October 28, 2021
Ghana Revenue Authority issues Practice Notes on certain provisions of the VAT Act
The Commissioner-General (CG) of the Ghana Revenue Authority (GRA), the officer responsible for the day-to-day administration of the GRA affairs and answerable to the Board for the performance of the functions of that office, has issued multiple practice notes on the interpretation of certain provisions in the Value Added Tax Act, 2013, Act 870 (as amended) (VAT Act) pursuant to sections 100 and 101 of the Revenue Administration Act, 2016, Act 915 (RAA).
This Alert summarizes the guidance set forth in the practice notes.
Section 100 of the RAA empowers the CG to issue practice notes setting out the interpretation he places on certain provisions of the tax laws. Consequently, the CG has issued three practice notes covering:
These practice notes were issued on 30 September 2021.
Practice Note on supplies to and from Free Zones
This practice note is issued to provide the CG’s view on what he considers to be the acceptable tax treatment of supplies of goods and services to and from the Free Zones to achieve consistency in the administration of the VAT Act.
This practice note applies to:
Supply of goods or services from one Free Zone Enterprise to another Free Zone Enterprise does not fall within the scope of the VAT Act.
Supply of goods from the domestic market to a Free Zone Developer or Enterprise
The supply of goods from the domestic market to a Free Zone Developer (FZD) or Free Zone Enterprise (FZE) is zero-rated, in accordance with Section 36 and the Second Schedule to Act 870. Consequently, a VAT-registered person in the domestic market that supplies goods to any FZD or FZE must issue a VAT invoice stating the tax rate of zero percent on satisfaction of the underlisted conditions in the Free Zones Act, 1995 (Act 504), its Regulations and Ghana Free Zone Authority's Standard Operating Procedures.
Conditions for the issuance of a VAT invoice with a tax rate of zero percent are the following:
Supply of goods from a Free Zone Developer or Enterprise to the domestic market
The supply of goods by FZDs and FZEs to the domestic market are considered as imports into the domestic market. Thus, the recipient of such imports must meet all the necessary Customs requirements governing the import of goods.
The FZD or FZE must also comply with the provisions of the Free Zone Regulations, 1996 (L.I. 1618), on declaration of removal of goods from the free zone as well as the standard operating procedures of GFZA on supplies of goods to the domestic market. These include:
In addition to the above, the recipient of the imports is required to procure and retain all relevant documentation on the imports.
Supply of services from the domestic market to a Free Zone Developer or Enterprise
A VAT-registered local service provider who makes a supply to an FZD or FZE is required to issue a VAT invoice indicating a tax rate of zero percent on satisfaction of the underlisted conditions in Act 504, its Regulations as well as GFZA's Standard Operating Procedures.
Supply of services from a Free Zone Developer or Enterprise to the domestic market
The supply of services from an FZD or FZE into the domestic market constitutes an import to the recipient and may come under any of the following:
The importer or recipient of the service is required to meet the following requirements:
Supply of electricity from the domestic market to a Free Zone Developer or Enterprise
The supply of electricity to an FZD or FZE is treated as a supply of goods. However, due to its unique nature, the following requirements apply in zero-rating the supply:
The authorization to zero-rate is granted annually.
Supply of utilities from a Free Zone Developer or Enterprise to the domestic market
The purchase of utilities from an FZD or FZE by a domestic recipient is an import of goods, hence the requirements under Supply of goods from a Free Zone Developer or Enterprise to the domestic market above applies.
Practice Note on Civil Engineering Public Works
Paragraph 18(d) of the First Schedule to the VAT Act provides that civil engineering public works, including roads and bridges are exempt from VAT. The meaning of civil engineering public works is not specifically defined in the VAT Act.
This practice note is issued to provide the CG’s view on the meaning and scope of civil engineering public works in respect of the VAT exemption provided under item 18(d) of the First Schedule to the VAT Act, and to address the administrative and operational challenges that arise from the interpretation of the scope of the exemptions regarding civil engineering public works.
The practice note defines civil engineering public works to mean:
The construction, maintenance, reconstruction, demolition, repair or renovation of a building, structure, surface or system, and includes site preparation, excavation, erection, assembly, installation or plant, fixing of equipment, laying out of materials, decoration and finishing in relation to infrastructure projects for public use and paid for with public funds.6
According to the practice note:
Practice Note on supplies that are exempt at importation but taxable in the domestic market
The VAT Act and the Customs Act, 2015 (Act 891) (as amended) generally provide the legal basis for:
Tax treatment of imported goods in the domestic market
Goods classified as exempt import under the Harmonized System and specified in the First Schedule to the VAT Act
Goods classified as exempt import under the Harmonized System and specified in the First Schedule to the VAT Act are not to be subject to VAT both at importation and when supplied in the domestic market.
Goods classified as exempt import under the Harmonized System but NOT specified in the First Schedule of the VAT Act are taxable in the domestic market
The supply of goods that is not specified in the First Schedule of the VAT Act but exempt under the Harmonized system is taxable when supplied in the domestic market, even though the supply qualified for exemption upon importation.
Import of goods which are neither specified in the First Schedule to the VAT Act nor classified as an exempt good under the Harmonised System
The supply of any goods that is neither specified in the First Schedule to the VAT Act nor classified as exempt under the Harmonized System is taxable at importation and when supplied in the domestic market.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Chartered Accountants, Accra
Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP (United States), Pan African Tax Desk, New York