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VAT Amendment takes effect from January 2022



In line with the tax policy proposals in the 2022 Budget Statement, Parliament of Ghana has passed the Value Added Tax (Amendment) Act, 2021 (Act 1072) to bring VAT proposals into effect. The Amendment Act has a gazette date of 31 December 2021 hence effectively comes into force from 1 January 2022.

This tax update provides a summary of the changes from this legislation and other policy directives from the government and its impact on businesses and individuals.

The Value Added Tax Act, 2013 (Act 870) has been amended by the Value Added Tax (Amendment) Act, 2021 (Act 1072) to revise the application of the VAT flat rate scheme (VFRS).
Until this amendment, wholesalers and retailers of goods in Ghana operated under the VFRS. Act 1072 has now revised the application of VFRS to only cover retailers of goods with value of taxable supply not less than GHS 200,000 but not more than GHS 500,000 at the end of any period of 12 months. Retailers who meet the new threshold will continue to account for VAT at the flat rate of 3% on the value of the taxable supplies as well as charge the COVID-19 Health Recovery Levy (COVID-19 Levy) of 1%.
On the other hand, retailers whose annual taxable supplies exceed GHS 500,000 and wholesalers will now account for VAT under the standard VAT rate regime. Such retailers and wholesalers will be required to charge VAT at the standard rate of 12.5% charged on the value of taxable supply plus National Health Insurance Levy (NHIL) at 2.5%, Ghana Education Trust Fund Levy (GETFL) at 2.5% and COVID-19 Levy at 1% of the value of the taxable supply. These suppliers will also qualify to claim VAT incurred on their purchases as input VAT deduction against output VAT. The 6% levies (NHIL, GETFL and COVID-19 Levy) paid on purchases will be treated as part of business expense.
We recommend that retailers of goods conduct an assessment to ascertain whether they meet the new threshold for the revised VFRS. Retailers who no longer fall within the VFRS threshold must migrate to the standard rate VAT scheme. Similarly, all wholesalers are to migrate to the standard rate scheme. 

The supply of locally manufactured textiles by local manufacturers approved by the Minister of Trade and Industry was made zero-rated for VAT purposes for three years up to 31 December 2021. Act 1072 has extended the period for two more years up to 31 December 2023.
Accordingly, locally manufactured textiles supplied by local manufacturers will continue to be subject to VAT at the rate of 0% up to 31 December 2023. The manufacturers are also allowed to apply for refunds of excess VAT credit directly attributable to sale of the locally manufactured textiles.

The Government of Ghana has indefinitely suspended a policy directive to remove the benchmark value discount regime. The benchmark value regime was introduced in April 2019 and provided up to 50% discount on the transaction value of imported goods which forms a major part of the customs value on which import duty is charged.
The indefinite suspension follows an initial government plan to discontinue the discount policy introduced in 2019. The Ghana Revenue Authority (GRA) has stated that the current indefinite suspension is to allow for extensive stakeholder engagement on the viability of the policy and its impact on both government revenue and the domestic manufacturing industry.
For the time being, the benchmark value discount policy continues to apply at all ports of entry until the GRA issues further directives after the stakeholder engagements.