VAT, GST and Sales Tax in Ghana

Summary

Name of the tax Value-added tax (VAT)
Date introduced 18-Mar-98
European Union (EU) Member State No
Trading bloc membership Economic Community of West African States Member
Administered by Ghana Revenue Authority
VAT rates
Standard 15%
Other National Health Insurance Levy (NHIL), 2.5% (combined rate for VAT and NHIL is 17.5%); 5% (flat rate charged by estate developers); 3% (flat rate scheme); zero-rated; exempt
VAT number format C000XXXXXXX
VAT return periods Monthly
Thresholds
Registration Turnover exceeding GHS200,000 in 12 months or GHS50,000 in 3 months and with reasonable grounds to exceed turnover of GHS150,000 in the next consecutive 9 months
Recovery of VAT by non-established businesses No

Scope of the tax

VAT and NHIL applies to the following transactions:

  • Taxable supplies made in Ghana
  • Imported goods or imported services other than goods or ser­vices that are exempt

Act 870, passed in 2013, introduced the concept of “taxable activity” for greater clarity on what constitutes a taxable supply.

 

A taxable activity is defined as an activity carried on by a person wholly or partly in Ghana that involves or is intended to involve, in whole or in part, the supply of goods to another person for consideration, whether or not for a pecuniary profit.

Who is liable

Persons liable to pay VAT and NHIL are as follows:

  • In the case of taxable supplies made in the country, the person making the supply
  • In the case of imported goods, the importer
  • In the case of imported services, the recipient of the services

In general, all taxable persons who engage in a taxable activity wholly or partly in Ghana in the course of a business are liable to register for VAT if they meet the VAT registration threshold. The Ghana Revenue Authority (GRA) has instituted an 11-digit com­mon Taxpayer Identification Number (TIN) for all tax types (C000XXXXXXX).

Upon registering a taxable person, the Commissioner-General must notify the person that it has been registered for VAT and must issue a certificate of registration to the taxable person.

Group registration. Ghana allows for group registration where the following conditions are satisfied:

  • Each member of the group is a registered corporate body in Ghana and has an established place of business in Ghana.
  • One of the group members controls the others in the group, or one company controls all of the members of the group.

Non-established businesses. A “non-established business,” which is a business that does not have a fixed establishment in Ghana, cannot register for VAT and NHIL purposes in Ghana. A foreign entity is not required to register for VAT and NHIL unless it undertakes a taxable activity in Ghana and satisfies the threshold for registration and, in the case of a nonresident entity that pro­vides telecommunication services or electronic commerce ser­vices, provides those services through a VAT- and NHIL-registered agent who makes taxable supplies of goods and services in Ghana.

VAT and NHIL on imported goods are generally paid by the importer of record at the point of customs clearance.

Registration procedures. A person who qualifies as a taxable person and meets the registration threshold is required to submit an application for registration within 30 days of becoming a reg­istrable person to the Commissioner-General. The person shall complete the requisite VAT and NHIL form and submit it to the Commissioner-General along with copies of the following docu­ments:

  • Certificate of Incorporation issued by the Registrar of Companies
  • Certificate to Commence Business issued by the Registrar of Companies
  • Form 3 and Form 4 delivered to the Registrar of Companies for registration
  • Regulations of the company delivered to the Registrar of Companies for registration

Late-registration penalties. A person that is not registered but is required to apply to be registered under the VAT Act is consid­ered to be a taxable person from the beginning of the tax period immediately following the period in which the duty to register arises. A person that fails to apply for registration commits an offense.

A person that fails to register is liable to a penalty of not more than two times the amount of tax on the taxable supplies payable from the time the person is required to apply for registration until the person files an application for registration.

Tax representatives. Ghana provides for the appointment of a representative by a taxpayer. The representative so appointed shall be responsible for payment of any tax payable by the person and take responsibility for other duties of the person. The Commissioner-General, where he deems it necessary, may also declare a person to be a representative of a taxable person.

Where a taxpayer appoints a representative, the appointment shall not relieve the taxpayer from performing any duty that the representative fails to perform.

