Parliament, through Act 1068 passed into existence the 1% Covid Health Recovery Levy on all goods and services consumed in the country.
The 1% Covid Health Recovery Levy according to government is to help raise revenue to support Covid-19 related expenditure and also help improve the country’s current fiscal situation.
The introduction and subsequent passage of the 1% Covid Levy by Parliament as a straight levy, such as the NHIL and GETFund, saw businesses react negatively to it as they argued that the new tax adds to the tax build-up on goods and services thereby increasing the cost base of goods and services consumed within the country.
An increase in the cost base of goods and services simply implies an increase in the cost of goods and services in the country which makes goods expensive and not necessarily that businesses will be the ones to bear the tax imposed.
The 1% Covid Levy is a consumption tax just like the VAT, NHIL and GETfund, and as such the tax incidence falls on consumers and not producers.
However, businesses in the country particularly those registered with the GRA are the ones expected to collect the Covid Levy along with the GETFund, NHIL and VAT for the GRA.
For businesses who are expected to charge or collect the 1% Covid tax on goods and services for the GRA, here are some things to note;
- The 1% Covid Levy is a straight tax just as the VAT, NHIL and GETFund and as such it is calculated on the cost base of goods/products and services just like the above stated taxes.
- It is not inclusive of VAT, meaning it is not a component of VAT, it stands on its own.
- It has the same provisions and exemptions as the VAT.
- It is applicable to both standard rated VAT (12.5%) and flat rated VAT (3%).
- It is collected the same way VAT is collected
- It is allowed in deductions in income taxes of businesses
To calculate the 1% Covid Levy, NHIL, GETFund and VAT on goods and services, a business needs to do the following;
First determine the actual cost base of the product, good or service, that is, the cost price of the good or service.
Second, calculate the 1 percent Covid levy on the cost base of the good or service.
Third, calculate also the 2.5 percent GETFund levy on the cost base of the good or service.
Calculate in addition the NHIL levy of 2.5 percent on the cost base.
Then sum up the result of the calculated 1 percent, 2.5 percent and 2.5 percent of the Covid levy, NHIL and GETFund respectively.
After that, then add the sum to the cost base of the good or service to get a new cost base.
With a new cost base, now calculate the standard rate VAT of 12.5 percent or flat rate VAT of 3 percent (whichever tax charge you are registered by the GRA to collect) on the new cost base to arrive at the taxable amount to be given to the GRA as VAT.