To assist it become more in line with global best practice, PricewaterhouseCoopers (PwC), an accounting and advising firm, has encouraged the government to alter the Value Added Tax (VAT) system.
The company claimed that the imposition of the COVID-19 recovery, health, and education fund levies on the VAT system—levies that firms could not recoup—had corrupted the tax system.
According to the report, the change had made taxes on firms more onerous and was encouraging aggressive tax evasion and non-compliance on their part, costing the state money.
A Tax Partner at PwC, Abeku Gyan-Quansah, who was speaking at the company’s post-budget forum in Accra yesterday, called on the government to scrap the levies to help ease the tax burden of firms and make the country’s VAT system compliant in line with global best practices.
“Our VAT system is becoming a laughing stock; it does not comply with any rules on VAT anywhere,” Mr Gyan-Quansah added, as part of the firm’s presentation on tax proposals in the 2023 budget.
“We are, therefore, saying that if the government wants to bring in the proposed 2.5 per cent on VAT, it can do so, but it must let the VAT system work.
“It should allow businesses to make a claim on the levies because the levy denial is causing a lot of harm to them,” he said.
Forum
The PwC post-budget forum is an annual event that affords the firm the opportunity to comment on policies and programmes proposed in a budget.
This year’s programme followed the presentation of the 2023 Budget and Economic Policy Statement last week during which the Finance Ministry proposed the increment of the VAT by 2.5 per cent.
It featured a panel discussion by a Deputy Minister of Finance, Abena Osei Asare; Professor Charles Ackah of the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana; Charles Atuahene of the Association of Ghana Industries (AGI) and Gifty Andzie of PwC Ghana.
Impact
Expressing further concerns on the proposed increment in the VAT standard rate, Mr Gyan-Quansah said some businesses had closed down because of the burden that the levies on VAT were exacting on their operations.
“So, what we are saying is that bring in your 2.5 per cent increment but allow the levies to be claimed.
“In other words, consolidate them right back into VAT and allow it to work as a proper VAT system.
“With how the Ghana Revenue Authority (GRA) computes its VAT, you will have to first introduce the levies and then add the VAT. Going by that formula, VAT effectively is currently at the standard rate of 19.4 per cent.
“If this proposal of 2.5 per cent increment passes, then cumulatively, the VAT becomes 21.9 per cent. So the government is asking me to pay 21.9 per cent but that is not all; it also denies me, the businessman, of a six per cent claim that I am entitled to,” he added.
The tax consultant, therefore, proposed the scrapping of the COVID-19 recovery levy, saying, “In our view, the one per cent health levy should go off.”
“Also, the other levies for health and education can be taken off,” he said.
GRA computations
Introduced in 1995, the VAT system was tweaked in 2018 when the then National Health Insurance Levy and the Ghana Education Trust Fund Levy of 2.5 per cent each were introduced as standalone taxes but charged alongside VAT.
However, while some businesses qualify to claim back what they pay as input VAT, thereby reclaiming that expenditure, the same does not apply for the other two taxes.
Last year, the one per cent COVID-19 Recovery Levy was added to be collected alongside the VAT.
Small companies and some service providers collect the tax as three per cent flat rate without the chance to retrieve it.
Support
The deputy finance minister called on the business community to support the government to navigate the current tide.
Ms Asare, who is also the New Patriotic Party (NPP) Member of Parliament (MP) for the Atiwa East Constituency in the Eastern Region, explained that the 2023 Budget was envisaged to set the foundation for economic recovery to bring relief to the people.
He gave an assurance that investors in treasury bills would not be affected by an ongoing debt restructuring exercise as part of efforts to minimise the impact on their financial vulnerability.