Ghana VAT flat rate scheme (3% on goods) issues

1

I have created a custom tax code for my business transactions(buying in selling) in Ghana. After I issue sales invoice with the custom tax code of 3% flat rate, it the summary of accounts shows a GHS3 cedis as a Tax Payable although and its added the actual tax value of GHS300 being 3% on sales of goods worth GHS10,000.00, to cash at bank.

Below is a screenshot of the summary page of the business for clarity:

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Can someone help me out with a solution.

2

First, why not use in-built tax code for Ghana.?

Second, read the Guide on tax codes, especially the section near the end of flat rate schemes. You seem to be misunderstanding how they work and when they should be employed.

3

tax code system in Ghana has been revised and is not reflected in the in-built tax codes in Manager. I will read the guide on tax codes.

4

Perhaps @Abeiku could provide some input being a fellow Ghanaian

5

Actually I was working with @Daniel_Arthur in a company until about two months ago.
Daniel is now doing his own business :slight_smile: I introduced Manager to him.

To begin with I would like you guys to understand there are two VAT Schemes in Ghana

  1. VAT Flat Rate Scheme (3% on Goods by Wholesalers and retailers) applies to the supply of goods by a taxable person who is a retailer or a wholesaler and it is based on Section 3(2) of the Value Added Tax Act, 2013 (Act 870) as amended by VAT (amendment) Act, 2017 (Act 948).

  2. VAT/NHIL standard rate scheme of 17.5%.
    I don’t think there is a need to mention when they apply, I just want to ensure the existing Tax Code of 17.5 % isn’t removed

Now that said I don’t really understand your situation, but firstly, your tax liability shouldn’t be negative (Debit balance).
I will need you to send a screen shot of your invoice to understand how you entered the VAT @ 3%

This VAT It does not allow input tax credit so there is no way you should get a negative amount of the VAT under liabilities when operating this scheme (This VAT shouldn’t show on Purchase Invoice)

Please check and be sure you applied it on a sales invoice or didn’t enter a negative amount.

Just post the invoice please.

6

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7

A second look at the situation on the financial statement shows @Daniel_Arthur isnt doing something right. Notice how the VAT amount is part of his revenue/sales which shouldn’t be so.

We have spoken and he now understands it (Dan is a Community Developer not an Accountant)

Let say you have a taxable Value of GHS 10,000.00
VAT @ 3% when applied will create the following Balance sheet

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Do not Click on the flat rate option when creating this Tax Code. Everything will be remitted to the Tax authority (GHS 300.00).

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Make sure you create a different liability account for this tax code if you have a service business and a Goods retailing business to avoid problems in your books. The law even encourages accounting for the Two tax rates separately.

1 Like
8

Thanks @Abeiku for the clarification and practical solution. I think I have got it now and I will make those changes.

9

or When setting up the Tax code set it up like this

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[ ((3%/(100%+3%)) * 100)]
= (3%/103%) * 100
=2.9126

That if you are clicking on the Flat rate scheme box. I went through this (showing the applicable marginal tax rate) because I thought by clicking on the flat rate scheme the tax code wouldn’t appear in purchases invoice but still does. anyway there is a reason why the check box is there so maybe this alternative is better.

10

Thanks so much. I think this option is better.