Reverse charge. The reverse-charge mechanism of accounting for VAT and NHIL is applicable to importation of services into Ghana. A VAT- and NHIL-registered person that imports services from a nonresident person is required to reverse charge itself to VAT and NHIL at an aggregate rate of 17.5% (i.e., VAT at 15% and NHIL at 2.5%). However, there is no requirement to reverse charge where the imported services are to be used to make tax­able supplies.

The output tax charged shall be paid to the Commissioner-General within 21 days after the end of the month within which the transaction occurred. The payment shall accompany a service import declaration in a prescribed form stating the details of the import. The input VAT and NHIL on imported services are not claimable.

Digital economy. There are no specific rules relating to the digital economy.

Deregistration. A VAT-registered person may apply in writing to the Commissioner-General for cancellation of registration as a taxable person. The Commissioner-General may cancel the regis­tration of the person where he is satisfied that the taxable person:

  • No longer exists
  • Is not carrying on a taxable activity
  • Is not required or entitled to apply for registration
  • Has no fixed place of business or abode
  • Has not kept proper accounting records related to a business activity carried on by that person
  • Has not submitted regular and reliable tax returns required under the Act

A taxable person who voluntarily registers for VAT and NHIL can only apply for cancellation of registration after two years of registration as a taxable person.

VAT rates

The normal VAT rate in Ghana is 15%, while the rate of the National Health Insurance Levy (NHIL) is 2.5%.

A zero rate (0%) is available for exports.

A flat rate of 5% is payable by estate developers who make tax­able supply of immovable properties.

Examples of goods and services taxable at 0%

  • Exports of taxable goods
  • Exports of taxable services
  • Goods and services supplied to Free Zone Enclaves or a Free Zone Company
  • Goods shipped as stores (stocked for own use) on a vessel or aircraft leaving the territories of Ghana

Repealed flat rate scheme. A VAT Flat Rate Scheme (VFRS) of 3% was repealed effective 8 January 2014. However, it is still being applied by some taxable persons as the Commissioner-General issued a directive authorizing operators that were already registered prior to the repeal of the law to continue charging and accounting for VAT and NHIL at 3% of the taxable value of their supplies until otherwise advised. This directive is still in force with no indication that the authorization for operators currently using the flat rate scheme will cease to apply.

No VAT and NHIL are charged on items that are exempt or fall outside the scope of the VAT and NHIL.

Examples of exempt supplies of goods and services

  • Unprocessed agricultural and aquatic products in their raw state, including agricultural and aquatic food products that undergo preservation such as freezing, chilling, smoking, strip­ping, polishing, etc.
  • Domestic transportation by bus and similar vehicles, and by train or boat
  • Medical services and supplies
  • Agricultural inputs, animals, livestock and poultry
  • Provision of accommodation in a residential property

Option to tax for exempt supplies. Not applicable.

Time of supply

In Ghana, the time when VAT becomes due is referred to as the “time of supply” or the “tax point.” The following rules apply to the determination of the time of supply:

  • If the goods or services are applied to the taxpayer’s own use, the tax point is the date on which the goods or services are first applied to the taxpayer’s own use.
  • If the goods or services are supplied by gift, the tax point is the date on which ownership of the goods passes or the perfor­mance of the service is completed.

For all other cases, the time of supply is the earliest of the follow­ing events:

  • The goods are removed from the taxable person’s premises or from the premises where the goods are under the taxable per­son’s control.
  • The goods are made available to the person to whom they are supplied.
  • The services are supplied or rendered.
  • Payment is received.
  • A tax invoice is issued.

Imports. The time of supply for imported goods is either the date on which customs clear or the date on which the goods leave a bonded warehouse (in the case of goods warehoused without the payment of duty).

Recovery of VAT and NHIL by taxable persons

A taxable person may usually recover input tax incurred on goods and services purchased for business purposes. Input tax is claimed by deducting the input tax credits from output tax, which is VAT and NHIL charged on taxable supplies. Taxable persons must claim input tax within six months after making an expendi­ture.

