DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

Ghana New VAT Rate Scheme


#1

How is the new VAT scheme inputted on a sales invoice


#2

What are you referring to as the “new VAT scheme?” Have you read the Guide: https://www.manager.io/guides/8901?


#3

There has been an amendment made to the existing VAT regime.

Previously say you have a service fee of Ghs 500.00 you apply a vat rate of 17.5%

Currently you have to apply 5% to the Ghs 500.00 (2.5% NHIL AND 2.5% GETFUND)

After add the amount to back to the service fee making Ghs525.00 and charge 12.5% on that amount.

So now you have you two components Ghs 25 and Ghs 65.63.


#4

You face a problem, then, with the way Manager works. Most built-in country tax codes apply the designated percentage to the tax-exclusive portion of a line item. And all tax amounts are calculated on a line-item by line-item basis. (This is necessary in case of returns or adjustments.) Manager cannot apply tax codes in multiple steps.

You will need to create a custom tax to implement this scheme, accomplishing the same thing in a single step. The procedures for adding custom codes are included in the link I sent earlier. Make the percentage 18.125 %. This is equivalent to applying 5% to the tax-exclusive amount, then 12.5% to the product of that calculation. So, for sales in the Amount A:

(1.05A) x 1.125 = 1.18125A

You would probably want to give your custom tax code a name that indicates it includes all three components of the tax. While appearing to keep the old 17.5% VAT rate, the government has actually increased the total tax by changing the way the components are calculated.

That was the easy approach. It will have the effect of lumping all tax amounts for each transaction together, offsetting input and output VAT against one another in the Tax payable account. If the government requires you to record and pay the components separately, you have a more difficult task. For guidance on that, see https://www.manager.io/guides/7171. The component percentages for NHIL and GETFUND would be 2.5%. For the remainder, the percentage would be 13.125%.

I am inviting @Abeiku into this topic to see if he has any thoughts.


#5

Thanks


#6

I have tried your option and it works. But in this case the government want the tax input made separate and paid separately from the 12.5% as well. Now that a headache because

  1. It cant be part of your income since you receive and send the full amount to the government.
  2. I tried to receive the payment under Liabilities but it still recorded an outstanding balance at the sales invoice.
  3. I also tried to receive under Asset where we have the witholding tax but its still recorded an outstanding balance at the sales invoice.

As of now, all we need is to capture it somewhere we can easily refer to and pay the government.

Any advise?


#7

@Bridge, did you read and follow the procedures in the link I provided in my last response above? The technique mentioned will separate the various tax code liabilities and payments.


#8

The guides do help in creating a custom tax scheme to record and pay the tax components appropriately. However, the challenge here is how to add the first tax of 5%(2.5% NHIL & 2.5% GETFUND) to the total service fee of Ghs500.00 as described by @JohnM and then calculate 12.5% on that Sub-Total. Is there a way around this in Manager @Tut


#9

Read post #4 above. I already gave the component percentages there.


#10

I can’t believe I missed this. I’m aware of the new complicated tax system the current Government has introduced with regards to VAT computation. I haven’t confirmed the computation procedure. I will do it and figure how you can manage it with Manager.io


#11

@Tut ok i have tried and it worked so now i have all my taxes in one place. The only problem is that i am not able to tell how much goes to VAT and how much goes to NHIL/GETFL since we are required to pay them separately. But at least the Joy is that i am not receiving them into my income. We will only have to determine what goes to GETFL/NHIL manually and deduct from the total sum.

I will still be looking into it if i find any solution i will share.

Thank you.


#12

But please note that it does not separate them. it captures all of them together into taxes payable but the calculation is right.


#13

Apparently, you did not read the entire thread. Above, I linked to https://www.manager.io/guides/7171, which explains how to handle multi-component custom tax codes, including how to establish separate liability accounts when they are paid on different schedules or to different authorities. This will solve your problem.


#14

I have explained the challenge with picture illustration of real computation with Manager. Hope this makes it clear enough for help to be given.


The multi-level custom tax creation screen


The sales invoice creation screen


The invoice screen with challenge explained.


#15

@daniel_arthur, you are not reading and following (a) the previous posts in this thread and (b) the Guide. Your tax component percentages are wrong. See post #4. You cannot get a second subtotal in accordance with your last screen shot. If you had put in the correct percentage, taking into account the fact that VAT becomes a compound tax in this case, you would get the correct VAT. I don’t know if you desire to report these components in separate accounts like @Bridge does. But, if so, you bypassed the step of assigning components to custom tax liability accounts.


#16

@Tut I have read both the thread and guide, I do not know why you think I haven’t. Anyway, why are the percentages wrong? refering to @JohnM’s post, the tax components percentages are as follows:
.2.5% NHIL aand another 2.5% for GETFUND then 12.5% is charged as VAT after adding the NHIL and GETFUND(5% in all) to the sales amount. Then the VAT amount is added to the Sales amount(previous sub-total) to arrive at the INVOICE AMOUNT.

I used the same percentages in creating the custom VAT scheme. I also understand that the VAT is compound tax. Maybe am not getting something right as your calculation in post #4 is not clear enough to me.

Thank you.


#17

Because you have entered the wrong tax percentage for one of the three components. NHIL and GETFUND are 2.5% each, applied to the untaxed total. But the remaining VAT is 12.5% applied to the sum of the taxable amount plus NHIL and GETFUND. That makes it a compound tax, as described in https://www.manager.io/guides/8901. The effective rate to apply to the untaxed amount for VAT is, therefore, 13.125%, as I clearly stated in post #4 of this topic (which you claim to have read). The total percentage for the custom tax code would be 18.125%, not 17.5% as you have shown.

What you overlooked is that the new tax scheme was conceptualized to operate in two steps, while Manager only has the ability to operate in one. The tax applied in the second step is effectively compounded by the fact it is applied not only to the base amount but also the first two taxes. So it ends up actually being more than 12.5% of the base amount.


#18

Thanks @Tut. It’s clearer now. Manager cannot do a two-step approach therefore the same task is achieved with a single step.


#19

Going forward, the getfund and nhil should be separated from the VAT tax code even though it is tax. It makes the accounting for them very easy.

The nhil and getfund are not accounted for with the input and output VAT system. That means you charge the tax (on your output or sales) and pay all back to the authorities, you do not recover what you paid on that tax for your inputs (purchases)

This means getfund and nhil on purchases are irrecoverable tax (tax expenses)

It is a bit tricky but believe me you are better if you account for them separately.

Go to settings and create items.

Create an item called getfund&nhil 5% or whatever you like.
Link it to a liability account.
Use it (the item) in your sales invoices and sales receipt.
Spend money to pay the liabilities to the tax people at every due date.

You have to manually enter the amount as manager doesn’t have the ability to do it for you and also doesn’t have a custom sub total feature.
You will get your VAT correct.

Your VAT will be 12.5 % straight forward as the law requires. Do not mix the two tax systems. They have different accounting treatments

Thanks


#20

Okay, noted.