Four major manufacturers associations-- the Association of Ghana Industries (AGI), Importers and Exporters Association, Food and Beverage association of Ghana, and the Ghana Automobile Dealers Association have petitioned the president to suspend the implementation of the 3% Value Added Tax Flat Rate Scheme (VFRS) to allow for more discussions to build consensus on certain key concerns.
The manufacturers, in a letter dated June 23, 2017 and addressed to the president, Nana Addo Dankwa Akufo-Addo, said: “After thoroughly deliberating on the scheme, we believe the implementation of this Scheme in its present form will significantly constrain business and increase cost of living, thereby bringing economic hardship to the ordinary citizen.”
The Ghana Revenue Authority (GRA) had earlier stated that the 3percent VFRS was scheduled to come into force on July 1, 2017, much to the displeasure of manufacturers who contend that its implementation will make them uncompetitive and potentially contain any planned expansion programme.
Consumers, the petitioners argue, would have to pay between 6-15 percent more for a product made in Ghana, if the implementation of the VFRS is not suspended in the interim. This would also significantly impact the purchasing power of consumers.
The VAT Flat Rate Scheme as provided for in the Value Added Tax (Amendment) Act 2017 (Act 948) requires wholesalers and retailers of taxable goods to charge a flat rate 3 % on the value of taxable goods exempting the supply of any form of power, heat, refrigeration or ventilation
The major challenge is the classification of all importers of finished goods as wholesalers/retailers per the definition provided in the GRA practice notes because, essentially, they break bulk. Manufacturing entities who also import are classed as wholesalers in the sense
Wholesalers and retailers to whom the VFRS apply cannot also deduct input tax, therefore the 17.5 percent input tax paid becomes part of their landed cost.
The Petitioners note that: “ Where a manufacturer buys from an importer of non-exempt raw materials, then the importer will transfer all the 17.5 percent VAT paid to Customs to the manufacturer driving up cost and negatively impacting VAT remittance to government from the manufacturer. The manufacturer will therefore take a decision of importing directly, thereby increasing inventory holding costs and reducing businesses to importers with its ripple effects.”
The group, in their petition, recommended the re-implementation of Act 810 with modifications if it intends to implement its budget proposal of re-introducing the flat rate scheme, as the Act provides for a threshold which made it easier to administer.
Businesses, the petitioners said, should also be given the opportunity to choose to exclusively operate the standard rated scheme or flat rate scheme.
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