Business News of 2014-06-25

Union mounts pressure on govt to withdraw VAT on financial services

The government has come under intense pressure from various quarters, the latest being unionised workers, to withdraw the 17.5 per cent VAT imposed on what it described as non-core financial services.

While some believe the VAT will slow down the already bad financial intermediation in the country, others are of the view that it will pose an additional cost to customers of the banks.

For instance, the Industrial and Commercial Workers Union (ICU) asked the government to as a matter of urgency withdraw the VAT while it has also consequently begun preparatory discussions with the tripartite committee made up of the Ghana Revenue Authority (GRA), Ghana Bankers Association and the Ministry of Finance for the withdrawal of the levy.

The General Secretary of ICU, Mr Solomon Kotey, told the Graphic Business in an interview that workers were being over-burdened with taxes that were eating away their disposable income.

“The value of our money is no more anything that can take us any further when one is paid because the rippling effect is coordinating on every expenditure pattern of the land,” he said.

Mr Kotey describes as double taxation the imposition of the 17.5 per cent on financial services, saying it is illegal. According to him, salaries deposited at the bank are a net of all statutory deductions.

“If additional earnings are coming on the money in the bank, then one will say once you have made some earning, then it can be taxed. That we will oblige and say it is the correct thing to be done,” he emphasised.

Core and non-core functions

The ICU is disputing the claims by the government that only the non-core functions of the banks will be levied. He said commercial banks had universal banking licenses which were issued by the central bank and so the Cost of Transfer (C.O.T) could not be levied as non-core function of a commercial bank.

“The bank is not having anything one could describe as non-core banking financial activities.” He argued that the net income of workers would suffer additional deductions because some of the functions performed by the banks had been placed under non-core.

“The recent automatic formula adjustment on utilities and the regular petrol hikes that we are having has all of a sudden changed our market landscape. We are just being over-burdened because our tax laws are such that every income is taxable, which we are living with and coping with,” he said.

He said banker’s draft service was a normal function of a bank which should not be described as non-core, let alone attract a levy. “The changes that come against our income keep rising by the day. So if the core banking transactions are now being taxed, then we think the government is not being fair to Ghanaians and those of us who are already caught in the PAYE system.”

Minority threatens court action

The Minority in Parliament are threatening to drag Ghana Revenue Authority (GRA) and the Ministry of Finance to court, if they insist on implementing a controversial VAT on financial services.

The Minority spokesperson on finance, Dr Anthony Akoto Osei has warned that the "government will be perpetuating an illegality in the implementation of that law”. “But when the bill came to parliament we opposed it on the grounds that it will impose additional burden on consumers and businesses,”Dr Akoto Osei said.

He was convinced that the best option was for the government to withdraw the law due to its complexity. The Ghana Revenue Authority has announced 35 services likely to attract a 17.5 percent VAT charges in the financial services sector.

List of financial services to be affected

The Ghana Revenue Authority (GRA) settled on the list of services that would attract the 17.5 per cent Value Added Tax (VAT) and National Health Insurance Levy (NHIL).

According to a letter from the authority to the bankers and signed by its Commissioner-General, George Blankson, the 32 fee-based services that would attract the tax from July 1, 2014, include current account for corporate bodies, bank draft (payment order), stopped cheques, returned cheques and commission on turnover for corporate organisations.

Others include overdraft processing or renewal fee, revolving acceptance credit and arrangement fee for facilities and statements, closure of accounts and certificates of balance.

There are also charges on online banking (Internet) that include e-statements, e-clients, phone banking, SMS banking, mobile banking, monthly subscription and financial transaction Fees.

The list of fees, commissions and similar charges for financial services that are subject to the tax was developed by the Technical Committee for the Implementation of VAT Act 2013 (Act 870) which was made up of representatives of the Ghana Association of Bankers, the Ministry of Finance and the Ghana Revenue Authority and approved by the Minister of Finance, Seth Terkper.

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