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Investing in Central Europe 2016

Relief from import VAT and levies available on raw materials for manufacturers

Ghana’s Value Added Tax Act, 2013 (Act 870) provides a relief from import VAT and applicable levies on raw materials imported into the country for use in manufacturing. As customs duties and import costs are major considerations for businesses engaged in international trade, relief from VAT and import duties can provide both cash flow benefits and reduced processing costs.

Customs duties are calculated on the transaction value plus other costs effectively connected to an imported product. The default transaction value usually is the price stated on the commercial invoice, which typically is denominated in foreign currency. As a result, with the depreciation of the Ghana cedi against major foreign trading currencies, customs duties increase, making the cost of imported products more expensive.

This article provides an overview of the relief available, and the application process.


Conditions for the relief

A VAT registered manufacturer must satisfy the following conditions to qualify for the relief from import VAT and levies:

  • The manufacturer must be a member in good standing of the Association of Ghana Industries (AGI), i.e., the member’s subscription must be current, and paid up to date.
  • The manufacturer must have discharged all direct and indirect tax obligations including payment of any interest and penalties, where applicable.
  • The commissioner-general of the Ghana Revenue Authority (GRA) is satisfied that the manufacturer is tax compliant and listed as a VAT registered manufacturer.
  • The imported raw material is to be used solely and exclusively for the taxpayer’s manufacturing operations.

Manufacturers seeking relief from import VAT and levies must have been in business for at least three years. An annual evaluation exercise may be conducted for existing taxpayers benefiting from the relief, to ensure they remain compliant with the above conditions.


Raw material specifications

The imported raw materials must be in a natural (raw) or semi-natural state, and unable to be consumed unless they have undergone processing. Raw materials that are locally available—whether produced in Ghana or already being imported by another local supplier—do not qualify for the relief.


Application process

The application process for receiving approval of the relief is as follows:

  • The VAT registered manufacturer must apply for the relief through the AGI (and apply for membership, if not already an AGI member), who reviews and forwards the application to the commissioner-general of the GRA for processing.
  • The commissioner-general evaluates the application based on the applicant’s tax compliance status (covering all taxes) over the previous three years, or an extended period where necessary. Additional documentary information and an inspection of the manufacturing facilities and raw materials also may be required.

A VAT relief license is valid from 1 January each year for a period of 12 months, and renewable annually. The list of licensed VAT registered manufacturers is published annually by the commissioner-general and is valid from January through December. The list is shared with the customs division of the GRA, the ministry of finance, the AGI, and other qualifying manufacturers. A manufacturer holding a valid license may submit this to the customs division for use on qualifying imports.


Benefits to manufacturers

Unlike import VAT, levies are not deductible and therefore increase the cost of production. Benefits of the relief are therefore an improved cash flow, as the manufacturer is not required to make an upfront payment for import VAT and levies, and a reduced cost of production due to the levy amounts saved.


Deloitte Ghana comments

National and international businesses may wish to conduct a critical review of their supply chain processes to identify and implement effective cost optimization strategies. Identifying available tax reliefs—especially on imported products—can provide significant benefits.

As the list of approved VAT registered manufacturers is effective from January through December, qualifying VAT registered manufacturers who wish to benefit from the relief from the following January may wish to consider making their applications as early as possible to ensure sufficient time for the approval process.

All VAT registered manufacturers must file their tax returns and pay all applicable taxes and duties to remain tax compliant.

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