"Review of the introduction of COVID-19 Health Recovery Levy"

" \n In accordance with Articles 179 and 180 of the 1992 Constitution, on 12 March 2021, Ghana\u2019s Caretaker Minister for Finance, Honorable Osei Kyei-Mensah Bonsu, read the 2021 Budget Statement for the 2021 financial year. Earlier, the Information Minister whispered that as part of the post-COVID-19 economic recovery efforts, government is considering rolling out creative revenue mobilization measures to fund its projects. \n \n\n \n That is, government needs creative revenue mobilization measures that will enable it to roll out its policies for the 2021 fiscal year. Previously, in the budget statement, the Caretaker Financial Minister read that government has proposed the introduction of COVID-19 Health Levy that will increase the following taxes by one percentage point: \n \n\n \n National Health Insurance Levy (NHIL) (i.e., from 2.5% to 3.5%), and Value Added Tax (VAT) Flat Rate (i.e., from 3% to 4%) \n \n\n \n These tax increments, according to the Caretaker Minister, will provide the requisite resources to sustain the implementation of the measures implemented by government to address the COVID-19 pandemic. \n \n\n \n To appreciate the import of the enactment of the COVID-19 Health Recovery Levy, one has to take a further closer look at the issues raised by the Caretaker Finance Minister during the budget presentation. At paragraph ninety-nine of the budget statement, he stated that the basis for the COVID-19 Health Recovery Levy system in Ghana as envisaged by government is that the COVID-19 pandemic has caused additional health spending that far exceeds the annual budget for health. Therefore, there is the need to mobilize domestic revenue to embark on some projects which include: \n \n\n \n Procurement of more vaccines, the first batch of 600,000 doses from the COVAX Facility having already been delivered and an additional seventeen million, six hundred thousand (17,600,000) vaccine doses to be delivered by June, with more to come in the course of the year. \n \n\n \n With the vaccination of Ghanaians, as at 10th March, 2021, two hundred and sixty-two thousand, three hundred and thirty-five (262,335) Ghanaians received the first dose of the vaccines, and so there is the need for additional vaccines. \n \n\n \n The establishment of fourteen (14) medical waste treatment facilities across the country for safe disposal of medical waste in collaboration with the private sector. \n \n\n \n Thirty-three (33) major health projects have been approved for implementation at a cost of eight hundred and ninety million euros (\u20ac890 million). \n \n\n \n To date, fourteen million, six hundred thousand (14,600,000) pieces of personal protective equipment produced domestically for health workers, students, teaching and non-teaching staff of tertiary and secondary educational institutions. \n \n\n \n The Caretaker Minister read that with Agenda 111, it will see to the construction of 100-bed District Hospitals in one hundred and one (101) Districts with no hospitals, seven (7) Regional Hospitals for the new Regions, including one for the Western Region, the construction of two (2) new psychiatric hospitals for the Middle Belt and Northern Belt, respectively, and the rehabilitation of Effia-Nkwanta Hospital in the Western Region. \n \n\n \n The need to recruit more health care professionals, in addition to the one hundred thousand recruited in the first term of the President. \n \n\n \n He added in the budget statement that, to provide the requisite resources to address these challenges and fund the above activities, government is proposing the introduction of a COVID-19 Health Levy of a one percentage point increase in the National Health Insurance Levy and a one percentage point increase in the VAT Flat Rate to support expenditures related to COVID-19. \n \n\n \n However, government later departed from this proposal to enrol the COVID-19 Health Recovery Levy as a stand-alone tax, i.e., the introduction of COVID-19 Health Levy that will not increase the following taxes by one percentage point from both NHIL and VAT Flat Rate, but the one percent will rather be imposed on supply and import of goods and services made in the country other than those exempt goods and services. \n \n\n \n Regulations of the Levy \n \n\n \n So Parliament has passed the COVID-19 Health Recovery Levy Act, 2021 (Act 1068), herein referred as the Levy. As indicated earlier, in view of Act 1068, the main purpose of the Levy is to impose a special levy on the supply and