A newly registered taxable person can claim or recover input deduction for non-capital goods acquired, supplied or imported within four months prior to being registered. For capital goods, the person can claim the input VAT and NHIL within six months prior to being registered for the purpose. To be allowed, however, the goods must be on hand at the effective date of registration.

The input VAT and NHIL credit include VAT and NHIL charged on goods and services purchased in Ghana and VAT and NHIL paid on imports of goods.

Nondeductible input tax. A taxable person may not usually recov­er VAT and NHIL on the purchase of goods and services that are not used exclusively for business purposes. In addition, input tax may not be recovered with respect to certain business expendi­ture. If necessary, an apportionment of input tax between taxable goods and services and nontaxable goods and services is made.

The following lists provide some examples of items of expendi­ture for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is for pur­poses of making a taxable supply.

Examples of items for which input tax is nondeductible

  • The supply or import of a motor vehicle or spare parts unless the taxable person is in the business of dealing in or hiring motor vehicles, or selling vehicle spare parts
  • Entertainment including restaurants, meals, and hotel expenses, unless the taxable person is in the business of providing enter­tainment
  • A taxable supply to, or an import of goods by, a taxable person partly for business use and partly for personal or other use (the amount of input tax allowed as credit is restricted to that part of the supply that relates to business activity)
  • The payment of subscriptions or fees by a taxable person for membership in a club, association or society of a sporting, social or recreational nature
  • A supply of immovable property by estate developers

Examples of items for which input tax is deductible
(if related to a taxable business use)

  • Business expenditure incurred in the production process (for example, VAT and NHIL paid on material purchased for resale)
  • Raw material that is used for production
  • Office equipment
  • Advertising

Partial exemption. VAT and NHIL paid that relates directly to goods and services that are exempt is not recoverable. If a regis­tered person makes both exempt and taxable supplies, the VAT and NHIL incurred in respect of the exempt supply cannot be recovered. This situation is referred to as “partial exemption.”

The VAT Act provides the following rules with respect to partial exemption:

  • A taxable person that makes both taxable and exempt supplies may deduct the input tax on its taxable purchases and imports that can be directly attributed only to the taxable supplies made.
  • Where a taxable person makes both taxable and exempt sup­plies, but cannot directly attribute the input tax to the taxable and exempt supplies, it may deduct as input tax an amount that bears the same ratio as the taxable supplies bear to the total supplies, applying an apportionment formula provided by the VAT Act.
  • If the percentage calculated using the above formula is less than 5%, the taxable person may not claim credit for any input tax for the period.
  • If the percentage calculated using the above formula is more than 95%, the taxable person may claim credit for all input tax for the period.

Refunds. Section 50 of the VAT Act provides the following rules regarding refunds and excess VAT credits:

  • Where the amount of deductible input tax exceeds the output tax charged, the excess amount is credited by the Commissioner-General to the taxable person, except that, in the case of exports, the Commissioner-General may refund the excess credit to the taxable person if the person’s exports exceed 25% of the total supplies within the tax period and the total export proceeds have been repatriated by the importers’ bank to the taxable person’s authorized dealer banks in Ghana.
  • A refund under the conditions mentioned above is made to the taxable person if the excess credit remains outstanding for a continuous period of three months or more.
  • Where the amount of input tax deductible in an accounting period exceeds the output tax charged, the taxable person may submit a refund claim form to the Commissioner-General. The completed form shall be accompanied by documented proof of payment of the excess amount.
  • Where the taxable person complies with the requirements men­tioned above to the satisfaction of the Commissioner-General, subject to the outcome of the tax audit, the Commissioner-General may apply the amount of excess credit against any tax liability, interest or penalties and repay any remaining amount to the taxable person within 30 days.
  • Where the Commissioner-General fails to make the refund without justification within one month of receipt of the return and claim, the taxable person is entitled to interest at the pre­vailing Bank of Ghana discount rate plus one-quarter of that rate for each day the refund remains unpaid.

Recovery of VAT and NHIL by nonresidents

Ghana does not have a regime for the recovery of VAT and NHIL paid by nonresidents leaving the country. The VAT Regulations provide that a refund of VAT and NHIL charged on goods pur­chased by a person not resident or domiciled in Ghana for con­sumption outside Ghana may be authorized by the Commissioner-General subject to such written conditions that the Commissioner-General may impose.

