- 20 Marks
Question
a) Batakari LTD was incorporated on 1 January 2024, and has since accumulated a lot of input VAT credit it could not deduct because the company was not registered for VAT. The company had not yet registered for VAT because it was yet to start generating revenue, and did not expect any revenue in the 2024 financial year. The company therefore applied for voluntary VAT registration under the Value Added Tax Act, 2013 (Act 870 as amended) on 1 March 2024. However, the Finance Manager of the company upon registering for VAT, and noticing the need to still file monthly VAT returns, intends to apply for cancellation of the company’s VAT registration on 31 March 2025. Required: Batakari LTD needs your assistance on how to go about the VAT cancellation process.
b) As a tax expert, you have been approached by the Junior Accountants you work with in the Finance Department of Mando Advisors. They have been debating all morning on the exempt supplies and zero-rated supplies. According to the Junior Accountants, “exempt supplies and zero-rated supplies are similar, and there is no material difference, if any, between the two, since in both cases, there is no output tax charged”. Required: As an expert, explain to the Junior Accountants the difference between exempt supplies and zero-rated supplies. Your answer should focus on tax accounting and compliance obligations regarding exempt and zero-rated supplies.
c) Dekyiwaa LTD has been registered as a VAT Withholding Agent. The company has received three (3) invoices, and needs your assistance on the amount of withholding VAT to be withheld and remitted to the GRA. Assume the taxes charged on these invoices are in full compliance with the provisions of the Value Added Tax Act, 2013 (Act 870 as amended). Invoice 1 (for the supply of stationery for the business)
| GHc | |
|---|---|
| Invoice amount | 15,000 |
| VAT @ 3% | 450 |
| COVID Levy @ 1% | 150 |
| Tax-inclusive value | 15,600 |
Invoice 2 (for the supply of immovable property from an estate developer)
| GHc | |
|---|---|
| Invoice amount | 570,000 |
| VAT @ 5% | 28,500 |
| COVID Levy @ 1% | 5,700 |
| Tax-inclusive value | 604,200 |
Invoice 3 (for the supply of internet broadband services from an internet service provider)
| GHc | |
|---|---|
| Invoice amount | 500,000 |
| NHIL @ 2.5% | 12,500 |
| GETFL @ 2.5% | 12,500 |
| COVID Levy @ 1% | 5,000 |
| CST @ 5% | 25,000 |
| 555,000 | |
| VAT @ 15% | 83,250 |
| Tax-inclusive value | 638,250 |
Required: For each of the three (3) invoices above, calculate and justify the amount of Withholding VAT that Dekyiwaa LTD should withhold and remit to the Ghana Revenue Authority in line with the provisions of the Value Added Tax Act, 2013 (Act 870 as amended).
d) Fiscal policy measures are tools for economic management. These are meant to stabilise the economy and minimise distortions. One of such measures is contractionary fiscal policy. Required: Explain how the Government of Ghana could use contractionary fiscal policy to fight inflation. (5 marks)
Answer
(a). Under Section 19(8) of the Value Added Tax Act, 2013 (Act 870), a person registered for VAT voluntarily may apply for cancellation of the registration only after the expiration of two (2) years after the date the registration took effect. Since Batakari LTD applied for voluntary VAT registration on 1 March 2024, it cannot cancel its registration on 31 March 2024, since this is only 13 months after voluntary VAT registration.
(b). The statement is false. Below are some differences between exempt supplies and zero rated supplies focusing on tax accounting and compliance obligations/requirements only.
- VAT registration: A business dealing wholly in exempt supplies is not required/mandated to register for VAT. For a zero rated supplier, even if their supplies are wholly zero-rated, there is still the requirement for the business to register for VAT.
- Input VAT deduction: Regarding input VAT deduction, a business dealing wholly in exempt supplies cannot deduct any input VAT. A zero rated supplier on the other hand is eligible for input VAT deduction.
- Tax return filing: A business dealing wholly in exempt supplies is not required/mandated to file any VAT returns. On the other hand, a zero rated supplier, even if their supplies are wholly zero-rated, will still be required to file their VAT returns monthly.
- VAT invoice issuance: Regarding the issuance of VAT invoices, a business dealing wholly in exempt supplies is not required to issue VAT invoices for supplies made. A zero rated supplier on the other hand is mandated to issue VAT invoices for all taxable supplies made.
(c).
Invoice 1 Invoice 1 is from a supplier under the 3% VAT Flat Rate Scheme. This transaction is therefore out of scope of Withholding VAT. No withholding VAT should be withheld on Invoice 1.
Invoice 2 Invoice 2 is from a supplier under the 5% VAT Flat Rate Scheme. This transaction is also out of scope of Withholding VAT. No withholding VAT should be withheld on Invoice 2.
Invoice 3 Invoice 3 is from a supplier under the Standard Rated VAT Scheme. This transaction is within the scope of Withholding VAT. The amount of withholding VAT of 7% is computed as follows: 7% × GH¢ 555,000 = GH¢ 38,850 The withholding VAT to be withheld on Invoice 3 is GH¢ 38,850.
(d). Contractionary fiscal policy is a form of fiscal policy that involves increasing taxes, decreasing government expenditure or both in order to fight inflationary pressures. Due to an increase in taxes, households have less disposable income to spend. Lower disposable income may result in decreases in consumption. Contractionary fiscal policy decreases the level of aggregate demand by decreasing consumption, investments and government spending, either through cuts in government spending or increases in taxes.
- Tags: Contractionary Policy, Fiscal Policy, Inflation, Tax Management
- Level: Level 3
- Topic: Tax Planning and Management
- Series: MAR 2025
- Uploader: Samuel Duah