import of goods and services to raise revenue to support COVID-19 expenditures and to provide for related matters. Specifically, section 1 of the Act provides: \n \n\n \n There is imposed by this Act a COVID-19 Health Recovery Levy on the: \n \n\n \n Supply of goods or services made in the country other than exempt goods or services; and Import of goods or import of services other than exempt imports. \n \n\n \n So for the regulations of the Levy, except the Act provides otherwise, the Commissioner-General (CG) of the Ghana Revenue Authority (GRA) is responsible for the collection of the Levy. The Revenue Administration Act, 2016 (Act 915) shall govern the administration while the Value Added Tax Act, 2013 (Act 870) shall govern the collection of the Levy. The Levy applies to supply of goods unless the goods is VAT Flat Rate in accordance with the second schedule of Act 870. In addition, the Levy is not subject to input tax deduction and the revenue from the Levy collected by the CG shall be deposited into the Levy sub-account of the Consolidated Fund created for that purpose. \n \n\n \n New VAT Rate \n \n\n \n The COVID-19 Health Recovery Levy is an indirect tax. That is to say, whereas the incidence of the tax is on registered businesses, i.e., manufacturers, service providers, etc., the impact is generally on the consumer. Moreover, as VAT, this is a tax on general consumption which is finally paid by consumers and collected on behalf of the GRA by registered businesses. Thus, it is paid by the consumer as part of the value added to the actual price of an item. \n \n\n \n The 2018 mid-year budget amended VAT (Act 948) rate of 15% to 12.5% and detached NHIL and GETFund Levy from VAT by removing their input tax deductibility. Hence, so under the regime of VAT amendment Act, 2018 (Act 970), in addition to COVID-19 Health Recovery Levy 1% to both the current VAT Standard and the VAT Flat Rates, the new VAT rate is 19.25%. Thus, currently the VAT Standard operates as: \n \n\n \n GETFUND = 2.5% \n \n\n \n NHIL = 2.5% \n \n\n \n VAT = 12.5% \n \n\n \n With this Levy, this changes to: \n \n\n \n GETFUND = 2.5% \n \n\n \n NHIL = 2.5% \n \n\n \n VAT = 12.5% \n \n\n \n COVID-19 Levy = 1% \n \n\n \n What this means is: \n \n\n \n If a product costs \u20b51,000 and you want to determine the VAT to apply on it, under the old system: \n \n\n \n Product Gross Cost = \u20b51, 000 \n \n\n \n NHIL = (2.5%* \u20b51,000) = \u20b525 \n \n\n \n GETFUND = (2.5%* \u20b51,000) = \u20b525 \n \n\n \n Sub-total = (\u20b51,000+\u20b525+\u20b525) = GHS\u20b51, 050 \n \n\n \n VAT (12.5%*1,050) = \u20b5131.25 \n \n\n \n Thus total price to customer = (\u20b51,050 + \u20b5131.25) = \u20b51,181.25 \n \n\n \n However, under this new VAT system: \n \n\n \n If product Gross Cost =\u20b51,000 \n \n\n \n NHIL = (2.5%*\u20b51,000) = \u20b525 \n \n\n \n GETFUND = (2.5%*\u20b51,000) = \u20b525 \n \n\n \n COVID-19 Levy = (1% *1,000) = \u20b510 \n \n\n \n Sub-total (\u20b51,000+\u20b525+\u20b525+\u20b510) \u2013 \u20b51,060 \n \n\n \n VAT (12.5%*\u20b51,060) = \u20b5132.50 \n \n\n \n Total price to customer = (\u20b51,060 + \u20b5132.50) = \u20b51,192.5 \n \n\n \n Therefore under this new regime, effective compound standard VAT rate is 19.25%= (\u20b5192.5\/\u20b51,000*100), which is 1.125% more than the old effective rate of \u20b518.125% = (\u20b5118.25\/\u20b51,000*100). \n \n\n \n Also, the VAT Flat rate changes from 3% to 4%, with the increment being the 1% COVID Levy. And just like NHIL and GETFUND, the COVID-19 Levy is non-deductible, meaning GRA will not allow you to recover it as an input tax. \n \n\n \n Now, let us look at the payment of the Levy. \n \n\n \n Who is liable to pay the Levy? \n \n\n \n Although the COVID-19 Health Recovery Levy is imposed on supply and import of goods and services in the country other than exempt goods and services, however, by supplying or importing goods and services in Ghana does not automatically trigger liability for all persons to pay the levy. \n \n\n \n Registered VAT businesses which engage in taxable activities involving supply and import of goods or services in the country other than exempt goods and services shall pay the Levy. That notwithstanding, the VAT Act, 2013 (Act 870) provides that, non-registered businesses that make taxable supply and import of goods and services exceeding one hundred and twenty thousand Ghana cedis at the end of any period of twelve or less months shall be required to register for VAT to pay the Levy. Or, if the CG of the GRA has a reasonable cause to believe that at