Act 1107 amends section 3 of Act 870 by the insertion after subsection (3) of (4) as where a taxable person makes a taxable supply of an immovable property for rental purposes other than for accommodation in a dwelling or in a commercial rental establishment, that person shall account for the tax payable under this section at a flat rate of five percent (5%) calculated on the value of the taxable supply.

This provision has introduced a new rate to the VAT regime in Ghana, making a total number of four (4) distinct VAT rates in Ghana. The rates are zero (0%) for zero rated items; three percent (3%) for VAT flat rate for retailers and wholesalers of goods with annual turnover between Ghs200,000 and Ghs500,000; five percent (5%) VAT flat rate for rental of commercial immovable property other than for accommodation in a dwelling by a person other than a commercial rental establishment; and the fifteen percent (15%) VAT standard rate for any other taxable supply other than those listed above.

  1. Section 5 of Act 1107 also requires estate developers to also account for VAT at the same five percent 5% flat rate on the supply of an immovable property including land.

The amendment states further in section 3(b) of Act 1107 by amending section 48 of Act 870 by the insertion of after subsection (7D) of (7E) and (7F) that a taxable person to whom section 1 of Act 1107 applies to does not qualify for input tax deduction in respect of the supply of immovable property for commercial rental or a supply of immovable property by an estate developer.

Any taxpayer who is not a commercial rental establishment who rents an immovable property for commercial purposes is in scope for compliance of this new introduction and is expected to account for VAT on the rental at a 5% flat rate without taking input VAT deduction in its VAT accounting.

  1. Section 2 of Act 1107 amends section 47 of Act 870 by insertion after section 47(C) of 47(D) as an appointed withholding agent who fails to withhold VAT and remit to the Commissioner General (CG) by the 15th day of the month following that in which the amount was due under this section shall pay the VAT that should have been withheld and a penalty of thirty percent (30%) of the amount.

Subsection 47(E) states further that an appointed agent who fails to withhold the VAT from the payment but paid the appropriate tax to the CG is entitled to recover the VAT from the supplier who received the payment. This opportunity of recovery does not extend to the 30% penalty payable for non-compliance.

Appointed VAT withholding agents are expected to withhold the 7% VAT from the taxable amount on every payment of standard rated VAT invoice. There is no exemption for this VAT withholding so any payment of a standard rated invoice shall be subjected to the 7% withholding by the appointed agents.

Section 1 of the VAT Amendment Act 2021 (Act 1072) sort to migrate all retailers of goods who within a twelve-month period, makes a taxable supply not less than Ghs200,000 but exceeding Ghs500,000 to migrate from the 3% flat rate scheme to the 15% standard rate scheme.

Retailers of goods whose taxable turnover in any twelve-month period exceeds Ghs500,000 are required to upgrade their VAT registration from the flat rate to the standard rate scheme and issue the appropriate standard rated invoice to enable the appointed agents to withhold the 7% withholding VAT in compliance with subsection 2 of Act 1107. Ghana Revenue Authority (GRA) has noticed that most retailers of goods who have met this threshold are not migrating to the standard rate scheme as required by Act 1072 so retailers who are in scope should assess their situation and comply to avoid any exposures.     

  1. Section 4 of Act 1107 amends the first schedule (exempt supplies) of Act 870:
  • By the substitution of the definition of “estate developer” at paragraph 2 of “estate developer” means a commercial establishment or an individual engaged in the business of construction or renovation and supply of immovable properties.
  • By the substitution of the opening phrase of paragraph 6, of a supply of the following inputs for agricultural purposes.
  • By the substitution for subparagraph 2 of paragraph 10, of the exemption in subparagraph 1 does not apply to: imported (textbooks, exercise books, newspapers, publications, and charts); architectural plans and similar plans; drawings; scientific and technical works; periodicals; magazines; trade catalogues; price lists; greeting cards; almanacs; calendars; diaries and stationery; and other printed matters.
  • By the substitution for paragraph 15, of a supply of domestic transportation of passengers by road, rail, and water, except the supply of haulage or the rental or hiring of passenger and other vehicles.
  • By the substitution for paragraph (a) of paragraph 18, of immoveable property, including land used or intended for the purpose of a dwelling but excluding the supply of immovable property by an estate developer.
  • By the substitution for paragraph 19, of a supply of financial services excluding non-life insurance.     
  • By the deletion of paragraph 21.
  • And by the substitution for paragraph 27, of importation of plant and machinery designed specifically for use in the automobile industry and kits by an automobile manufacturer or assembler who is registered under the Ghana Automotive Manufacturing Development Programme and the importation of electric vehicles for public transportation.

