The heat has been turned up a notch in what is gradually becoming a battle of legal prowess between renowned lawyer, Ace Ankomah, and Deputy Finance Minister, Cassiel Ato Forson, over the accuracy or otherwise of the minister’s interpretation of the new VAT law.
After the Deputy Minister took to his Facebook page to reply Mr Ankomah’s /business/2014/May-1st/deputy-finance-minister-reacts-to-ace-ankomahs-comments-on-175-vat-on-financial-services.php views on the recently introduced 17.5% Value Added Tax (VAT) on “non-core” financial services, the latter has once again responded.
Ace Ankomah had said, among other things, that government’s interpretation on the law was not accurate. http://news.myjoyonline.com/news/2014/April-29th/ace-ankomahs-take-on-175-vat-on-financial-services.php
Below is Mr Ankomah’s latest reaction (unedited) to the Deputy Minister, published on his Facebook page: https://www.facebook.com/AceAnanAnkomah?ref=ts&fref=ts
I have read the Deputy Minister for Finance’s response to my views on the current brouhaha over VAT and “financial services.” However, I do not think that the points that I raised have been answered at all, and I shall deal with these in turn.
1. The Supply of Money Argument:
The Deputy Minister refers to sections 20 and 30 of the new VAT Act, claiming that those sections give the Minister the power to decide which financial services are covered by the VAT Act and which are not.
I respectfully disagree. What those sections say is actually the opposite of what the Deputy Minister is saying. This is because the mere supply of money is not a VAT triggering activity. That is fairly trite. That is why in both the old and new Act, the term “goods” is specifically defined exclude money. And the parallel provisions in the two Acts on the supply of services (section 10 of the old and section 20 of the new), expressly state that the supply of money is not a supply of services. There is nothing new here. If the supply of money is not a supply of goods or a supply of services under the VAT Act, then it can never be made the subject of VAT by a Legislative Instrument, an inferior legislation.
Section 30 of the new Act simply gives the Minister the power, “for the purposes of section 20 to 29,” to make regulations (i.e. by an LI) that “prescribe rules to determine whether a transaction constitutes (a) a supply of goods, or (b) a supply of services.” The word “whether” introduces alternative, and suggests doubt or the possibility of choice. But that is not the case here. The Act itself has stated that the supply of money is neither a supply of goods nor a supply of services. End of story. The power that Parliament gives to the Minister to make regulations under sections 30 and 64 to determine whether a transaction is a supply of goods or services, cannot give him the power to make any supply of money, a supply of goods or services, when the Act says that it isn’t. The Minister may make his regulations under section 30, but he can never make any regulations that attempt or purport to make any supply of money a “vattable” supply.
2. Financial Services:
It is important to compare the provisions of the old Act with those of the new Act, to get a clear picture of what is now, or should be, the state of affairs.
In section 14 of the old VAT Act and section 35 of the new Act state that the supply of goods and services in “the First Schedule” is exempt from VAT “and not subject to the tax.” Schedule 1, Item 16 of the old VAT Act specifically exempted from VAT, the provision of “financial services.” That provision then contained the following exclusion clause: “but excluding professional advice such as accountancy, investment, and legal.” This is what it says:
“Provision of insurance; issue, transfer, receipt of, or dealing with money (including foreign exchange) or any note or order of payment of money; provision of credit; operation of any bank (or similar institution) account; but excluding professional advice such as accountancy, investment, and legal.”
It is therefore arguable that under the old VAT Act, the Deputy Minister’s “core” and “non-core” argument had some traction, as there was no VAT on what might be loosely described as “core” services (eg operation of a bank account) but VAT on “non-core” services (eg investment advisory services).
But that is certainly not the case under the new Act. This is because there are two key differences between the new provision (this time under Item 19 of Schedule 1) and the old provision quoted above. The first difference is that the definition of “financial services” in the terms stated above, has been removed. Therefore “financial services” now has its widest possible meaning, and is generally exempt from VAT. The second key difference (actually a corollary to the first difference) is that the hitherto “exclusion” or what might have been called “non-core” financial services, has also been removed. The effect of these is that now, there is no VAT on the provision of “financial services,” except where that service is “rendered for a fee, commission or a similar charge.”
Let’s demystify this point. Under the new Act, whether I pay VAT or not on financial services that I receive, would depend on whether or not I am required to pay for that service. If I am not required to pay for the service, I will not pay any VAT. Thus, if Bank X charges a monthly fee for providing me with, say, a bank account, I will pay VAT on that fee. However, if Bank Y does not charge me a fee for providing me with the same or similar bank account, I will not pay any VAT.
In other words, under the new Act, it is no longer a dichotomy between “core” and “non-core” financial services that will determine whether or not VAT is paid. The VAT trigger is the “fee, commission or other charge” that I pay for the financial service. If there is no charge for the service, the service remains an exempt service under the VAT Act. To re-state, what moves the provision of a financial service from its exempt status to not being exempt, is the decision of the provider of the service to charge me for it. And so which list is the Minister going to come up with that will have the effect of changing the clear and express terms of the law? The Minister can come up with his list. But that list would be worth nothing, unless the LI that he intends to pass through Parliament, will now compel banks to charge for specific financial services and not charge for other services. Now, that would be interesting. The Minister would have to explain to Ghanaians why he is passing a regulation that would force all banks to charge for specific services, which they (or at least some of them) were not charging in the first place, simply because the Government wants more taxes.
When Parliament has been so clear on these provisions, one wonders what else there is to add or what room the Minister has to maneuver, under the proposed list. Neither section 30 nor section 64 gives the Minister the power to change the law. The donated power to determine whether a transaction constitutes a supply of goods or services, cannot be applied or used to take away anything the Act has granted or alter its meaning. If my bank decides to charge me for what the Minister may consider “non-core” financial service, I will still be required to pay the VAT. The Minister cannot change that. He cannot grant me an exemption outside the Act. If he does that, he would be acting in blatant breach of section 45(5), which says that exemptions outside the Act “shall not come into effect… until a corresponding amendment is made to this Act.”
Thus, the banks are right. There is indeed VAT on ALL paid financial services. Only Parliament can change that by an amendment.
3. Deferred Application
Acts of Parliament come into force when the President signs them, under article 106 of the Constitution. However, an Act can provide for a deferred or conditional post-assent coming into force through, for instance, providing a specific date or event. It is usually referred to as a “commencement” section. Section 79 of the old VAT Act was one such commencement section, which provided that it was to come into force on the date it was published in the Gazette after presidential assent, and that liability for the tax was not to come into force until a date specified in that Gazette and in the mass media, by the Minister. It even required a 30-day notice.
Absent a “commencement” section, a statute takes effect upon presidential assent. Unlike the old VAT Act, the new Act is silent on this, so that the VAT Act came into effect when it received presidential assent on 30th December 2013.
The new VAT Act is in force. Simple.
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