Ghana Revenue Authority to introduce a tax on real-estate!

I saw this article on Business & Financial Times and thought my goodness, Ghana is trying to turn in to the UK, with taxes on everything. I mean its hard enough to buy homes in Ghana as it is with extremely limited and expensive mortgage facilities, let alone with a 5% tax to add to the purchase price.

Prospective home owners will now have to pay more for decent accommodation following authorization by the Ghana Revenue Authority (GRA) for real estate developers to start charging a flat rate of 5 percent Value Added Tax on all housing units sold from October 01, 2015.

“We hereby write to inform you that, as agreed at the said meeting, October 1, 2015 is the date from which you are to commence charging and accounting for the tax,” the GRA said in a letter dated September 29, 2015, addressed to the Chief Executive Officer of the Ghana Real Estate Development Association (GREDA).

Houses sold between two or more parties before – October 1, 2015, will however, not attract the flat 5 percent VAT.

apartments in ghana- towighana
Villaggio Vista in Accra

With a housing deficit of more than 1.8 million units, the developers have criticised the move and called for suspension of the tax for broader consultation.

Baffour Akoto Osei, Chief Executive of GHS Housing Limited, told the B&FT that: “Already it is very difficult for clients to buy. We serve the middle income market. Most of our clients are between 25 and 35, while the others are those around 55 years preparing for retirement.

“Incomes haven’t gone up so much, but prices have escalated very much. At the current 32 percent interest rate from the banks, most of the working class don’t qualify for mortgages.

“Private individuals and public servants who were buying houses in 2010 and 2011, have declined to zero. All those that are now able to buy houses are those drawing mortgages from their companies; and even then you have to give them a payment plan to make up the small difference – they don’t even qualify.

“This VAT will only increase house prices, limit the number of people who qualify for mortgages, and put developers out of a job. The GRA should suspend it for broader consultation,” he said.

An ISSER report early this year cited the lack of a coherent plan and short-sightedness of policymakers as causes of the housing shortage. The GREDA estimates that about 50% of Ghanaians live in sub-standard housing and various unsuitable structures.

Old Fadama, Accra
Old Fadama in Accra

Indeed, rising cost of raw materials due primarily to the depreciation of the cedi, cost of constructing drains, and lack of long-term funds are some of the issues bedeviling the sector and have held back any attempt by private individuals to reduce the housing deficit.

The cedi has depreciated about 40 percent against the dollar over the past 17 months. Given that most of the construction materials are imported, house prices reflect the behaviour of the dollar.

“Previously, with qualifying salaries people with a salary level of Ȼ3,000 could buy a home. But right from 2014 when the cedi depreciation started so steeply, the minimum income required to buy a home – after all expenses on the houses – is about Ȼ5,000,” Mr. Osei said.

Limited long-term funding for developers has also bridled any attempt to address the shortfall in housing. Unit and mutual trust fund managers are restricted to investing just 10 percent of their funds in the real- estate sector.
Source: Business & Finacial Times

So despite the enormous housing shortage in Ghana, It looks like the government are doing less and less to try and address this growing problem…Do you agree or do you think the 5% tax is valid?

The question for me is where is this money going and what will it be used for.

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