Ghana tight­ens and broad­ens its tax laws

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Celia Becker

THE Ghana­ian deputy min­is­ter of fi­nance, Mona Quartey, last month launched a new In­come Tax Act, 2015 (Act 896) which seeks to fa­cil­i­tate and en­cour­age com­pli­ance by tax­pay­ers. The new act, which re­peals the In­ter­nal Rev­enue Act 2000 (Act 592), came into ef­fect on Jan­uary 1.

Ac­cord­ing to Ms Quartey, the 2000 act was com­plex and not user-friendly and needed to be re­placed by a law based on in­ter­na­tional best prac­tice.

Ge­orge Blank­son, the Ghana Rev­enue Au­thor­ity com­mis­sion­ergen­eral, says the pur­pose of the new act is to broaden the tax base by re­mov­ing the nar­row and dis­torted tax base of the 2000 act, ra­tio­nalise, stream­line and re­strict tax con­ces­sions and ad­dress the ero­sion of the tax base.

This year’s bud­get af­firms the govern­ment’s com­mit­ment to lower its fis­cal deficit to 5.3% of gross do­mes­tic prod­uct (GDP) and in­di­cates that Ghana will seek higher taxes through im­prove­ments to tax ad­min­is­tra­tion rather than in­creas­ing the tax bur­den. The new act is ex­pected to boost rev­enues by 0.3% of GDP.

Since mid-2013 the govern­ment has been mak­ing in­cre­men­tal tax in­creases. In July 2013, the 5% fis­cal sta­bil­i­sa­tion levy on com­pa­nies’ prof­its was rein­tro­duced for 18 months and has now been ex­tended un­til next year. In De­cem­ber 2014, 5% value added tax (VAT) was im­posed on the real es­tate sec­tor.

A 17.5% tax on pe­tro­leum prod­ucts and fee-based fi­nan­cial ser­vices in the bank­ing sec­tor was also in­tro­duced.

The new act in­tro­duces sig­nif­i­cant amend­ments, in­clud­ing the in­tro­duc­tion of a world­wide ba­sis of tax­a­tion for res­i­dents which re­places the source-based tax sys­tem in terms of which res­i­dents were only sub­ject to tax on in­come ac­cru­ing in, de­rived from, brought into or re­ceived in Ghana.

Gains re­alised on the dis­posal of as­sets or li­a­bil­i­ties are to be in­cluded in busi­ness or in­vest­ment in­come and taxed at the ap­pli­ca­ble in­come tax rate as cap­i­tal gains tax is no longer a sep­a­rate tax. Sim­i­larly, gift tax is no longer a sep­a­rate tax and gifts re­ceived in re­spect of em­ploy­ment, busi­ness and in­vest­ment are to be in­cluded in cal­cu­lat­ing tax­able in­come.

Cap­i­tal al­lowances are re­duced from six to five as­set classes with al­lowances for as­sets in classes 1, 2 or 3 to be com­puted based on the re­duc­ing bal­ance method and for as­sets in classes 4 and 5 in ac­cor­dance with the straight-line method. Cap­i­tal al­lowances not utilised in the year they were granted are no longer al­lowed to be car­ried for­ward and are to be writ­ten off.

Un­der the 2000 act, only per­sons en­gaged in farm­ing, man­u­fac­tur­ing for ex­port, min­ing, agro-pro­cess­ing, tourism and in­for­ma­tion and com­mu­ni­ca­tion tech­nol­ogy could carry for­ward tax losses for five years. In terms of the new act, tax­pay­ers in spec­i­fied pri­or­ity sec­tors are al­lowed to carry for­ward losses for five years and tax­pay­ers in all other sec­tors may carry for­ward losses for three years. Cap­i­tal losses in­curred due to the re­al­i­sa­tion of a cap­i­tal as­set or li­a­bil­ity of a busi­ness are tax de­ductible, pro­vided cer­tain re­quire­ments are met.

For thin cap­i­tal­i­sa­tion pur­poses, the debt-to-equity ra­tio has been in­creased to 3:1 from 2:1 to fa­cil­i­tate debt fi­nanc­ing of in­vest­ments in the coun­try.

The cor­po­rate in­come tax rate for per­sons in the ho­tel in­dus­try has been in­creased from 20% to 22% and busi­nesses op­er­at­ing un­der tax con­ces­sions in Ghana will pay cor­po­rate tax at the min­i­mal rate of 1%, rather than en­joy­ing full tax hol­i­days, as was the case un­der the 2000 act. Th­ese busi­nesses in­clude those en­gaged in agro-pro­cess­ing, co­coa by-prod­uct busi­nesses, ru­ral banks, waste-pro­cess­ing busi­nesses and providers of low-cost res­i­den­tial premises which will pay the tax dur­ing their con­ces­sion pe­ri­ods.

In terms of the 2000 act, in­ter­est paid to in­di­vid­u­als by res­i­dent fi­nan­cial in­sti­tu­tions was ex­empt in­come. The new act in­tro­duces a 1% with­hold­ing tax on in­ter­est paid to in­di­vid­u­als and in­creases the with­hold­ing tax rate on pay­ments for the sup­ply of ser­vices to a res­i­dent from 5% to 15%, whereas the rate on pay­ments for the sup­ply of goods to a res­i­dent is re­duced from 5% to 3%. The thresh­old for with­hold­ing tax on the sup­ply of goods, works and ser­vices has been in­creased from 500 Ghana­ian cedis to 2,000. Un­der the new act, lot­tery win­nings are to at­tract a 5% with­hold­ing tax.

The min­istry of fi­nance is­sued a press re­lease on Jan­uary 7 in­di­cat­ing that it has taken note of the con­cerns of tax­pay­ers and the gen­eral pub­lic re­gard­ing cer­tain pro­vi­sions of the act, es­pe­cially those re­lat­ing to with­hold­ing taxes.

In re­spect of the 15% with­hold­ing tax on ser­vices, the new act al­lows the com­mis­sioner-gen­eral to grant ex­emp­tions from with­hold­ing tax to com­pli­ant tax­pay­ers and the fi­nance min­is­ter has di­rected the Ghana Rev­enue Au­thor­ity to im­ple­ment th­ese pro­vi­sions. Pro­pos­als have also been sub­mit­ted to Par­lia­ment to re­view the with­hold­ing tax rate on ser­vices (and po­ten­tially re­duce it to 7.5%) and to re­verse the in­tro­duc­tion of the 1% with­hold­ing tax on in­ter­est paid to in­di­vid­u­als.

The com­mis­sioner-gen­eral noted that sen­si­ti­sa­tion pro­grammes would be em­barked upon to en­sure the pub­lic un­der­stood the new act.

Higher taxes sought through ad­min­is­tra­tion im­prove­ments rather than rais­ing the tax bur­den

Celia Becker is an Africa reg­u­la­tory and busi­ness in­tel­li­gence ex­ec­u­tive at ENSafrica.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.