More goods, services to attract VAT

Government is finalising a revised Value Added Tax (VAT) bill to broaden the base of the tax, which could include extending it to financial services.

Financial services, whose share of GDP has risen from 3.8 percent in 2008 to 5 percent in 2012, are currently exempted from VAT -- except professional advice and consulting services provided by accounting and investment firms.

The list of VAT-exempted supplies also includes books, newspapers, postage stamps, live animal products and medical equipment.

The International Monetary Fund (IMF), whose last staff mission to the country ended in April, gave hints of the extension of VAT to financial services in the next fiscal year in its June Ghana Country Report.

But Deputy Minister of Finance Cassiel Ato Forson, who confirmed to the B&FT that the upcoming VAT legislation will expand the base of the tax, said he would “not speculate” on the additional goods and services to be covered because Cabinet is yet to give its approval.

“We are in consultations to broaden the base of the VAT. We have a draft bill and we’re doing the final consultations before Cabinet approves it. Then we will have it laid before Parliament. Hopefully, we will get approval next week from Cabinet as to what should be added to the VAT.”

Many countries exempt a broad range of financial services from VAT, partly due to complexities in delineating and assessing liability. This is because while some financial services are explicit, others are not quite so. A few countries, such as South Africa, collect VAT on explicit financial services.

A VAT on financial services would likely be applicable to payments for services such as maintaining a current account with a bank, using a cheque book or debit card, issuing money transfers or orders, buying cover from an insurance company, and raising a bank draft to pay for various supplies. One problematic area for tax authorities worldwide is how to tax the provision of credit, and it is not certain whether Ghana will steer clear of this area.

Based on a sector GDP of GH¢3.4billion in 2012, a 15 percent VAT on the full range of financial services could raise around GH¢0.5 billion annually.

Mr. Forson said Government will also push ahead with the proposed windfall profit tax on the mining industry despite the current downturn in commodities, with spot gold prices shedding more than 25 percent in the first half of this year.

According to the IMF, both the new VAT law and the windfall profit tax are expected to become effective in 2014, but Mr. Forson declined to provide a timetable.

Ghana’s economic vulnerabilities have been heightened and short-term stability risks are significant, mainly due to the fiscal slippage in 2012, and immediate fiscal consolidation is necessary to improve the outlook, the IMF said.

Last week, Parliament enacted a fiscal stabilisation levy and special import taxes which will add GH¢400million to the fiscal coffers over the next six months, needed to plug a shortfall in state revenues in the first four months of the year.

With the budget for wages, the main cause of the fiscal slippage in 2012 - projected to be overspent by 14.8 percent this year -- Government is axing GH¢1.8billion (60 percent) from Ministries, Departments and Agencies (MDAs)’ budget for goods and assets to secure its 9 percent of GDP deficit target.