Business News of 2014-06-12

New VAT to affect bank penetration rate

Ghana’s unbanked population of about 70 per cent may be prevented from dealing with the banks, in view of the recent directive to charge additional Value Added Tax (VAT) on bank services, the Chief Executive Officer of the Chartered Institute of Bankers (CIB), Ghana, Mr Anthony Yaw Oppong, has stated.

“That is the most critical point. That is the part that is of concern to us as practitioners, because [this] is a country where the penetration rate (people who have access to the banks) is just around 30 per cent and we are trying to encourage as many people as possible to access bank services. So with this, it would discourage those who are not already there to come,” he said.

In an exclusive interview yesterday, Mr Oppong said that the new charge could also impact on the number of services accessed by bank customers.

“If I don’t have a critical need for a bank statement, I will not ask for it because I will pay extra,” the CIB Chief Executive admitted.

He said while the VAT itself was not a bad idea, it would drive away potential customers from the banks because of the additional charges that the new VAT rate of 17.5 per cent would impose on them.

“To me, taxing the people is not a bad thing in itself. What is probably not right about this one is the timing – utility bills are going up, we can’t get electricity, and so on top of that, people are already stressed financially. So the timing may not be proper,” he noted.

Mr Oppong explained that the banks were not going to gain anything extra apart from their charges, and would only be collecting money for the government, while those who were going to suffer would be the customers because they would be paying more.

According to the CIB Chief Executive, conservative estimates indicate that the government will gain between USD$600 million and US$800 million annually from the additional VAT on banking services.

Due to the enactment of the Value Added Tax Act 2013 (Act 870) which received Presidential assent on December 30, 2013 and notification in the Gazette on December 31, 2013, all VAT registered persons are required by law to charge and account for VAT and NHIL simultaneously at the rates of 15 per cent and 2 1/2 per cent respectively.

Bank services attracting VAT

The amended VAT Law, Value Added Tax 2013, (Act 870), extends the coverage of the tax to some business activities which were hitherto outside the tax net. The business activities include 32 financial services that are rendered for a fee, commission or a similar charge.

The financial services include core and non-core banking services such as counter cheques, performance bonds, bank draft or payment orders, stopped cheques, returned cheques, commission on turnover or maintenance charge (COT), processing of overdraft, renewing of overdraft, arrangement fees for facilities and collection of bank statements.

Others are collection of balance of account, clearing charges, sending cheques for collection, arranging for standing orders, telephone banking, remote banking services (online banking, e-statements, e-clients, sms banking, etc.), collection of cheque books, sale of cheque leaflets, replacement of lost cheque book, debit cards, credit cards and current accounts (both foreign and local), among other services.

Stating that all the services were already attracting charges from the banks, Mr Oppong said what was new, was the inclusion of VAT on all the charges, which meant that if a customer had to, for instance, pay GH¢10 for a service, he or she would end up paying a total of GH¢11.75 in view of the VAT charge.

“So the government sees it as an avenue to support its budget to finance projects,” he said.

Revenue options

According to Mr Oppong, the government was now constrained from taking external loans because of public outcry and had only three other avenues to make money, which were through internal borrowing, investments and taxes.

He said by undertaking internal borrowing through the purchase of treasury bills, for instance, “government is crowding out the private sector. So because of that, we are also saying that the government should not borrow.”

Mr Oppong said due to the popular notion that government had no business doing business; the only option opened to it was through taxation


He, however, stated that there was a lot of leakages in the system which had given rise to judgment debts that were not properly appraised but were being paid with the tax payer’s money.

“So if the government can block all these leakages in the system, then the government can plough all these monies, which have gone into the drain, back into the system, that would give some kind of relief to the people,” he stated.

Mr Oppong also urged the government to widen the tax net to involve people in the non-formal sector.

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