…Over ‘Ma Trick Mu’ 3% VAT Rate Scheme
The Minority Caucus in Parliament has dragged the Ghana Revenue Authority (GRA) to the Commercial Division of the High Court in Accra, alleging the country’s revenue mobilisation body rules limiting tax-motivated payment transactions violates the laws on VAT.
The lawsuit filed Monday July 17 is asking the High Court to among other things declare the 3% VAT Flat Rate Scheme (VFRS) on importers as unconstitutional and be removed from the tax system.
According to the minority, the amended VAT Act 2017 of Act 948 does not permit the GRA to subject importers to both the VFRS and the standard rate of VAT and that doing so under the Act 948 is unlawful, as there is no justifiable legal basis for it in the 2017 VAT Act.
The Value Added Tax (Amendment) Act 948 of Act (2017 ) was passed by parliament in April, this year, through a certificate of urgency, spanning from the political promises by the ruling the New Patriotic Party(NPP).
It requires all taxable retailers and wholesalers to account for the Value Added Tax (VAT) at a flat rate of 3%. The law took effect July 1, this year, and has since stirred up some mixed reactions from the business front.
The suit filed by Ayine & Felli Law Chambers, on behalf of its client, Dr. Clement Apaak, as plaintiff, and GRA, as defendant, is seeking several reliefs, including a declaration that, “the defendant (GRA) purported act of extending the coverage of the VFRS to importers of taxable goods through the VFRS -GRA practice notes is unlawful.”
The plaintiff is also seeking a declaration, “that by subjecting importers to both the VFRS and the standard rate at VAT whilst at the same time barring the said importers from deducting input VAT, the defendant has discriminated against the said importers in contravention of Article 17 of the 1992 Constitution.”
In addition, Dr. Apaak, who is suing as a citizen and taxpayer, wants the court to declare that, “all persons currently under the VFRS who paid VAT at the standard rate prior to the coming into force of the 2017 VAT Act have accrued rights to deduct input VAT paid prior to the coming into force of the said Act.”
The plaintiff, who is also the current Member of Parliament (MP) of Builsa South, wants an order directed at the defendant for the refund of all input VAT paid, or, in the case of VAT that is payable, set off against VAT to be paid under and by virtue at the VFRS, and any other such further order or orders as the court shall deem necessary in the circumstance of the suit.”
In his statement of claim, the plaintiff contended that, by section 1(a) of the 2017 VAT Act, wholesale and retailers of taxable goods are placed on the VFRS and are therefore statutorily disqualified from deducting the input from their sale of taxable supplies.
He added that, the defendant for the purpose of implementing the VFRS issued a practice note numbered IDT/2017/001 and dated June 23,2017 and titled,” Practice note on the application of the VAT Flat Rate Scheme under the Value Added Tax Act 2013 (Act 870).”
The plaintiff argued that, the defendant in its practice note further states categorically that though importers have been placed on the VFRS and are thus subject to the charge of VAT/NHIS at 3% , they will continue to pay the VAT /NHIS at the importation at the standard rate at 17.5%.
The VAT flat rate is the system of indirect taxation where a taxpayer is required to impose a flat rate of VAT for 3% on his/her/its sales and pay over the amount collected to government.
Per the VFRS, the trader is to reimburse himself/herself/itself of the input VAT from the output VAT and the difference is then remitted to the GRA.
The standard system, on the other hand, is where a taxpayer is required to suffer VAT and NHIL at the rate of 17.5% (VAT 16% -+ NHIL 2.5%) and when selling is also to charge VAT and NHIL at 17.5% on his/her/its sales.
The government and the Ghana Union of Traders Association (GUTA) are of the view that the VFRS system is meant for retailers below an agreed threshold, especially in the informal sector who cannot keep proper records, but yet are making some money and need to contribute their fair share of tax to government.
But the minority National Democratic Congress (NDC) and the Association of Ghana Industries (AGI), as well as the Ghana Beverage Dealers kicked against the implementation of the 3% VFRS, on the grounds that, it is unlawful and violates the VAT Act (2013).
The minority argued that since the input VAT is claimable, it is not added to the cost; however with the VAT flat rate, since the VAT paid is not claimable, it is added to the price, stating that from each stage of the distribution chain, the distributor charges 3% and it becomes part of the price.
Further, the distributors transferred to the wholesaler who also imposes 3% on the price from the distributor which already includes a 3%; transferred to the retailer who also imposes 3% on sales to the consumer, which would generally lead to a rise in price levels, unaccompanied by increases in production.
According to the minority, the scheme was not consistent with existing laws governing value added taxes and, as such, its implementation was illegal and should be halted.
Until now, the scheme had been restricted to some categories of businesses in the retail sector, but this new system means it has now been extended to cover manufacturers and importers.
Some business associations had earlier met with the vice president, Dr. Mahamudu Bawumia, in a bid to get the policy scrapped, a move which proved unsuccessful.
The minority spokesperson on finance, Cassiel Ato Forson, speaking to the media, noted that the scheme violates the VAT Act 870 and could not be implemented.
“Any policy that seeks to impose a tax or that seeks to prevent the wholesalers and importers from deducting their import tax, is illegal. Therefore we are urging the GRA and the Ministry of Finance to stop perpetuating the illegality. It’s illegal and has no place in the law. It is not in sync with the spirit of Act 870. Its Value Added Tax and you cannot in any way implement a tax that is not in sync with the reason why the Vat Act 870 was implemented.” he told media earlier.
He argued the government was attempting to trick Ghanaians into thinking taxes were being scrapped, while introducing a new one “through the backdoor, saying “what they [GRA] are only seeking to do is impose a VAT through the backdoor.
Hon. Forson added that the NPP government is tricking Ghanaians that they are going to reduce taxes, but apparently they are imposing taxes because they are preventing the importer from detaching input tax from the output tax.