The amendment to the first schedule of Act 870 has several impacts on the operations of taxpayers. It has reviewed some of the supplies which are not subject to VAT. I wish to give some emphasis to the information in bold under bullet 3 because there is several misinformation on social media that “textbooks, exercise books, newspapers, publications, and charts” are no longer exempt from VAT as it was in the past. I wish to explain that all those items are still exempt from VAT if they are produced locally but all those items IMPORTED into Ghana do not have the exemptions from VAT. However, the other items not in bold in the same bullet are not exempt from VAT whether they are produced locally or imported into Ghana.

Another bullet worthy of explaining is the fourth bullet. The information is summarised as any form of domestic transportation other than by road, rail, and water shall attract VAT. Any other domestic transportation means other than what has been listed including air travel, drone or any other means shall attract the VAT. The waiver of VAT exemptions on domestic air transport is a new introduction in 2024. This means the cost of domestic air transport will be increased by an effective VAT rate of 21.9% translating into a minimum increase in domestic air transport if operators maintain their pricing and passes the VAT to customers.  

A commentary on bullet 6 above is required to clear the smock screen on whether financial services has been roped into scope of VAT again as speculated on social media. This point is critical to the activities of taxpayers because almost every taxpayer is impacted by financial services in one way or the other so VAT on financial services will be a great deal for taxpayers. The provision states that the supply of financial services excluding non-life insurance is exempt from VAT. This means all financial services are exempt from VAT including life insurance BUT DOES NOT INCLUDE non-life insurance (non-life insurance payment is vatable). At the back of this amendment, the Ghana Insurers Association has advised its members to wait for National Insurance Commission’s approved tariffs for 2024 which will factor the effect of the VAT in their premium pricing. 

Further engagement between GRA and stakeholders to determine what constitute non-life insurance will be required since the Act has not defined what constitute non-life insurance.

The deletion of paragraph 21 as stated in bullet 7 means the cost of postage supplied by Ghana Post, other than for expedited services or for philatelist purposes is in scope of VAT now. In the past, ordinary postage by Ghana Post was not vatable but going forward such ordinary postage will be vatable in the same way as the other courier services like EMS, and DHL.  

  1. Section 5 of Act 1107 amends the second schedule (zero rated supplies) of Act 870: 

 

  • By the substitution for paragraph (10) of paragraph 2 of a supply of locally manufactured textiles up to 31st December 2025 by a local manufacturer who has been approved by the Minister responsible for Trade and Industry.

 

  • By the substitution for paragraph (11) of paragraph 2 of a supply of locally assembled vehicles under the Ghana Automotive Development Programme from 1st September 2022 to 31st December 2025, and

 

  • The insertion after subparagraph (11) of paragraph 2 of (12) the supply of locally manufactured sanitary towel.

 

The provisions above mean all the items listed are vatable, but they attract VAT at the rate of zero percent making it possible for those manufactures to sell their output at no VAT charge and be able to make claim for input VAT paid.

  • Income Tax (Amendment) (No 2) Act 3023, (Act 1111) (amends the tax-free band of the Individual tax schedule) 

 

Upon the successful negotiations of the Tripartite Committee on the National Daily Minimum Wage. The tax-free band of the resident individual income tax schedule has been amended by Act 1111 with the rates stated below:

 

No. Chargeable Income Band Rate of Tax
1 First Ghs5,880 Nil
2 Next Ghs1,320 5 per cent
3 Next Ghs1,560 10 per cent
4 Next Ghs38,000 17.5 per cent
5 Next Ghs192,000 25 per cent
6 Next Ghs366,240 30 per cent
7 Exceeding Ghs600,000 35 per cent

My assessment of the schedule has revealed an error in the chargeable income bands. Band 1 to 6 are supposed to sum to Ghs600,000 beyond which, the final tax rate of 35% would apply in band 7 but I have discovered that the sum of band 1 to 6 is in excess by Ghs5,000 which is an error on the part of the promulgaters of the Acct. I do not foresee GRA seeking an amendment to Act 1111 to cure this error. This will mean that the effective amount which will be taxed at the 35% will be an amount more than Ghs605,000 and not Ghs600,000 as envisaged in the Act.

This error is tilted in favour of taxpayers because their Ghs5,000 will be taxed at 30% instead of Ghs35% leading to tax savings of Ghs250. The Act came into force from 30th December 2023, and implementation is expected to commence from January 2024 so human resource practitioners, payroll accountants, and taxpayers should note and align with the law to achieve full compliance.

  • Stamp Duty Amendment Act 2023 (Act 1109) (to amend the stamp duty rates)

 

The Stamp Duty Amendment Act 2023, (Act 1109) amends the first schedule to the Stamp Duty Act, 2005 (Act 689) to realign the stamp duty rates with current economic realities, the rates and fees for stamp duties have been revised to reflect the current economic realities. The new rates range from as low as Ghs18 to as high as Ghs896.30 for duties assessed on specific basis whilst as low as 0.25% to 0.5% on duties assessed on ad valorem basis.

