Don’t jubilate; VAT increased through ‘backdoor’– Seth Terkper

Former Finance Minister, Seth Terkper, has entreated the public and business community not to rejoice over the 2018 mid-year budget review, arguing that the Value Added Tax (VAT) has been increased through subtle means even though the Minister of Finance Ken Ofori-Atta claims otherwise.

“Ghana’s VAT rate is 17.5 percent and that includes NHIL (2.5%) and GETFund (2.5 %). Removing them from the VAT base and making them specific rates (instead of ad valorem) and increasing that rate to earn more revenue (quoting Hon Kwarteng) is a ruse,” Mr Terkper stated in a Tweet shortly after the budget presentation by Mr Ofori-Atta.

Mr Ofori-Atta told parliament that there will not be any increase in VAT as widely speculated.

It had been reported by some media houses that the government intended increasing VAT from 17.5% to 21.5%.

However, he announced on Thursday July 19 that there will be Intensive Conversion of NHIL of 2.5% and conversion of GETFund VAT rate of 2.5% also to a straight levy.

“On the under-performance for the first five months of 2018, we will end the year with an estimated deficit of 4.9% of GDP compared to the programmed target of 4.5%, resulting in a fiscal gap of GHS870 million, unless we immediately implement some fiscal measures; intensive tax compliance measures, New revenue measures, Intensive Conversion of NHIL (2.5%) to a straight levy, Conversion of GETFund VAT rate of 2.5% to a straight levy, Imposition of luxury vehicle tax of GHS1,000 – GHS2,000 on non-commercial vehicles with capacity of 3.0 litres and above, review of PIT to include an additional band of GHS10,000 and above per month at a rate of 35% and downward adjustment discretionary expenditures,” he stated.

However, Mr Terkper pointed out that the move “is a VAT increase in disguise”.

“Businesses should not rejoice yet because they cannot claim Input Tax Credit/refunds on 5% of the current 17.5 percent rate. Already, the Flat Rate is denying some registered businesses refunds and Input Tax Credit,” he further explained.

“The measure amounts to a parallel Sales Tax regime that that the VAT replaced. it is a retrogressive step and further mutilation of the VAT regime.

“The removal of Input Tax Credit and Refunds will increase costs and prices. It is not an efficient and business-friendly move,” he added.

The removal of Input Tax Credit and Refunds will increase costs and prices. It is not an efficient and business-friendly move.

— Seth Terkper (@SethTerkper) July 19, 2018

It is a VAT increase in disguise. Businesses should not rejoice yet because they cannot claim Input Tax Credit/refunds on 5% of the current 17.5 percent rate. Already, the Flat Rate is denying some registered businesses refunds and Input Tax Credit

— Seth Terkper (@SethTerkper) July 19, 2018