How SMEs Can Manage VAT On Online Ads
The headline on the 21st of July created a buzz on social media platforms. SMEs received emails from global ad platforms like META on the introduction of Value Added Tax (VAT, an additional cost/tax on goods and services that is paid or borne by the end consumer) on the sale of ads to advertisers. This change affects everyone, from big businesses to individuals buying ads. Small and Medium Enterprises (SMEs) need to understand how this will impact their digital advertising budgets. In this article, we’ll take a closer look at this tax and what it means for advertisers in Ghana.
INTRINSIC VAT RATES IN GHANA
Effective August 1, 2023, Ghana has implemented the following VAT rates on advertising services purchased:
VAT Standard: 15%
National Health Insurance Levy (NHIL): 2.5%
Ghana Education Trust Fund (GETFund): 2.5%
COVID-19 Health Recovery Levy (COVID-19 HRL): 1%
The intrinsic rate of VAT is 15%, which is applied to the value of advertising services. Advertisers with a business country in Ghana will also be subject to the NHIL, GETFund, and COVID-19 HRL, effectively raising the total VAT rate on advertising services to 21.9%. For example, if a business is charged $100 for ads, the VAT charged will be $21.9, which is 21.9% of $100. In total, the business will pay $121.9 for the ad.
Small and medium-sized enterprises in Ghana, especially those that heavily rely on digital advertising to reach their target audiences, may experience increased costs as a result of the introduction of VAT on advertising services. The additional 21.9% tax burden can strain advertising budgets, potentially affecting the frequency and scale of ad campaigns.
HOW TO RECOVER TAX
Small businesses in Ghana need to include the cost of VAT when budgeting for online advertising. This will help them avoid any surprises and make sure their ads are still effective. If an SME is registered for VAT, they can add their information, i.e., name, address, and VAT ID. This will be made available to the tax authorities.
A company may reduce its tax liability by deducting VAT standard on advertising payments from VAT on the goods and services it sells, paying the difference to GRA. Thus, if a registered company is required to pay 200.00 cedis in VAT standard to GRA but has already paid 150 cedis in VAT standard on ads purchased, the company can now pay 50.00 cedis (200-150) to GRA instead of the original amount. Looking for a system to track your VAT to assist with tax management? Sign up for Built now.
SMEs in Ghana need to understand how this 21.9% VAT will affect their digital advertising expenses. Registered businesses can benefit from tax laws by planning ahead, budgeting for VAT, and maintaining proper records to reduce advertising costs. Ultimately, staying informed and following VAT regulations will help SMEs navigate this tax change successfully and keep their advertising efforts going strong.