the end of any month, there are reasonable grounds to expect that a non-registered business will make taxable supply and import of goods and services in the next twelve or less months exceeding one hundred and twenty thousand Ghana Cedis, the business shall register to pay the levy. \n \n\n \n However, it is advisable to note that a business shall register to pay the levy if at the end of any period of three months, the business made, during that period, taxable supply of goods and services and import of goods or import of services exceeding thirty thousand Ghana Cedis; or there are reasonable grounds to expect that the total value of taxable supply of goods and services and import of goods or import of services made by that business during that period and to be made during the next consecutive nine months will exceed one hundred and twenty thousand Ghana Cedis. \n \n\n \n But, there are exceptions to the above: whereas the threshold of revenues require non-registered businesses to register to pay the Levy when they exceed after the stipulated period of months, Act 870 provides some exceptions. Thus, where an auctioneer, and a national, regional, local or other authority or body carry on any taxable activity, they shall apply to register to pay the Levy with thirty days after the commencement of their taxable activity. Also, the Act provides that a promoter of public entertainment, shall apply for registration to pay for the Levy at least forty-eight hours before the commencement of the public entertainment if, within any period of twelve or less months that includes the date of the public entertainment to which the application relates, the total value of taxable supplies of the promoter or the licensee or proprietor is reasonably expected to exceed ten thousand Ghana Cedis. \n \n\n \n Above all, where a business is required to register to pay for the Levy and fails to do so, the CG of the GRA shall register it compulsorily. Consequently, where a business fails to apply for registration to pay the Levy, that business is liable to a penalty of not more than two times the amount of tax (including the Levy) on taxable supply and import of goods and services payable from the time the person is required to apply for registration until the person files an application for registration with the CG. \n \n\n \n Exemption from payment of the levy \n \n\n \n Every supply and import of goods and services in Ghana shall directly or indirectly pay the levy unless otherwise the goods and services and imported goods and services are listed under the first schedule of VAT Act 2013, (Act 870). Some of these exempt goods and services include: commercial rental establishment such as hotel, guest house, hostel or similar establishment in which lodging is regularly or normally provided to five or more persons on a daily, weekly, monthly, or other periodic charge. This exemption also includes education and medical services and supplies, etc. \n \n\n \n Summary and conclusion \n \n\n \n In terms of administrative governance and collection of the Levy, the CG of the GRA is responsible for the collection of the Levy except Act 1068 or any other law provides otherwise. \n \n\n \n The Revenue Administration Act, 2016 (Act 915) shall govern the administration while the Value Added Tax Act, 2013 (Act 870) shall govern the collection of the Levy. \n \n\n \n The Levy SHALL apply to supply and imports of goods unless the goods and services other than exempt good and services. The Levy is also subject to goods which is a VAT Flat Rate. \n \n\n \n The levy is not subject to input tax deduction and the revenue from the levy collected by the CG shall be deposited into the levy sub-account of the Consolidated Fund created for that purpose. \n \n\n \n The Levy is an indirect tax and the impact is on the final consumer. \n \n\n \n The new VAT Rate is 19.25% from 18.125%. \n \n\n \n Despite the obvious reason for introducing this Levy is to mobilize revenue for government; however, for businesses to be able to recover from the COVID-19 pandemic effectively, revenue mobilization should be done in a way that would reduce the tax burden on taxpayers in order to enhance businesses to generate more revenue. \n \n\n \n By Michael Sumaila Nlasia \n \n\n \n Email: marcusgarvey.snr@gmail.com \n \n\n \n The author is a research assistant at Center for Data Processing and Geo-Spatial Analysis (CEDPA), and a graduate of GIMPA Law Faculty. \n "

"Review of the introduction of COVID-19 Health Recovery Levy"

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