Ghana’s new VAT law removes consumption-based zero-rating of services

Before 2026, there were four different VAT rates in Ghana. We had two flat rates, made up of 3% for some retailers and 5% for the real estate sector. There was also the standard rate of 15% and a rate of 0%. The new VAT law has abolished the flat rates. It has also modified, even if unintentionally, the way some services are considered for zero rating.

General framework

The VAT law imposes VAT on a taxable supply of goods and services made in Ghana and import of goods and services. Unless there is an import, the supply must be made in Ghana to qualify for VAT. Section 3 of Act 1151 provides for the rate of VAT to be 15%. This section does not make any room for 0%.

The rate of 15% only applies to taxable goods and services supplied in Ghana. That means if the supply is not made in Ghana or deemed to be made outside Ghana, the standard rate of 15% won’t apply. The standard rate will therefore not apply if the goods and services are deemed to be made or supplied outside Ghana. For these goods and services produced in Ghana but deemed to be used outside Ghana, the VAT rate will be 0%.

Why zero-rate?

A rate of 0% is different from no VAT. For goods and services that are exempt from VAT, no VAT is to be charged on them. One implication of this is that no VAT invoice is to be issued when supplying exempt goods and services. Another implication is that there is no chance of claiming any input VAT incurred in relation to the supply of the exempt goods and service. That is, any VAT incurred during the supply of the exempt goods and services will be cost to the supplier.

A zero-rated supply on the other hand, is a part of the taxable supplies of a person. It meets all the conditions of a standard supply. The only difference is that instead of 15%, the VAT rate is rather 0%. That means VAT invoice must be issued to cover zero-rated supplies. Further, any input VAT incurred during the supply of zero-rated supply can be claimed and won’t be a cost to the supplier. There are very good reasons a country will zero-rate specific goods and services. One of the commonest reasons is that the goods or services won’t be consumed locally.

Generally, VAT is a consumption tax and is jurisdictional. So, depending on the rules of a country, goods and services supplied locally but consumed or used outside Ghana will not be taxed locally. For instance, goods exported by a Ghanaian manufacturer will ordinarily not be taxed in Ghana. Any potential VAT will be levied in the country of destination at the time of importation. This is part of the Destination Principle that ensures tax neutrality.

How did we know when to zero-rate under Act 870?

Under the old law, the Value Added Tax Act, 2013 (Act 870), there was a three-step process to determine whether to charge VAT at 15% or 0% for taxable supplies. We started from the provision that allowed zero-rating, moved to what is zero-rated and then checked if the condition for zero-rating is satisfied based on consumption. The process started from section 36(1) of Act 870. This provision said,

A taxable supply is taxable at a zero rate if the supply is specified in the Second Schedule.

So, the items stated on the Second Schedule were the only items that could benefit from the 0% rate. The items on that Schedule were mainly goods that were permanently exported as well as special goods consumed locally such as sanitary towels and locally manufactured textiles. For services, there were five main categories of services that could benefit from the 0%. They included services connected with land outside Ghana, services connected with personal property outside Ghana, services consumed elsewhere than in Ghana, services connected with intellectual property rights for use outside Ghana and freight/insurance services connected with export of goods.

For the third category, the law provided conditions for determining whether the services were consumed in Ghana. These conditions were stated in section 42 of Act 870. The headnote of this section is ‘Place of supply‘. The section contained a general rule that a supply of services took place at the place of business from which the service was supplied. Subsections 4-7 contained exceptions to this general rule. One of the exceptions was that the place of supply for some service such as consultancy, engineering, accountancy and advertising was the place the services were used. That meant that for any of these services, if they are not used in Ghana, the services would be deemed to have been supplied from outside Ghana. This principle was captured by section 42(8) of Act 870 which said

Services supplied from a place of business in the country which would be treated as supplied outside the country under subsections (4) to (7) are considered as exported from the country.

This is a fiction because of course, the service provider is in Ghana and providing the service from Ghana. What is the point in treating the service as supplied outside Ghana? One of the main purposes for treating these services as exports was to include them in the Second Schedule for zero-rating. Though this wasn’t stated explicitly, it can be derived. Under the 1998 VAT law, this was clearer as the Second Schedule was explicit that export of taxable goods and services should be zero-rated. This clarity was lost in Act 870. This provision of treating these services as exported didn’t automatically mean they should be zero-rated unless they could be traced to the Second Schedule. Remember, zero-rating applies exclusively to the items on the Second Schedule.

Going back to Paragraph 3(3) of the Second Schedule of Act 870, one of the services to be zero-rated was:

A supply of services to the extent that the services are consumed elsewhere than in the country.

This provision is implicitly linked to Section 42. Section 42 provides for the services that can be considered as exported because they are not consumed in Ghana. The Second Schedule also provides for zero-rating of those services that are not consumed in Ghana. So, although we lost the clarity of using the expression ‘export of services’ on the Second Schedule for zero-rating, Act 870 replaced that expression with a test of consumption outside Ghana.

How the new VAT law has created a new problem

Act 1151 maintained the same framework of Act 870 but with an unexpected omission. Section 1(1)(a) of Act 1151 also imposes VAT on supply of goods and service made in Ghana which are not listed as exempt. Section 3 provides the general VAT rate of 15%. Section 36(1) also provides that all the supplies listed on the Second Schedule should be zero-rated. Section 42 also lists the services for which consumption outside Ghana means the supply is deemed to be made outside Ghana.

Paragraph 3 of the Second schedule to Act 1151 contains a list of seven items. Three of them didn’t exist in Act 870. However, one item that existed in Act 870 was omitted. That is, the provision that a supply of services consumed outside Ghana should zero-rated is missing. This is a big issue. As shown from the framework, zero-rating is reserved exclusively for items on the Second Schedule. Since this Schedule does not currently contain any line for export of services, there is no basis to zero-rate any service consumed outside Ghana. That service must be taxed at 15%.

To illustrate this, under the repealed Act 870, if an architect designs building plans for customers based outside Ghana and those plans are not for use in Ghana, the architect would consider the supply as exported and zero-rate it since the consumption is outside Ghana. Under the new law, even if the plans won’t be used in Ghana, since architectural services used outside Ghana are not listed on the Second Schedule, 15% VAT must be charged. Similarly advertising services used or consumed outside Ghana would be zero-rated under Act 870. In fact, that was one of the issues that led to a dispute with the tax authority resulting in the case of Coca Cola Equatorial Africa v Commissioner-General. The High Court there held that the taxpayer was right zero-rate the supply of advertising services. However, Coca Cola won’t be able to rely on the Second Schedule anymore under Act 1151. Regardless of the place the advertising services were used or whatever section 42 says, 15% must apply since it is the Second Schedule that determines what is zero-rated.

Conclusion

From the similarities between Act 870 and Act 1151, it appears it was not intentional to exclude services consumed outside Ghana from the list of services to be zero-rated. There was no indication in the Memorandum to the Bill or even the debate in Parliament. Indeed, Section 42 would be unnecessary if that was the intention. Act 1151 even now directs the tax authority to provide guidelines on activities indicating use of the service. If we are right, Parliament needs to urgently amend Act 1151 to include this. The amendment could easily be to include a line in the Second Schedule saying, ‘Services treated as exported under Section 42(4)’. 

Since the new law (Act 1151) lacks a specific line item for ‘services consumed outside the country’ in the Second Schedule, the GRA is legally bound to apply the standard rate of 15% even if the service is technically an export. This effectively removes the tax neutrality previously enjoyed by Ghanaian service exporters. The affected services include transfer of intellectual property, services of professionals, processing of data or supplying information, advertising and leasing of tangible personal property.