Part one of this article focused on common issues that arise from the VAT Tax Audits by the Ghana Revenue Authority (GRA). In the final part of the article, we discuss the taxpayers’ difficulties in complying with the Ghana VAT Law and recommend ways to deal with the difficulties.
Challenges faced by taxpayers.
- Paying taxes in advance to GRA
The law requires that taxpayers must account for and pay VAT on an accrual basis. In simple terms, the laws say that once you make a sale, whether they have paid you, you must pay the VAT on the sale within 30 days.
This requirement poses significant challenges to businesses that sell on credit and do not get paid within 30 days. Such businesses must pay VAT out of their pocket because they have not collected the VAT on the sale by the due date.
Many businesses in Ghana do not have sufficient working capital. Some businesses deal with this difficulty by not reporting sales for VAT until they collect. In doing so, they do not comply with the law and expose themselves to fines and penalties.
There is no easy way out of this difficulty. It has a negative impact on the cash flow of small businesses, and it is understandable that businesses seek to mitigate.
Our view is that law must not unnecessarily impede the operations of businesses. The law did not intend that business, acting as an agent, should pay VAT from its resource.
Our recommendation is if your payment terms exceed 30 days and you must pay VAT from your resources, you must raise the matter with the GRA. As we have suggested earlier, declare VAT accurately for the month of sale and pay what you collect.
Ultimately, this law must change to reflect the realities of doing business and the status of the business as an agent. Businesses must collectively press government change this aspect of the law.
2. Reclaiming VAT on bad debts
It is difficult to get back taxes already paid on sales that go bad. The GRA puts a high barrier in the way of recovering taxes on bad debts. They seek to exercise discretion on what is an acceptable basis for claiming back VAT on such debts and so many businesses struggle to recover such taxes.
Determining the status of a debt is a business decision and must not be subject to GRA’s discretion. The onus is on the taxpayer to show evidence of reasonable effort to collect the debt, and the cost of collection must be reasonable.
To address this challenge, we recommend that the business must:
- Create a policy on what makes a debt bad and the process for pursuing such debts.
- Apply the policy and document the effort it makes to collect the debt to support.
- It must also document the basis on which it declares a debt.
If you do as we recommend, you should have a firm basis to claim back VAT you paid on the bad debts.
3. Reconciliation of taxes paid on the GRA portal.
The aim of the tax portal is to ease filing and paying taxes and bring clarity to the status of taxpayers. There are problems with the portal that prevent showing the correct position of a taxpayer, causing delays in issuing tax clearance certificates, and resolving tax audit findings.
Some examples of problems with the portal are:
- A Taxpayer can claim deductions on previously declared VAT invoices that have been reversed (credit notes). On the VAT return, you can claim the deduction under the input VAT deduction. However, the levies return does not provide the option to claim this deduction. This results in a difference in the tax payable per the portal and tax paid.
- A return filed on the portal should have a corresponding payment to match. You may not be able to reconcile a payment to a return if you did not raise an appropriate tax bill before payment.
We recommend you should regularly reconcile the portal with your records and notify the GRA of any issues that need correcting.
These are some pitfalls that tax audits reveal in part 1. Now you know, we hope you will act to address these pitfalls, so you do not suffer unnecessary fines.
Need help with a tax audit? Contact us or call us on 0540130724.