Value Added Tax (VAT) – the basics
What is VAT?
Value Added Tax (VAT) is a tax that is charged or paid when you buy goods or services. It is charged at various stages, for example when goods are manufactured, distributed or imported into the country. Only businesses registered to charge VAT are allowed to charge the tax.
Register for VAT
To be registered for VAT your business must be within the acceptable VAT threshold. You must also:
- have a permanent place of business
- deal in taxable goods
How to register for VAT
To register for VAT, you must:
- obtain a Taxpayer Identification Number (TIN)
- fill VAT registration form
- attach copies of Business Registration documents
- submit registration forms at the nearest Domestic Tax Revenue Division office
A VAT certificate will be generated. This must be clearly displayed at your business premises. You will also need to buy VAT invoices to issue to your taxpayers.
Documents you need for VAT registration
Sole proprietors – Certificate of Business Registration
Companies – Certificate of Incorporation of Business, Certificate of commencement of business
Partnerships – Certificate of Partnership
VAT thresholds
You need to register to charge VAT if you are a retailer and your taxable supplies within a 12-month period is GH¢200,000 or more.
You may also register to charge VAT if the amount is below GH¢200,000. However you must stay registered for at least 2 years.
Certain groups of people will need to register even if their business worth is less than or below GH¢200,000. These are:
- promoters of public entertainment,
- auctioneers
- national, regional, local or other authorities or bodies
Where to register for VAT
VAT registration can be done in any Domestic Tax Revenue Division office nationwide.
Is VAT registration free?
It costs nothing to register for VAT.
What happens if you do not register for VAT
If you should register for VAT but do not do so, the Commissioner-General will register you compulsorily. In addition you will pay a penalty of up to two (2) times the amount of tax due from the time you should have registered.
Charging VAT
Once you are registered for VAT you must charge for very sale made or service rendered unless the person you are selling to has VAT Relief or the item or service is classified as Exempt. Only persons or businesses that have been registered for VAT can charge VAT. A VAT invoice or an approved computer-generated invoice must be issued for each transaction. All transactions are to be recorded in a VAT Account.
VAT invoice
A VAT invoice is the approved invoice produced by the Ghana Revenue Authority. It is the official receipt that has to be issued by the registered taxpayer for taxable sales and services. Some businesses are allowed by the Commissioner-General to issue their own computer- generated invoices and till receipts to their clients.
Rates of VAT
Standard Rate- 12.5 %
VAT Flat Rate – 3%
Zero Rate – 0%
VAT Exemptions
Goods and services that do not attract VAT are called exempt goods and services. For a full list of exempt goods and services please click on this link.
What is Input Tax?
Many of the things bought by registered businesses are subject to VAT. However, a VAT registered trader can usually get back the VAT charged on business purchases and expenses. This is called Input Tax. It includes not only the VAT on raw materials or on goods bought for resale but also the VAT on items and services like:
- Office equipment for use in the business
- Telephone bills (in so far as they are for calls used for the business purposes).
- Payments for services to other businesses (such as accountants’ or solicitors’ fees).
Output Tax
Output Tax is the VAT that you, as a VAT registered taxpayer, charge your customers when you sell goods or services to them.
Calculating VAT due
The VAT system allows businesses to deduct the VAT paid on purchases (Input Tax) from the VAT charged on sales (Output Tax). It is only the difference that is paid to the Ghana Revenue Authority.
Output Tax less Input Tax = Payment due
Since businesses are allowed to make this deduction (i.e. take a credit for the Input Tax) it is not necessary to add the Input Tax to other costs in pricing the final product. When the input tax is added to other costs, the tax would then be charged on the cost plus input tax, instead of a tax on value added only, thereby unnecessarily increasing the final price of the product.
In some cases, the Input Tax may exceed the Output Tax. The trader can carry the credit forward or apply for a refund provided the required conditions are met.
Should you charge VAT on every sale or service?
You must charge VAT on every sale made or service rendered. All persons who buy goods you sell or enjoy services you render must pay VAT unless they are exempted from doing so.
Due dates for VAT returns
Thursday 31st January 2019
Thursday 28th February 2019
Friday 29th March, 2019
Tuesday 30th April, 2019
Friday 31st May, 2019
Friday 28th June, 2019
Wednesday 31st July, 2019
Friday 30th August, 2019
Monday 30th September, 2019
Thursday 31st October, 2019
Friday 29th November, 2019
Tuesday 31st December, 2019
VAT Flat Rate Scheme (VFRS)
The VFRS is a special method for collecting and accounting for VAT. It is designed for retailers, wholesalers and importers of goods. From July 2017, these registered taxpayers will charge VAT at a rate of 3% on their taxable sales.