The Ghana Revenue Authority (GRA) has directed all financial institutions to discontinue the charging of 17.5 per cent Value Added Tax (VAT) on financial services they provide for their clients.
The directive follows the government’s resolve to abolish the 17.5 per cent VAT on financial services which was announced by the Finance Minister, Mr Ken Ofori-Atta, when he presented the 2017 budget statement to Parliament.
The implementation of the 17.5 per cent VAT on fee-based financial services took effect from the beginning of 2015. It followed the Presidential assent given to the VAT Act 2013 (Act 870) on December 30, 2013 and its subsequent gazetting the following day.
The charges affected a range of services provided by financial institutions, including fee-based services such as advisory services, safe-keeping, fees on ATM transactions and portfolio management services.
A directive signed by the acting Commissioner-General of the GRA, Mr Emmanuel Kofi Nti, and addressed to the Executive Secretary of the Ghana Association of Bankers, ordered all financial institutions to discontinue charging the fee.
The directive, dated April 18, 2017 was copied to the Minister of Finance, the Deputy Ministers of Finance, the Tax Policy Advisor, the Director of the Revenue Policy Unit, the Head of the Tax Policy Unit and the Chief Director of the Ministry of Finance.
In the letter, Mr Nti explained that Parliament had passed the VAT (Amendment) Act 2017 (Act 948) that included the “supply of financial services as exempt supply to give the cancelation of the VAT on financial services which was announced in the 2017 budget legal backing”.
The move, which has been welcomed by many people, was meant to bring some financial relief to citizens who deal with financial institutions across the country.
In 2015, a new VAT law introduced various changes onto the VAT landscape of Ghana, including revising the effective standard VAT rate from 15 to 17.5 per cent and imposing VAT on some financial services.
Following the enforcement of VAT on some financial services, providers of fee-based financial services, including banks, were required to apply, register and charge VAT on “qualifying services”.
Under the new law, the sanction which could be imposed by the tax authority, without recourse to a court, was up to two times the tax that the state had lost as a result of the failure on the part of a financial institution to charge the 17.5 per cent VAT.
VAT charges were also required to be appropriately raised using a VAT invoice and a task force was set up to visit taxpayers and check if VAT invoices were being raised.
Failure to raise VAT invoices attracted a penalty of at least GH¢1,200 and up to three times the amount of tax in question.
On a monthly basis, the financial institutions were expected to report and remit the net of tax collected to the tax authorities — their principals.
This reporting is done through the use of an appropriate document known as a return. Failure to file a return attracts a penalty of at least GH¢500, in addition to interest on any unpaid amount at a rate in excess of the Bank of Ghana discount rate.