How the VAT System with COVID-19 Levy works

Edward Neequaye

There has been the imposition of a special levy known as the COVID-19 Health Recovery Levy on goods and services and imports. This new levy is mainly to help to raise revenue to support COVID-19 expenditures.

According to the Ghana Revenue Authority, this new levy, which comes into effect from May 1, 2021 will be an addition to the sales taxes we currently have.

How does this change the structure of sales taxes?

The COVID-19 Levy is a 1% addition to both the current VAT Standard and the VAT Flat Rates. Currently the VAT Standard works as:

GETFUND – 2.5%
NHIL – 2.5%
VAT – 12.5%

With the new levy, this changes to:

GETFUND – 2.5%
NHIL – 2.5%
COVID-19 Levy – 1%
VAT – 12.5

What does this mean for prices of goods and services?

Let’s illustrate how this new change affects prices of products and services. Say a product costs GHS1,000 and you want to determine the VAT to apply on it:

Old system:
Product Gross Cost – GHS1,000
NHIL (2.5%*1,000) – GHS25
GETFUND (2.5%*1,000) – GHS25
Sub-total (1,000+25+25) – GHS1,050
VAT (12.5%*1,050) – GHS131.25
Total price to customer (1,050 + 131.25) – GHS1,181.25

New system:
Product Gross Cost – GHS1,000
NHIL (2.5%*1,000) – GHS25
GETFUND (2.5%*1,000) – GHS25
COVID-19 Levy (1% *1,000) – GHS10
Sub-total (1,000+25+25+10) – GHS1,060
VAT (12.5%*1,060) – GHS132.50
Total price to customer (1,060 + 132.50) – GHS1,192.5

This means that the new effective compound standard VAT rate is 19.25% (192.5/1,000*100), which is 1.125% more than the old effective rate of 18.125% (118.25/1,000*100).

Also, the VAT Flat rate changes from 3% to 4%, with the increment being the 1% COVID Levy

Just like NHIL and GETFUND, the COVID-19 Levy is non-recoverable, meaning GRA will not allow you to deduct it as an input tax.

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