You have been appointed as a Tax consultant in a firm in Tabora, Accra. A client approached you one month after your appointment, and asked for your advice with their business records and Value Added Tax and National Health Insurance Levy (VAT/NHIL) returns.
i) One of their customers to whom they sold goods on credit worth GH¢12,500 inclusive of VAT has gone officially bankrupt. The company had paid the VAT on the transaction three months ago.
ii) In March 2015, the client in order to boost sales started selling to customers on 12 months equal instalments payment with some small interest .He is confused as to how to determine the amount of the VAT/NHIL and when he should pay the VAT/NHIL.
iii) The company sold good worth GH¢17,000 in March 2015, on a sale-or return basis, but the company is not clear as to when to account for the VAT/NHIL on the sale and what happens to the VAT/NHIL paid if the customer returns the good.
iv) The company sold stationery and office equipment worth GH¢30,000 to a Jude Power Manufacturing Company in Accra. The accountant of Jude Power informed them that their company is relieved from paying VAT/NHIL, so they will not pay.
Required:
Advise your client on issues raised in “i-iv” concerning VAT/NHIL returns. (10 marks)
View Solution
A supply is said to have taken place on the earliest of the occurrence of any one of the following events:
- The goods are removed from the taxable person’s premises;
- Where the goods are made available to the person to whom they are supplied;
- Receipt of payment is made;
- Tax invoice is issued.
i) The firm should write off the sales as bad debts in its books,
Inform the Commissioner-General in writing supporting the report with official liquidation
The firm, on the basis of the above, can put in a claim for the input tax on the bad debt as an adjustment in line with section 46 of the VAT ACT 2013, Act 870
ii) The taxable value according to section 43(4) under this situation would be based on the total amount of the installments. The tax will be calculated on the full value at the time of supply and not when the installment is paid. The price shall exclude the interest or finance charges.
iii) Regulation 17 of the VAT Regulation 1998 states that “where goods are supplied on sale or return, the tax point shall be the earliest of
a. The date when the purchaser chooses to keep the goods; or
b. The issue of a tax invoice by the seller, or
c. The receipt of payment by the seller, other than a deposit; or
d. The expiry of the period within which the customer may return the goods; or
e. Twelve months after the date of dispatch by the seller
iv) The customers should first obtain a copy of their relief letter/documents. Reliefs per section 38 of the VAT Act and the Third Schedule allow Vat registered manufacturers for raw materials at importation. The case however seems to suggest local purchases, and thus the Manufacturing company cannot claim relieve from such purchases. The company would thus have to claim the VAT, from Jude Power. (2.5 marks for point (i)-(iv) = 10 marks)