Invoicing

VAT and NHIL invoices. On making a supply of goods and ser­vices, a taxable person must issue to the recipient of the goods or services a pre-printed VAT and NHIL invoice in a form pre­scribed by regulations unless the Commissioner-General permits otherwise.

A taxable person that issues VAT and NHIL invoices must retain copies of them in serial order for inspection by the Ghana Revenue Authority.

The invoice must contain specific information detailed in the VAT Act.

Proof of exports. Exports are zero-rated. All exports must be sup­ported by evidence proving that the goods have left Ghana. The Ghana Export Promotion Authority requires detailed documenta­tion for exports.

Foreign-currency invoices. Ghana does not have a mandatory rule regarding foreign-currency invoices that have been translated into Ghanaian currency. The general practice is to use the inter­bank exchange rate prevailing on the date of the transaction for the translation. The tax office may check the exchange rate used to translate the Ghana cedi into the foreign currency or vice versa if some doubt exists. If no doubt exists, the tax office accepts the taxpayer’s translation of a foreign currency-denominated invoice into cedi.

VAT and NHIL returns and payment

VAT and NHIL returns. VAT and NHIL returns must be filed on a monthly basis. All returns other than that for imported services are due by the end of the month following the one in which the tax point occurred. The return for imported services is due within 21 days after the end of the month in which the tax point occurred. Payment is due in full by the date on which the respec­tive return is due. A nil return must be filed if no VAT and NHIL are payable or claimable.

If the normal filing date falls on a public holiday or on a week­end, the VAT and NHIL return must be filed on the last working day before that day.

Ghana does not yet have an e-filing system, but the administra­tive procedures for e-filing are currently being prepared. Returns may be filed by mail, but this may not be efficient and may result in delays.

Special schemes. Not applicable.

Electronic filing and archiving. Ghana has started piloting an e-filing system for selected industries, including the financial services industry. The administrative procedures are being enhanced to allow the e-filing system to eventually include tax­payers from all sectors. Taxpayers with access to the e-filing system may file returns by mail, but this may not be efficient and may result in delays.

Annual returns. Not applicable.

Penalties

The following penalties are imposed for noncompliance with the VAT and NHIL regime:

  • Failure to register: a penalty of not more than two times the amount of tax on the taxable supplies payable from the time the person is required to apply for registration until the person files an application for registration
  • Failure to notify the Commissioner-General of a change in busi­ness or apply for cancellation of registration: penalty of GHS1,000 or imprisonment for a term not exceeding five years or both where the failure was deliberate or reckless, and GHS500 or imprisonment for a term not exceeding one year or both for any other reason
  • Failure to issue a VAT and NHIL invoice: not more than 100 penalty units (GHS12.00 each) or a term of imprisonment of not more than six months or both. Additionally, a penalty of three times the tax liability or GHS500, whichever is higher, shall apply.
  • Making a statement to an officer of the Ghana Revenue Author­ity that is false or misleading, omitting from a statement any matter or item without which the statement is misleading: a fine not exceeding GHS1,000 or imprisonment for a term not exceeding five years or both where the offense is committed knowingly or recklessly. In any other case, the person shall be liable to a fine not exceeding GHS500 or imprisonment for a term not exceeding one year or both
  • Falsification and alteration of documents: a fine of GHS200 but not exceeding GHS1,000 or imprisonment for a term not exceeding five years or both
  • Evasion of tax payments: a fine not exceeding three times the tax that is being evaded or imprisonment for a term not exceed­ing five years or both
  • Failure to maintain proper records: a fine not exceeding GHS1,000 or imprisonment for a term not exceeding five years or both where the failure is deliberate or reckless. In all other cases, the person shall be liable to a fine not exceeding GHS500 or imprisonment for a term not exceeding one year or both
  • Obstruction of officer of the Ghana Revenue Authority: a fine of not less than GHS50 but not exceeding GHS500 or impris­onment for a term not exceeding one year