No VAT on 'normal' banking services
The government has denied reports that normal banking services are to attract 17.5 per cent Value Added Tax (VAT) levy with effect from next month.
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A Deputy Minister of Finance, Mr Cassiel Ato Forson, said in an interview Tuesday that salaries, savings, deposits, loans and payment with cheques were all exempted from VAT.
He said the “levy only relates to the services that were initially not a core function of the banks”.
The government has slapped a 17.5 per cent Value Added Tax (VAT) levy on some financial services rendered by commercial banks in a bid to boost revenue and keep its fiscal stabilisation plans on track.
The levy, which comes into effect next month, is part of the expansion of the scope of taxes under the VAT Amendment Law which was passed in November 2013 and which raised rates, including the National Health Insurance Levy, from 15 per cent to 17.5 per cent.
According to the amended law, “financial services” means provision of insurance; issue, transfer, receipt of, or dealing with money — whether in domestic or foreign currency — or any note or order of payment of money; provision of credit; or operation of a bank account or an account of a similar institution.
Statement
A statement subsequently issued by the deputy miniser stated that “this is not a new law; it has been in place since 1998. Banks were charging fees on services they were rendering. Banks are also already paying the VAT on inputs used to render these services”.
It said the government expected that the increase in the VAT would boost revenues from tax by GH745 million in 2014 and it has promised to spend the extra money exclusively on infrastructure.
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“The new VAT Act, Act 870 only affects fees that are charged on non-core financial services such as data processing, legal, accounting, actuarial, notary and consulting services,” it said.
“Act 870 requires the banks to register for VAT and they can offset the VAT against the VAT they charge,” it added.
For the government, the VAT hike seems an easy way to boost revenue to keep its fiscal stabilisation plans on track after it said it would not be able to cut the budget deficit of 11.8 per cent of GDP as quickly as it had anticipated.
It now forecasts a deficit of 8.5 per cent of GDP this year, up from the eight per cent previously projected.
Under the heading: “Scope and Coverage of the Value Added Tax”, the law extends the coverage of VAT to include “the supply of financial services that are rendered for a fee, commission or a similar charge”.
Financial services, which hitherto had been exempted from VAT, have now been brought under the tax -- placing Ghana among a very short list of countries in the world which charge VAT on financial services.
The amendment had meant that there would be additional charges on services such as maintaining customer current accounts, transferring money, issuing bank drafts, cheque books and credit cards.
Text messages
But text messages received by some customers from the Barclays Bank yesterday read in part, “With the coming into force of the new VAT Act 870, banks are required to charge a 17.5 per cent VAT on services rendered for a fee, effective May 2014.”
According to the deputy minister, financial services that would attract VAT included valuation services, actuarial services and legal, advisory and consultancy services.
However, some commercial bank operators are worried that with less than 30 per cent of Ghanaians having bank accounts, the imposition of VAT on bank account charges and other transactions will further deter participation in the formal financial sector.