Well, the new Value Added Tax (VAT) was brought into force last year but we still receive invoices from vendors of clients who used the old VAT rate. The old VAT system is at a rate of 17.5% which is made up of 12.5% for VAT revenue for Ghana Revenue Authority (GRA), and 5% paid into (National Health Insurance Levy) NHIL & (Ghana Education Fund) GETFUND. This 17.5% is applied wholly on the tax exclusive amount to arrive at the VAT to be charged. Moreover, all these taxes paid are recoverable, meaning you can defray part of the taxes with your input VAT received from your vendors.
However, in the new system, there is a separate levy of 2.5% for GETFUND, another 2.5% for NHIL. These two levies are supposed to be initially calculated on the VAT exclusive amount to arrive at the first set of taxes to add to the VAT exclusive amount. After adding these two levies to arrive at a new sub-total, calculate the VAT of 12.5% on that sub-total to arrive at your total VAT to be charged to your customer. What this means is that, currently, the 12.5% VAT is a compound tax; it requires that all preceding levies/taxes to be added to the selling price before applying the tax percentage. Moreover in the new system, GETFUND and NHIL are not recoverable, meaning they cannot be reduce with input VAT.
Example – Old VAT system
Selling price of printer = GHS1,000
VAT @ 17.5% = GHS175
Total price to be paid by customer =GHS1,175 (1000+175)
Meaning that at the last day of the month following the month of sale, you need to file and pay GHS175 (minus any VAT you got from the suppliers/vendors of your products) to GRA.
Example – New VAT system
Selling price of printer = GHS1,000
GETFUND @2.5% =GHS25
[email protected]% =GHS25
Sub-total =GHS1050 (1000+25+25)
VAT @ 12.5% = GHS131.25
Grand total = GHS1,181.25 (1050+131.25)
With this new system, you will have to file the GETFUND and NHIL together on one returns form and the VAT on a separate returns form. Also, the GETFUND & NHIL are not recoverable, so you cannot reduce them by your input VAT. However, you have the option of treating them as expenses in your income statements to reduce your chargeable income. Moreover, you will realize the the new VAT, being a compound tax, allows for the addition of the GETFUND & NHIL amounts before the 12.5% is applied.
Now, finally some clients have asked us how they can get to their final sales (VAT inclusive) using a single percentage without going through all these calculations. The answer is to use an effective rate of 18.125%. By using 18.125%, you can arrive at an amount which includes the two levies (GETFUND & NHIL) as well as the VAT.
We have made this simple with our all new free Built app which comes with invoices and taxes already pre-configured, You use select the applicable taxes and it works for you. Sign up at www.builtaccounting.com now and get started using your automated free Built invoicing and accounting app.
Also, if you want a template to use in invoicing your clients, we have created one for you. Click here to download.
Edward is a co-founder and the CEO of Built Financial Technologies. He's a chartered accountant and his professional interest is in accounting technology implementation, financial management, corporate reporting and strategy.
20 replies on “How to Invoice with the new VAT system in Ghana [template provided]”
Good stuff here!
On using the effective rate, I guess that’s solely for decision making and guessing the estimated cost of a transaction cause GRA explicitly requires you to show the various components on your VAT receipts (in the order of GETFund, NHIL Levy and the VAT.
I would be glad if in your subsequent article, you would take a look at Withholding Tax on VAT.
Great read and informative, anyway.
Definitely Confidence! It’s solely for quick decision making on the final price on a product/service. We will surely put up a post on Withholding VAT one of these days.
very useful piece, thanks so much
I’m so glad I stumbled upon this piece especially with regard to the effective rate. I’ve been struggling with how to factor in the Get Fund & NHIL alongside the VAT in my firm’s accounting software ever since the reform. Now I’ve gotten the solution. Looking forward to more informative articles especially those in relation to taxes in Ghana.
Thank you.
Very Educative. Please how is the new communication service tax (cst) treated or better still how can one invoice with the new cst, vat, nhil and getfund in ghana. Thanks
Great post. You just made my life easier.
Thanks.
So how could anyone tell me VAT has been reduced when the effective tax rate has actually shot up to 18.125%?
This defies a Canon of a good tax system. This is a hidden increment.
Simply put, the final consumer is worse off by the new reform.
Mind you, the business will pass this on to the consumer.
Very brilliant on your side. You made it clearer and for easy understanding of the VAT calculation. Keep it up please
Good work done.
Great piece,wanted to know the effect of nhis&Getfund calculation on withholding amount
This a very strange tax system. Why should a levy be taxed. Are levies ‘value added’. I just can’t understand the logic of it. Anyway, thanks for your brilliant explanation of the law. If I had seen this earlier, I would have passed my last ICA Principles Taxation exam. What new things should we looks out for?
Hello Joseph,
Thanks for the complements. We post at least one article every week so you visit and read. Also, let us know which topics you will want to read more about on our blog. Don’t forget to subscribe and share the articles as well.
Cheers,
Edward
Great stuff.
Very simplified
nice write up
kindly help me with the this
*how do i calculate the withholding tax on vat ( on what amount)
*should the input vat be calculated only based the month of sales purchases?
That is a nice piece and very informative. However, I see a tax on tax with the VAT!
Applying VAT on the GETFUND and NHIL levies seems to me, there is a double taxation which is unfair!! For fairness, the VAT should be applied on the amount excluding the GETFUND, NHIL and now the re-introduction of the CST levies. All these levies are thus added to the invoice amount before applying VAT of 12.5%. This intro was a cunning move to increase VAT revenue.
‘In any case, that is the position of the law’, sayeth the Tax Man.
Thanks for such clear explanation. What about the Flat Rate Vat Scheme? Is the calculation same? ie. you add NHIL + GetFund before the 3% VAT?
Thanks in advance.
What about tourism levy? How does one factor the tourism levy in the vat calculation?
Lovely piece, but can u update your template for (2021), with the covid levy etc…
Please i need the formular for tax reversal