The Commissioner General of the Ghana revenue Authority (GRA), Mr George Blankson, has clarified that deposits of customers and interest awarded or charged by banks will not attract Value Added Tax (VAT).
The clarification is expected to put to rest the anxiety of individuals and company customers of the banks who have since the announcement to implement the new VAT Act, 2013 (Act 870) been wondering whether their deposits would attract VAT.
However, he indicated that the expanded VAT would rather affect services and revenue streams that accrue from the non-core businesses of financial services companies.
These include income from the sale of cheque books, which is stationery; investment project evaluation and feasibility studies and other services relating to the maintenance of accounts for corporate companies and individuals.
Mr Blankson cleared the air at a Business Breakfast forum on “Overcoming Challenges in the Ghanaian Economy”, an event organised by the Ghanaian-German Economic Association (GGEA), mainly for its members on February 19.
The Commissioner General of the revenue authority said the essence of expanding the scope of the VAT was primarily to level the playing field for all companies operating in different sectors of the economy but rendering the same service.
For example, although the sale of stationery in the country generally attracted VAT, the sale of cheque books by the banks did not. Likewise, services such as feasibility and project evaluation exercises performed by accounting firms and other valuation firms attracted VAT, while those of the financial institutions did not.
To that end, companies that are into transportation, haulage and the printing of flyers would now have to register and collect VAT, while the sale of immovable property such as real estate would had now been reclassified as ‘exempt’. This means that real estate companies would now have to register and slap VAT on the sale of their final products. However, the exemption status would allow them to reclaim their input VAT, that is VAT they paid on all their inputs for the construction of houses or residential property.
The Commissioner General said implementation of the amended VAT Act was being done in consultation with affected stakeholders, adding that the review in the country’s tax laws would make them “simple to understand and implement.”
Govt’s hard decisions
The Minister of State at the Presidency in charge of Public, Private Partnership, Mr Rashid Pelpuo, said the government had recognised the urgent need to change the structure of the economy and was, therefore, taking very ‘hard’ decisions to deliver gains in the future.
“The situation where the government has been involved in creating jobs has to stop and the President (John Mahama) prefers a more sustainable approach of letting the private sector lead in creating employment,” Mr Pelpuo said.
According to the minister, the implementation of the second Private Sector Development Strategy (PSDS II) would create an enabling environment for the private sector to grow, while channeling resources to support small and medium-scale enterprises (SMEs).
“While we recognise the role of foreign direct investments and large companies, we want to focus on micro to small-size companies and grow them to export companies,” Mr Pelpuo stated, but was quick to add that “the government will not give handouts and free cash to businesses; it is not sustainable.”
Some businesses in insurance, banking and real estate expressed worry and confusion over the implementation of the new VAT regime, which had captured parts of their businesses hitherto not reached by VAT levies.
Worries of real estate developers
Mr Ibrahim Bah of Regimanuel Grey Ltd, who articulated the fears of real estate players, said general hikes in prices, the VAT and the new measures in place to salvage the value of the Ghana cedi, would affect their operations negatively as VAT would escalate their final prices and the freeze on getting loans in dollars would hurt their operations.
However, the Commissioner General said the effective tax to be paid by the real estate companies would not exceed four per cent because they would reclaim their input VAT, adding that the GRA had been meeting with identifiable bodies such as the Ghana Insurers Association and the Ghana Association of Bankers on the implementation.
A financial analyst, Mr Sydney Caseley-Hayford, said the currency depreciation would not go away until the country resolved the supply-side constraints, adding that enforcement of the law had also been the country’s bane in seeing a stable currency for a long time.