The Finance Ministry has insisted that the implementation of the 3% VAT Flat Rate Scheme (VFRS) would not result in prices of goods and services going up.
Deputy Finance Minister, Kweku Kwarteng, tells JOYBUSINESS several scenarios considered by the Ministry shows that prices should rather be going down. He says the Ministry has no intention of recommending for the removal of the tax.
This is because it is aimed at addressing the loopholes in the collection of some taxes from businesses, especially those in the wholesale space, he said.
Mr Kwarteng added that government is, however, prepared to engage the manufacturers on their concerns to aid the smooth implementation of the tax.
He also rejected assertions that it would increase the cost of doing business in the country, observing that several scenarios considered revealed that, in some situations, the tax obligations of some firms would reduce.
His comments are in response to reports that price of some goods on market has been increased as a result of the reintroduction of the tax.
The Food and Beverage Association maintains that the increment has come about because it members cannot absorb the expected increases in the cost of production, after the introduction of the 3 percent VAT flat rate scheme from July 1.
Some of the manufacturers are also threatening to carry out some job layoffs and downsize operations to reduce cost of production.
Reasons for inducing the tax
The New Patriotic Party (NPP) government during its campaign last year and in the 2017 Budget promised to simplify the VAT regime by replacing the 17.5% Input – Output Tax with a 3% Flat Rate.
An earlier delay in its introduction was to engage more broadly with stakeholders before introduction.
The Ghana Revenue Authority from July 1 directed businesses affected by this tax to start the application of the 3% VAT Flat Rate to replace the Previous 17.5% Input – Output VAT computation approach.
The old approach, according to the Ghana Revenue Authority (GRA) suffered low compliance due to the extensive paperwork in filing VAT returns is being replaced with the 3% Flat Rate to make it easier for taxpayers to comply.
According to the GRA, while the old 17.5% Input-Output Tax was charged on Value Added, the new 3% Flat Rate is charged on Turnover.
The new simpler approach is not anticipated to increase prices or the cost to businesses. It is rather aimed at simplifying the process for VAT compliance and reduces Tax avoidance.
GRA to assist businesses on challenges with implementing the tax
Ahead of the implementation, the GRA did engage various stakeholder groups on the new approach providing education and guidance on how to comply with the new approach.
Some business groups who have expressed reservations and inhibitions about the new approach have also been encouraged to engage the GRA for further guidance on how to comply with the new approach.
GRA officials say they are additionally ready and on stand-by to assist VAT registered persons who need further education and assistance to ease the process of complying with the new approach.