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Ghana New VAT Rate Scheme


#21

@Tut, I created and tried and it change the total. But i will take my time and try again and give you feedback.
Thanks


#22

@Daniel, this is the separation tut was talking about. I did same and it actually separated the taxes nicely but the total will be wrong. Dot forget with our system, VAT is applied on the NHIL & GEFL but when you do it as indicated in the above VAT will NOT be applied on the two taxes and that is where the problem is.

For now the 18.125 % works so i do the separation manually but finding a way to get the system to separate them.


#23

You do not need to, @Bridge. The custom tax liability approach outlined in https://www.manager.io/guides/7171 does that for you.


#24

Yes, this is an important point that was not clear from earlier usersā€™ posts. What does it mean for implementation in Manager? Two things:

  1. You need both a custom tax code with the three components (as I have been describing) and a 12.5% VAT-only code. For now, the only built-in Ghanaian tax code is 17.5%, so you will need to define a 12.5% single-component custom code for this.

  2. For sales, you will apply the 3-component custom code. For purchases, you will include the 5% for unrecoverable NHIL and GETFUND in line items on the purchase invoice or payment. This can be done by either (a) manually adjusting unit prices upwards by 5% or (b) adding separate line items for NHIL and GETFUND. Option (a) will hide the cost of the new taxes in the value of whatever you purchase. Option (b) allows you to post the new taxes to their own expense account(s). You will then apply the 12.5% VAT code to all line items, including NHIL and GETFUND, if they are separated. This will compound the VAT on the other taxes.

Note: The practice of including unrecoverable tax in line-item prices on purchases is how other non-offsettable taxes are handled in Manager, such as sales taxes. This is described in Example 2 of https://www.manager.io/guides/8901.


#25

I knew @Tut was not aware getfund and nhil were non deductible input tax.
Anyway I think @Daniel_Arthur and others are ok now.

@lubos please alter Ghana VAT rate to 12.5%.

Thanks


#26

Yes it is clear to me. Will have to create an expense account to record the NHIL+GETFUND levies on input tax(purchase invoicing). And also two tax codes; three-component and single-component and use them when needed. Itā€™s a bit tricky but weā€™ll manage.


#27

This discussion highlights additions to the Manager tax scheme that would be very valuable. I have discussed these with @lubos, going back several years:

  • Multi-step application
  • More convenient tax liability account setup for multi-component taxes
  • Separate reporting of tax components

Managerā€™s current system was conceived for offsetting VAT. For that, it works wonderfully. But there are other tax schemes being used around the world. And tax authorities are getting more creative and demanding.


#28

@Daniel_Arthur you have to use the multi step applicationā€¦This will separate them and give you all the results you need as stated by Tut.

NHIL - 2.5%
GETFL - 2.5%
VAT - 13.125%ā€¦(This is because you charge VAT on the NHIL & GETFL as well)
Total will give you 18.125 % and it will separate them for you as well under the liabilitiesā€¦If you want to see your total tax payable then create a New group and put it underā€¦Thats all.


#29

Maybe an oversight should be 2.5%, not 2.15%

Then again, I perfectly understand the calculation and recording of the components of the new VAT tax scheme. The new twist is the fact that the NHIL+GETFUND are expense tax because we cannot recover or use it to offset tax obligation. So its computation in Manager is also a bit different - which @Tut has explained in post #24. Am sure in the near future @lubos will add some features to Manager for it to support multi-step application, multi-component taxes among other things.


#30

@Daniel_Arthur sure its was a typo, have edited. Thanks


#31

Then again, let me ask this for just learning sake. Why is the 3% supply tax and 12% Service tax we pay during purchases are recorded under liabilities.

Since these are taxes to be reclaimed i thought it would be wise for it to be under Assets?

Kindly help me understand if i am wrong.


#32

Let me attempt, I think the money(tax) is recorded in a liability account because it does not belong to you, you are holding it in trust for the tax authorities or to offset future tax obligations. Thatā€™s the concept of the input and output tax system. So when you buy(purchase) your input tax is recorded and when you sell(sales) your output tax is also recorded in the same liability account offsetting your tax obligations. Thatā€™s all.


#33

@Daniel_Arthur are u sure its automatically offsets it? Let me try.


#34

Yes, it adjusts by its self, either shows more or less tax to pay.


#35

3% flat rate tax is irrecoverable. You only record a liability when you sell and pay it back to The Revenue authority. 3% flat rate suffered in purchases is a tax expense. Better to add it to the expense account.

12.5% is a Value Added Tax. Inputs tax (VAT on purchases are deductible/recoverable) so you deduct from the VAT payable (VAT on Sales) and pay the difference. You can hold your VAT recoverable in an asset account if you wish. Just remember to use it before paying tax for the period. You cannot defer VAT recoverable.

Please let us use the forum to solve problems with using manager to account for tax, not to explain what tax is. This is deep and may be irrelevant for many users here.

So let leave this topic for when the government changes tax again. As @Tut said government around the world are becoming creative with tax administration now. Softwares also have to be flexible to help in the book keeping.


#36

Let me understand thisā€¦

When you sell, you charge customers:

NHIL - 2.5%
GETFL - 2.5%
VAT - 13.125% (not 12.5% because this is compounding tax thus effective rate is 13.125%)

When you are purchasing, you can claim only:

VAT - 13.125%

Is that correct?


#37

Yes

IMG_20190112_124630


#38

To clarify, the VAT rate is legally 12.5% and should probably be labeled as such. The 13.125% comes only from compounding because of the way Manager calculates tax.

Also, one of the levies has been referred to in this thread as both GETFUND and GETFL. The Ghana Education Trust Fund is actually referred to as GETFund.


#39

The way I see it, Manager already supports this tax scheme.

I think the issue most people have is on purchase side but in that case, just enter purchases with tax-inclusive amounts. If tax codes would have a checkbox 'non-recoverable`, then purchases could be entered with tax-exclusive amounts too.

Am I correct?


#40

I donā€™t see the question of tax inclusion/exclusion is relevant. The important question is which portions of the total tax are recoverable.

To me this is one more argument for the enhanced control of tax structures and reporting Iā€™ve argued for for years.