Bankers are planning to meet next week with the Ministry of Finance and Economic Planning and the Ghana Revenue Authority (GRA) to put across their grievances and seek clarification on the extension of the Value Added Tax (VAT) to financial services.

The amendment of the VAT law last November expanded the scope of the tax and raised the rate from 15 percent (including the National Health Insurance Levy) to 17.5 percent effective January 2014.

Financial services, which hitherto had been exempted from VAT, have now been brought under the tax -- placing Ghana among a very short list of countries in the world that charge VAT on financial services.

According to the amended law, “financial services” means provision of insurance; issue, transfer, receipt of, or dealing with money -- whether in domestic or foreign currency --or any note or order of payment of money; provision of credit; or operation of a bank account or an account of a similar institution.

This means bank charges on services such as maintaining customer current accounts, transferring money, issuing bank drafts, cheque books and credit cards will attract VAT.

But banks are unhappy with the new regime and complain that they were not consulted before the changes were made. The heads of the banks however declined to make public statements on their misgivings pending a planned meeting with tax authorities.

“We are meeting next Monday with the Finance Ministry, the GRA and other stakeholders at a roundtable meeting. We will be discussing the impact of this new rate on banking business,” said a person with knowledge of the plans.

“Even the GRA itself has not provided the infrastructure to collect this revenue from the financial service providers yet,” the person added.

Another concern of the industry is that with financial services low penetration in the country -- less than 30 percent of Ghanaian adults have a bank account -- the imposition of VAT on bank account charges will further deter the use of formal financial services.

The insurance industry is equally alarmed by the VAT amendment. Though life insurance and reinsurance services are exempted, insurers doing general business -- such as providing cover for vehicles and logistics -- are worried about having to increase their premiums due to VAT.

Like banks, they also fret that the many businesses which already do not insure their capital and resources will not be encouraged to do so because of the rise in premiums.

For the government, the VAT hike seems an easy way to boost revenues to keep its fiscal stabilisation plans on track after it said it would not be able to cut the budget deficit of 11.8 percent of GDP as quickly as it had anticipated. It now forecasts a deficit of 8.5 percent of GDP this year, up from 8 percent previously projected.

The attraction of financial services also seems to be its rapid growth from 3.8 percent of GDP in 2008 to 5 percent in 2012. Based on a financial sector GDP of GH¢3.4billion in 2012, a 17.5 percent VAT on the full range of financial services could raise around GH¢0.6billion annually.

The Finance Ministry expects the changes to VAT to boost revenues from the tax by GHȼ745million in 2013, and the government has promised to spend the extra money exclusively on infrastructure.