Understanding the Upfront Payment and Its Impact on Importers
In Ghana, VAT compliance has long been a challenging issue due to the informal nature of transactions in the economy. The Ghana Revenue Authority (GRA) has been working to address this concern, particularly in relation to importers who, despite being required to register for VAT, are not yet part of the VAT net. Such importers, while paying import VAT upon bringing goods into the country, often fail to charge the tax when supplying these goods domestically.
To tackle this issue and ensure better tax compliance, the VAT (Amendment) Act, 2022 (Act 1082) was introduced. This amendment imposes an upfront payment of 12.5% on the customs value of taxable goods at all ports of entry, specifically for individuals and businesses obligated by law to register for VAT. This payment is additional to the import duties and taxes that importers already pay.
Rationale for the Upfront Payment
The introduction of the upfront payment system aims to achieve several key objectives:
1. Assure Tax Compliance - Registration & Filing
By imposing an upfront payment on taxable goods at the time of import, the GRA seeks to encourage importers to register and file their VAT returns promptly. This measure strengthens the overall tax compliance of businesses and helps streamline the VAT system.
2. Identify Non-Compliant Taxpayers
The upfront payment also allows the GRA to identify importers who are not complying with VAT regulations. By monitoring upfront payments and subsequent recoveries, the authorities can pinpoint non-compliant taxpayers and take appropriate actions to rectify the situation.
3. Bring Uniformity in Treatment
The upfront payment system helps to level the playing field between VAT-registered taxpayers who charge VAT on their domestic supplies and unregistered importers who do not charge VAT on their domestic transactions. This fosters fairness in the marketplace and discourages tax evasion.
Scope & Rate of Application
The upfront payment is applicable to the following categories of goods:
- Taxable Goods Imported for Home Consumption
Any taxable goods imported into Ghana for local consumption fall under the ambit of the upfront payment system. This includes a wide range of goods subject to VAT.
- Taxable Unconsumed Goods Forfeited and Auctioned
Goods that are classified as taxable, but for some reason remain unconsumed and are subsequently forfeited and auctioned, are also subject to the upfront payment.
- Taxable Goods on Transfer from Bonded Facilities
Goods that are moved from bonded facilities to domestic markets are liable for the upfront payment. This ensures that VAT is accounted for when goods transition from the bonded environment to the local economy.
Exclusions to Upfront Payment
While the upfront payment applies to the majority of taxable imports, some goods and entities are excluded from this requirement. The following categories are exempted from the upfront payment:
1. Exempt Imports
Certain goods that play a crucial role in various sectors of the economy are exempt from the upfront payment. These include:
Agricultural inputs, which are essential for the growth of the agricultural sector.
Crude oil and hydrocarbon products, which are vital for the country's energy needs.
Salt for human consumption, a staple commodity in Ghanaian households.
Goods imported under specific categories, such as Temporary Import, Transshipments, Transit & Coasting Trade, In-bond Manufacturing, Warehoused, and any cargo under bond/suspense.
2. Privileged or Exempt Persons/Institutions/Companies
Several entities, such as the President, Diplomats and Diplomatic Missions, Persons with Disabilities, Religious Organizations, Donor and Charity Organizations, and Free Zone Enterprises, enjoy privileged or exempt status and are exempted from the upfront payment. Additionally, government institutions and agencies are also excluded from this requirement.
3. Imported Taxable Goods Below the Threshold
Goods imported for home consumption with a customs value below GHS 200,000.00 are exempt from the upfront payment. This threshold provides relief to small-scale importers and ensures that the burden of upfront payment does not disproportionately affect them.
Note: Importers who believe they are eligible for an exclusion from the upfront payment can submit an application to the Commissioner-General, explaining the reasons for exclusion in the ICUMS (Integrated Customs Management System).
Recovery of Upfront Payment
Importers who have made the upfront payment can apply for recovery within six (6) months after the payment date, provided they meet specific conditions. To qualify for recovery, importers must:
Have made the upfront payment at the time of importation.
Be registered for VAT (if applicable).
Have submitted all previous VAT returns as required by the law.
Have paid all taxes, penalties, and interest owed to the GRA.
Have no outstanding obligations under any tax law.
Satisfy any additional conditions determined by the Commissioner-General.
To initiate the recovery process, taxpayers can apply electronically using the 'RECOVERY OF UPFRONT PAYMENT' form, which is accessible on the Taxpayers' Portal (www.taxpayersportal.com). The GRA endeavors to respond to all applications within thirty (30) days of receipt.
In conclusion, the introduction of the upfront payment system under the VAT (Amendment) Act, 2022, is a significant step towards enhancing VAT compliance in Ghana. By encouraging timely registration, filing, and payment of VAT, the GRA aims to create a level playing field for businesses, promote fairness, and boost tax revenues. While the upfront payment may initially be seen as an added financial burden for importers, the subsequent recovery process ensures that compliant taxpayers can reclaim the payment in due course, provided they meet the necessary requirements.
With this comprehensive understanding of the VAT compliance landscape in Ghana, importers and businesses can better navigate the regulatory environment and maintain a strong commitment to tax compliance. By adhering to VAT regulations and ensuring proper filing, businesses not only contribute to the country's economic growth but also build trust with the authorities and their customers.