Business News of 2014-01-15

Banking, aviation and insurance sectors roped into new VAT net

The new amended Value Added Tax (VAT) has taken off. The amendment will not only see an increase in VAT rates but will also see the roping in of new sectors into the VAT Net.

Prior to the amendment of the Value Added Tax 2013, (Act 870) a number of sectors were exempted from paying VAT.

This includes real estate developers some financial services providers including banking and insurance service providers and domestic airline operators.

Others service providers that were also outside the VAT net include car rental companies, haulage suppliers, gyms, spas, promoters of public entertainment, auctioneers as well as local pharmaceutical companies.

But with the latest amendment to the act, these service providers who hitherto did not charge VAT will now do so.

Persons who patronize these services should expect a 17.5 percent increase in payment for those services.

Already, local pharmaceutical manufacturers have warned the latest increase will affect the prices of medicines you purchase.

Executive Secretary for the Pharmaceutical Manufacturers Association, Kwabena Asante Offei told Citi Business News, the companies will have no choice but to push the cost to the consumer.

According to the new amendment, “when we pay the input we are supposed to transfer that payment to the client so from zero we are now going to charge VAT of 17 percent which is huge.”

But that industry is not the only one likely to push that cost onto you. The insurance industry is also likely to.

The increase also means your motor insurance for example will go up.

However, Life insurance and reinsurance services have been exempted from the tax whether or not such services are rendered for a fee, commission or a similar charge.

Also in the financial sector you bank is likely to charge VAT as they have also been roped into the VAT net.

They may charge you VAT for the issue, transfer, receipt or for dealing with money in the local or a foreign currency.

They may also charge you VAT for the provision of a loan or for the operation of a bank account.

Another sector that will be hit is the local aviation sector. Local airline operators will also be required to charge VAT.

This means your airline ticket to Kumasi, Tamale or Takoradi from Accra may go up by 17.5 percent.

Unfortunately this is not the only sector that will see price hikes. The prices of houses are also likely to shoot up as estates developers will be required to pay VAT.

Also, you are likely to pay more for a car you rent this is because car rental companies have been roped into the net.

Furthermore, the next you go to the gym to trim that protruding tummy or better still hit the spa to pamper yourself, be prepare to pay an extra 17 percent for those services as spas and gym operators have been roped in.