This article is the second in a series of articles exploring the 2020 Mid-Year Fiscal Review, in light of the initial 2020 Budget Statement and Economic Policy of Ghana, and the COVID-19 pandemic we all honestly did not anticipate.
In Part 1 of this series, we highlighted the indirect tax proposals from the 2020 Budget Statement and Economic Policy, laying the foundation for the indirect tax policy measures introduced in the 2020 calendar year. As a quick recap, the 2020 Budget regarding indirect taxes had the Government initially expecting indirect tax revenues to be GH¢24.91 billion, as compared to an indirect tax revenue of GH¢ 20.62 billion in the 2020 Mid-Year Review, a reduction of approximately 17.2%. To achieve the initial revenue target, the tax policy measures that were introduced included the renewal of the Special Import Levy, the implementation of the taxation of e-commerce transactions and the removal of Value Added Tax (VAT) on certain services.
In this article, we have highlighted the COVID-19 indirect tax policy measures as well as the indirect tax policy measures proposed by the 2020 Mid-Year Fiscal Review.
Indirect Tax Measures Arising from Government’s COVID-19 Tax Reliefs
After COVID-19 hit our country when we least expected it, the Government stepped in with a number of tax measures meant to support the economy in these times, as well as relieve the tax burden on taxpayers, amongst others. From an indirect tax perspective, the specific tax measure was a waiver of VAT on donations of stock of equipment and goods for fighting the pandemic. This was mentioned in the Minister of Finance’s 30 March 2020 Statement to Parliament on the Economic Impact of the COVID-19 Pandemic on the Economy of Ghana.
Roughly a month later, the Ministry of Finance submitted a Memorandum dated 29 April 2020 to Parliament. Among others, this Memorandum requested for qualifying donations made to support the fight against the COVID-19 pandemic to be designated as “emergency relief items approved by Parliament” in line with Paragraph 6 of the Third Schedule to the VAT Act, 2013 (Act 870).
Following Parliament’s approval of the above request, the Ghana Revenue Authority (“GRA”) in a notice in the Daily Graphic on 12 May 2020 published guidelines for the effective implementation of the various tax incentives. The guidelines included a list of beneficiaries to whom donations made would qualify for the reliefVAT treatment. In the above-mentioned Daily Graphic publication, the requirement for relief-VAT treatment on donations was that the donation had to be made through recognised institutions and bodies, including the COVID-19 Trust Fund, the Private Sector COVID-19 Fund, Metropolitan, Municipal and District Assemblies, Ministries, Departments and Agencies, Health Institutions, Traditional Councils and Religious Bodies/ Institutions.
The 2020 Mid-Year Fiscal Review – Indirect Tax Proposals
Amid the COVID-19 pandemic and a global economy that had surely felt the impact of the pandemic, the Minister of Finance in keeping with the provisions of the Public Financial Management Act, 2016 (Act 921) presented the Mid-Year Fiscal Review of the 2020 Budget on 23 July 2020. This Budget Review focused on social intervention policies aimed at helping the economy recover from the impact of the pandemic. As such, the expectation was that there would not be any new taxes introduced, and true to expectation, no new taxes were introduced.
On indirect tax, the 2020 Mid-Year Fiscal Review focused on the reduction in the rate of the Communications Service Tax and the enforcement of VAT on commercial properties. These are further explained below:
Reduction in Communications Service Tax (CST) rate from 9% to 5%
The 2020 Mid-Year Fiscal review proposed a reduction in the CST rate from 9% to 5% effective September 2020.
When the tax was introduced over a decade ago, the Communications Service Tax Act, 2008 (Act 754), imposed a rate of 6% for CST. Until 2019, the rate remained at 6%, and then following the 2019 MidYear Fiscal Review, it was increased to 9%. This increase in rate was effected through the passage of the Communications Service Tax (Amendment) Act, 2019 (Act 998). As expected, this increase in rate was met with a lot of initial stakeholder resistance and uncertainties in implementation. Roughly a year later, amid the COVID-19 pandemic, this reduction in the CST rate from 9% to 5% should be a welcome change to providers of electronic communication services and the people of Ghana, who ultimately bear the burden of the tax.
The expected 2020 CST revenue is projected at GH¢ 535.80 million, higher than the initial target of GH¢ 436.54 million and the 2019 provisional outturn of GH¢ 412.34 million.
We do not expect a reversal of the rate soon because the reduced rate is aimed at supporting digitalisation, a major policy intervention in the Ghana COVID Alleviation and Revitalisation of Enterprises Support (CARES) Programme meant to catalyse economic activities and promote growth.
Enforcement of VAT on Commercial Properties
Also proposed in the 2020 Mid-Year Fiscal Review was a policy to enforce VAT on commercial properties, as a measure to shore up tax revenue.
It is a requirement in the VAT Act, 2013 (Act 870), that a person who is registered for VAT or who is required to register for VAT should charge and account for VAT on non-exempt supplies of goods and services made in Ghana. Consequently, owners and managers of commercial properties who are registered for VAT or who are registrable for VAT are expected to charge VAT at the standard rate on rental charges for commercial properties, since this is not an exempt service under the First Schedule of the VAT Act.
Considering this is an already existing provision in Act 870, the expectation is that there will not be an amendment to Act 870, but rather an increased focus by the GRA on owners and managers of commercial properties and their invoicing practices to ensure that VAT is indicated on invoices issued for rental charges.
Also, it is expected that these owners and managers of commercial properties will properly account for the associated VAT in order to realise the tax revenue anticipated from this policy. To be successful in this exercise, GRA is likely to undertake tax audits of owners and managers of commercial properties and intensify stakeholder education in the commercial real estate sector.
Bringing it All Together
From the above, we have assessed the indirect tax policy measures introduced by the Government in the 2020 calendar year. These policies have arisen from the 2020 Budget, the COVID-19 tax measures and the 2020 Mid-Year Fiscal Review. For the Government to be able to meet its revised tax revenue targets, it is essential that the Government puts in place measures to ensure that our indirect tax framework in Ghana is very robust to meet the uncertainties ahead.
In the subsequent series, we will explore the Direct Tax and Tax Administration measures from the 2020 National Budget, the COVID-19 tax reliefs and the 2020 Mid-Year Fiscal Review.
Source: BusinessZone Online