The Misinformation On The New VAT 17.5% Issue



It is necessary to admit that the information as was released somewhere at the end of last week concerning some new VAT charges on certain services being rendered by banks which hitherto were not taxed or under-taxed by the state, was not adequately relayed.

Further statements were made seeking to clarify the issue which we think is necessary for us to consider and to allay the fears of the people who have started agitating against the said tax.

It has been clearly established that such charges are not applicable to those whose business operations with the bank lies within the normal course of the bank?s business. There are other areas that banks are permitted by law to operate and to transact on behalf of customers only upon the request of the customers. These services include the deposit of treasuries such as gold and any such precious minerals, letters of credits which are charged by the banks.

The argument is that, once such charges (commissions) are income to the banks, such charges are taxed! Do not forget individuals like you and I pay taxes on revenue and so, a bank making revenue for service rendered cannot be exempted.

For example, if Michael Essien agrees to play football for Chelsea Football Club at no cost (free of charge) would he Michael Essien be asked to pay tax? Not at all!

In the statements that have been made so far in clarity of the issue, it was stated clearly that banks that offer such services that are classified under such taxable bracket but which are rendered for free, no VAT applies. In fact, VAT is charged on additional value and if there is no such additional value gain, why would a bank or a customer be charged?

To state it clearly, the new VAT does not apply to savings, deposits, chequing and payment by cheques. Indeed, these transactions are the core reason for which banks exist.

The drift is where a customer approaches a bank and asks for a special
service to be rendered him which are not the day-to-day business of the bank, but which are legally permitted for the bank to undertake and which the bank renders for a fee, VAT must be paid on the income (gains) that accrued after rendering that service. For example, if you approach a bank to raise a Letter of Credit for you or to keep your precious minerals for you and the bank charges you GHC500.00 for such service, the bank is required to pay a VAT of 17.2% on that GHC500.00 which amounts to GHC87.50 to the GRA as VAT levy.

If the bank rendered such service for free then there is no VAT to pay! The issues that arise is where banks that charges such services may pass on such charges on the customer. For instance, instead of the bank paying the GHC87.50 out of the said GHC500.00, they may decide to add that GHC87.50 commission to the GHC500.00 to increase the charges to GHC587.50.

It is our hope that banks would not add extra charges to services provided because if they increase the commission to GHc 587.50 they would pay 17.5% on the amount as VAT. This is because the more they charge, the more they pay to GRA not forgeting that competition is tight in the banking industry and ?PRICE? is a major factor competitive market. We hope the drift is clear in our minds now!

It is for customers to be on the look out to ensure that such transactions that are not outside the bank?s normal course of business are not charged on them. And to those who contract such special services, it is for them to ensure that they safeguard their costs by seeking to understand the modalities used to determine what they are being charged!

Ending, customers are thereby being sensitised to inform the appropriate revenue agencies where their banks increase charges in relation to the aforementioned non-taxable transactions.

We want to commend the government for widening the tax net and to call on the government  to ensure all leakages are sealed so we reap the full benefit of the taxes in building the Better Ghana it promised!

Source: ASK, Phreddy, Nii Yemo I

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