Are the current difficulties with the 20% VAT on cross-border digital transactions occassioned by an enactment or amendment in 2013, 2022, or 2025?
As a sequel to my earlier posts, let me add that in principle VAT is a consumption tax and often the incidence is on the consumer (destination principle) of course with the nuance that the price elasticity of demand will shift some of the tax incidence to the service provider if they want to keep their market share or competitive edge etc.
At the moment, GRA uses Ghana payment instruments for the collection and this is irrespective of the place of consumption. This invariably defies the destination principle application.
It is a practical complication introduced by the 2025 amendment (Act 1151) by this government and not a law or amendment enacted in 2013 or 2022. This defeats the mischief that the current issues we are discussing is as a result of something done in 2013 or 2022.
This is because in strict application of the destination principle to the VAT as a consumption tax, the VAT application to the digital service should have been on services consumed in Ghana.
The single amendment with the provision through section 15(3) of Act 1151 in 2025 is what is causing the challenges we are seeing today. The charging provision in Act 870 (2013) is that VAT should be on services consumed in Ghana according to the destination principle. But per the 2025 amendment GRA is making the mode of collection override the charging provision. What tax principle is GRA applying? I need them to educate us.
This is where this complication occassioned by the 2025 amendment by this government becomes interestingly manifest.
Consider the scenario below of two people sitting side by side in a hotel in New York
Person A
– American resident
– Uses American phone
– US-issued visa card
* Buys a USD 100 digital service
No Ghana VAT
Person B
– Ghanaian resident
– Temporally visiting America
– Uses Ghana phone/account
– Ghana visa card
* Buys exactly the same USD100 service.
Ghana VAT applies
In both cases, service was not consumed in Ghana but one person is paying VAT just because their country has rule for applying VAT on digital services using Ghanaian payment instruments.
Another complication that may arise is the possibility of double taxation
Suppose a Ghanaian traveller purchases a digital service in a foreign country, and depending on the relevant foreign country/local rules and transaction facts, a foreign consumption tax (say VAT in the case of UK or sales tax in the case of USA) is also imposed.
If Ghana also treats the transaction as Ghanaian because of the residence/payment indicators (Ghana bank card or momo), the consumer could potentially suffer taxation in both jurisdictions.
My concern is not the taxation principle but the mode of collection. This is a problem GRA has created with the new amendment.
To resolve this, we need a refund mechanism for consumption outside Ghana.
The bank can initially collect the VAT because it may not know where the cardholder physically is.
As we speak, GRA has not demonstrated commitment to and the possibility of such refund mechanism. As usual, we will let politics take the best of us and gross over this only to complain later.
I am interested to know how GRA wants to address this challenge, bearing in mind the snag of the administrative difficulties that may be involved in getting the refund.
An example is that, in the case of evidence of travel outside Ghana, a travelling ticket may not be enough, additional evidence of visa and stamps by immigration to confirm entry into and departure out of the country would be needed. If the cost of pursuing the refund outweighs the benefits, some people may not apply for the refund at all. The processing of the refund may also lead to increase in the productive hours of GRA staff which could have been used to address other tax issues.
