E-VAT in limbo: Retail outlets suck economy dry - Nation loses billions in revenue
The Daily Graphic has uncovered that many retail outlets in the country are not complying with the Ghana Revenue Authority's (GRA) directive and the law on the electronic Value Added Tax (e-VAT) invoicing system, more than 18 months after the initiative took off.
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While the Value Added Tax (Amendment) No. 2 Act, 2022 (Act 870) enjoins eligible companies, thousands of them, to comply with the e-VAT, almost all the companies listed to integrate their billing and receipting system to a GRA designated system are refusing to do so, thereby denying the state millions of Ghana cedis monthly, which translates into billions of cedis a year.
About a week-long mystery shopping conducted by the Daily Graphic revealed widespread non-compliance as an overwhelming number of companies defied the order to issue receipts only electronically through an interface with the GRA’s system.
While a few well-known establishments had successfully adopted the system, a significant number of businesses, both small and large, were found to be non-compliant and also lacked the necessary infrastructure to adhere to the directive.
The checks revealed that some businesses were either unaware of the directive or were deliberately flouting the GRA’s directive. Many of the companies the Daily Graphic spoke to claimed the GRA was not taking steps to migrate them, while others said they had exemptions from the authority but could not provide any proof.
Daily Graphic’s checks also revealed that the pilot phase of the exercise increased revenue tremendously beyond expectations. This means any further delays in migrating all the companies onto the system deny the country millions of Ghana cedis monthly, translating into billions every year.
This is critical, especially when the government is hard pressed for additional revenue to close the budget deficit and also meet revenue thresholds agreed on with the International Monetary Fund under the Extended Credit Facility (ECF) programme.
Electronic system
The GRA introduced the modified e-VAT system through the Taxation (Use of Fiscal Electronic Device) Act, 2018 (Act 966) in October 2022, to improve revenue received from VAT.
The GRA started a pilot phase with 50 large taxpayers before the first phase implementation started with about 600 large taxpayers. More than 2,000 small and medium-sized taxpayers were expected to be migrated onto the platform by the close of this year. However, Daily Graphic’s checks revealed that not even a third of the targeted companies had completed the integration.
The e-VAT system consists of an invoice validation process which when submitted to the GRA, the authority returned each invoice with a code called the "sales data controller" (SDC).
The SDC includes a timestamp and a QR code. The SDC code must be included in the PDF invoice sent to the customer. The outlets then report their sales invoices to obtain an electronic tax clearance certificate (e-TCC), which allows taxpayers to generate their certificates online.
The e-VAT system applies to invoices and credit notes, and companies are also required to send information about their inventory and purchases to the GRA to ensure compliance.
What we saw
The Daily Graphic’s mystery shopping revealed that outlets, including ORCA DECO, Banana Home, Grace Has Found Me, The Art Kitchen and Kadmils Plus Enterprise were all not complying with the e-VAT directive.
Receipts received after purchases from these outlets had no SDC, a timestamp and a QR code, meaning that they had not onboarded the e-VAT system. In sharp contrast, receipts received from Melcom, Palace and China Mall, all on the Spintex Road in Accra, and MaxMart had SDC with a timestamp and a QR code.
When contacted, the GRA scheduled a meeting to provide an update on the implementation.
Expert comment
Commenting on the initiative and its implementation, a Tax Partner at PricewaterhouseCoopers (PwC), Abeku Gyan-Quansah, said based on publicly available information and the intention of the government to deal with the challenges associated with VAT in the country, the introduction of the e-VAT “is obviously a good initiative”.
He explained that the challenges included entities and people who collected the VAT but did not remit to the revenue authority and others who did not collect them at all, though they were eligible.
Mr Gyan-Quansah, who is also the PwC West Africa Indirect Tax Leader, added that when a business operation was placed on the e-VAT, the expectation was that it would give the GRA an almost instantaneous information about the revenue due it.
“It is expected that so long as we are billing you through this system, it reduces the propensity for VAT fraud because the GRA will have almost instantaneous information. So in our view, what the government intends to achieve with the electronic VAT is a good thing,” he stated.
Implementation
Throwing further light on the background of the initiative, the Tax Partner traced the antecedents of the e-VAT to the Taxation (Use of Fiscal Electronic Device) Act, 2018 (Act 966), which provided for the use of an approved Fiscal Electronic Device by specified taxable persons at each point of sale on the premises of the taxable persons for tax compliance and promotion of cashlite sale transactions, and for related matters.
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After the law was gazetted in 2018 for implementation to start, supported with two publications in the dailies with national coverage, the exercise never took off four years down the line.
After failing to implement the 2018 law, the VAT law was amended to support the e-VAT. The Value Added Tax (Amendment) No. 2 Act, 2022 (Act 1087), which introduced the e-VAT came into effect on September 12, 2022.
After the delays in implementing the first law and the coming of the second, as well as the euphoria that greeted the implementation with the arrest of some managers of shops for not issuing the e-VAT, Mr Gyan-Quansah said the interest had died down, bringing into question why some people had to suffer such consequences if the whole initiative was not going to be implemented.
The tax expert said since the e-VAT was part of the invoicing system of the companies required to implement it, it would create an uneven playing field for a company that implemented it against another which did not, making the compliant company uncompetitive in the face of the non-compliance of others.
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Mr Gyan-Quansah said for that reason, PwC as an advisory firm could not be happy with the pace of implementation of the e-VAT, since it gave advantage to companies that did not comply to the disadvantage of those that complied, clearly creating an uneven playing field.
Background
GRA deployed the e-VAT invoicing system after Section 42 of the VAT Act, 2013 (Act 870) as amended to make electronic invoicing (e-invoicing) the sole medium for issuing VAT invoices.
The system is to enable GRA to counter the various malpractices that the GRA said were denying the state billions of cedis in tax revenue. Since VAT is a consumption tax, the electronic system will allow most of the population to contribute to the tax basket and answers calls for the tax next to be widened, the GRA said after the system took off on October 1, 2022.
Under the first phase of the implementation, the exercise was to cover more than 600 large taxpayers, including listed companies, which account for more than 80 per cent of domestic revenue and up to 90 per cent of VAT collections.
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The GRA said the e-VAT was expected to cover all VAT taxpayers by 2024. The Head of the Domestic Tax Revenue Division (DTRD) at GRA, Edward Apenteng Gyamerah, told a section of the media on Friday, September 30, 2022 that the e-VAT invoicing would also help the authority to monitor transactions in real-time, thereby ensuring transparency and eliminating under-invoicing, under carding and non-issuance of VAT invoices.
He said through the exercise, GRA aimed to raise VAT's contribution to tax revenue to 20 per cent by December last year and 30 per cent in 2024.