Taxpayers will be impacted by this amendment because the cost of stamping documents like mortgage, bonds, debentures, covenant, guarantees, lien, or instruments of securities of any type, or contracts will increase in line with the new rates.

  • Excise Duty (Amendment) Act, 2023 (Act 1108) (to harmonise the duty for both imported, and local goods)

 

The Excise Duty (Amendment) Act, 2023 (Act 1108) amends the first schedule to the Excise Duty Act, 2014 (Act 878) to realign the duty rates of imported excisable goods with its locally manufactured counterpart to promote healthy competition.

 

The minister mentioned on the expansion of the Environmental Excise Duty to cover plastic packaging, and industrial and vehicle emissions to address the negative externalities of plastic waste and pollution but I am yet to sight an amendment of the Customs and Excise (Duties and Other Taxes) (Amendment) Act, 2013, (Act 863). I know plans are advanced to implement the vehicle emission excise duty tax which will be collected at the point of vehicle road worthy registration or renewal. I expect an amendment in any of the existing laws or the introduction of a new law for this purpose for the policy to have legal blessing.

I will monitor this space and keep stakeholders updated on any new development.

  • Exemptions (Amendment) Act, 2023 (Act 1110) (to extend duties waivers on fishing gears)

 

Section 1 of Act 1110 amends the headnote before section 17 of the Exemptions Act, 2022, (Act 1083) by substituting the headnote with “Personal Effects, Foodstuffs, Equipment for Trial, and Fishing Gear”.

 

Act 1110 seeks to include fishing gears imported for agricultural purposes and certified by the Minister responsible for Fisheries and Aquacultural Development and approved by the Finance Minister in the list of imported items exempt from customs duties and customs taxes.

I was expecting the amendment in Act 1110 to include the proposed waiver of import duties on importation vehicles by members of Ghana Medical Association to ease the transportation burden of our doctors, but no such provision was observed.  

  • Harmonisation of the VAT Act and Customs legislations 

 

I did not see any amendment in the VAT or Customs legislations towards the achievement of harmonising the two legislations to ensure that locally produced products and its imported counterparts are treated the same in VAT application to promote a healthy competition. 

  • Conclusion   

 

The just promulgated Acts will have some impact on the operations of taxpayers especially the VAT amendments. Taxpayers are advised to speak with their tax consultants on how the amendments impacts their operations and the measures required of them to ensure full compliance. Again, in 2024, Ghanaians we will be seeing the implementation of some provisions in our existing tax laws for the first time as a means of shoring up Government revenue such as the recent announcement from the Ministry of Finance on the levying of VAT on domestic consumption of electricity.

 

Section 27 of Act 870 states that the supply of any form of power heat, refrigeration or ventilation is a supply of goods which is subject to VAT but a supply to a dwelling of electricity up to a maximum consumption level specified for block charges for lifeline units is exempt from VAT. The imposition of VAT on domestic consumption of electricity to a dwelling above the block charges for lifeline units has always been in our VAT laws but it has never been implemented except from 2024. 

The Ministry of Finance has directed GRIDCo and Electricity Company of Ghana (ECG) to start implementation of section 27 of Act 870 stated above effective from 1st January 2024.

  •   Recommendations  

 

Based on my analysis of the Acts, I recommend among the following for consideration:

 

  1. GRA should ensure that their invoice, systems for filing, and paying taxes (taxpayers’ portal) are ready for the implementation of the 5% VAT flat rate scheme on rental of properties for commercial purposes to ensure smooth implementation of the law. Taxpayers go through a lot of difficulties without knowing how to file and pay taxes when these new laws are introduced without the necessary amendments in the system to accommodate its implementation. 

 

  1. Appointed VAT withholding agents are to engage their tax advisors on how to mitigate their risk on non-compliance of section 2 of Act 1107 to prevent the payment of the 30% penalty.

 

  1. GRA should issue a public notice on the error I have identified in the resident individual tax schedule as stated above to guide taxpayers on how to operationalised the Income Tax (Amendment No 2), 2023 (Act 1111).

 

This article is my personal and professional opinion as a tax practitioner in the discharge of my duties as a GHANAIAN CITIZEN who seeks the success of Ghana, and it is not a representation of the opinion of any institution.

 

Ibrahim Asare (CA, MCITG, ADTP, BCom, and HND)

ibasare@gmail.com; ibrahim@ibasare.com; @ib_asare; 0244 423 960

(The author is a Chartered Tax Practitioner- a Member of ICAG and a Member of the Chartered Institute of Taxation Ghana).

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