Indexing government scandals one at a time
Dr Theo Acheampong, a fellow of think tank IMANI Africa, has pointed out that the new Value Added Tax (VAT) structure will place more financial burden on the public, as consumers are likely to pay more for products and services.
“So, the rate stays the same but the amounts collected will increase and subsequently the overall tax burden. Let me illustrate this with a dressmaker who purchases a fabric from Makola costing GHS90 as raw material input and eventually sells the dress made using the fabric at GHS100, all without VAT (ex-VAT). Under the new VAT scheme, the dressmaker will pay a combined 5% GETFund and NHIL levy amounting to GHS4.5 but they cannot recover this as an output tax credit which was the previous case as this is now not cost recoverable. It becomes a business expense! Normally, when businesses buy things, the VAT cost on the raw materials such as VAT is supposed to be fully reimbursed.
“However, by the government of Ghana decoupling the 5% NHIL and GETFund component of VAT, this levy (business tax) becomes a business cost which is non-reimbursable. The dressmaker subsequently sells the good at GHS117.50 but their net profit before VAT becomes GHS5.50 (GHS100-GHS90 GHS2.25 GHS2.25) whereas the net VAT and levies paid by them to the government (GRA) becomes GHS6.25 (12.50-11.25 2.50 2.50). Hence, most business will have to decide whether to absorb this extra 5% charge, eating into their profit margins or pass this on to the consumer although the latter is more likely to be the case. What is constant in all of this is that the government will still accrue more money by the change”.
July 20, 2018
References: