2006 - Facts and Figures - IRS

8/14/2019 2006 - Facts and Figures - IRS

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pwc

2006 Tax Facts and Figures*A quick guide to Taxation in Ghana

*connectedthinking


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Introduction

The Income Tax regime has seen a number of changes since theInternal Revenue Act, 2000 (Act 592) was introduced. However, in

2006 there were only minor changes with the focus on the continuedreduction of personal and corporate taxes to increase Ghanascompetitiveness in the international markets.

Although there are still a number of issues in the tax regime thatneed to be addressed, the last two tax budgets have overall beenencouraging for the business community.

This guide is prepared as a general overview. For more detailedplanning please ensure professional advice is obtained.

To find out more about this service, contact us at our address.


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A brief profile of PricewaterhouseCoopers

Global Overview

PricewaterhouseCoopers (www.pwc.com) is the world's largestprofessional services organization. We provide industry-focusedassurance, tax and advisory services to build public trust and enhancevalue for its clients and their stakeholders. More than 130,000 people in148 countries work collaboratively using Connected Thinking to developfresh perspectives and practical advice.

PricewaterhouseCoopers Concept of Core Values

PricewaterhouseCoopers global values of excellence, teamwork andleadership define how our people work and help to ensure that withoutregard for geography and culture, we leave our clients with a lastingimpression of a professionalism uniquely identified withPricewaterhouseCoopers.

PricewaterhouseCoopers in Africa

With 57 permanent offices employing more than 6,000 professional stafflocated in 29 countries, PricewaterhouseCoopers is the onlyprofessional service firm that offers the highest level of quality servicesin every country of Africa. Permanent offices can be found in:

Angola Botswana Cameroon

Chad Congo Cte DIvoireDemocratic Republicof Congo (DRC) Egypt Equatorial GuineaGabon Ghana Guinea ConakryKenya Libya MadagascarMalawi Mauritius MoroccoMozambique Namibia NigeriaSenegal South Africa Swaziland

Tanzania Tunisia UgandaZambia Zimbabwe


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PricewaterhouseCoopers Ghana

PricewaterhouseCoopers is one of the largest professional services

firms in Ghana.

Located in Accra, with over 100 employees, we provide audit,assurance, tax and advisory services to our clients. Our clients andtheir needs are more diverse and complex than ever, but with ourcollective knowledge, resources and professional expertise, wecontinue to deliver quality service in accordance with theinternational professional standards of the PricewaterhouseCoopers

worldwide organisation.

Partners

Charles A [email protected]

Felix E Addo

[email protected]

Mark J A [email protected]

Office location in Ghana

Gulf House 4th FloorTetteh Quarshie InterchangeLegon RoadPMB CT 42 CantonmentsAccraGhana

For more information, visit our website: www.pwc.com/gh


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Contents Page

General provisions under the law 1

Income Liable to TaxResident PersonsIncome Sources

Taxation of individuals 3

Monthly Tax RatesIncome from Employment

Personal ReliefContributions to Retirement Benefit SchemesRetirement SavingsNon-cash BenefitsBenefits Received from use of Accommodationand Vehicle provided by EmployerNon-Taxable Benefits / IncomeResident Individuals

Non-resident IndividualsPay As You Earn (PAYE)Year of Assessment (Individuals)Method of Calculating Income Tax PayableQuestionSolutionExamples of Income Tax Payable at Various Levelsof Taxable Income


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Contents Page

Corporate tax 11

Rates of TaxYear of Assessment (Companies)Basis PeriodDeductions AllowedDeductions Not AllowedCapital AllowancesCarry Over of Tax Losses

National Reconstruction LevySpecimen Tax Computation for a Listed CompanyComputationDividendsFree Zone Developers/EnterprisesLease TransactionsTelecommunicationsChange in Control

Profit or Dividend Stripping

Taxation of insurance companies 22

General BusinessLife Business

International transactions 23

Geographic Source of IncomeIncome Attributable to a Permanent EstablishmentBranch Profit TaxRelief from Double TaxationDouble Tax TreatiesTreaty Tax Rates


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Contents Page

Anti-avoidance schemes 26

Income SplittingTransfer PricingThin Capitalisation

Withholding taxes 27

Income exempt 28

Administrative procedures 29

Furnishing Returns on IncomeCases where a Return is not RequiredProvisional AssessmentSelf-AssessmentPayment of Tax

Offences and Penalties

Value Added Tax/National Health Insurance Levy33

ScopeExempt SuppliesReverse ChargeVAT and NHIL IncurredReturnsPenalties


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Contents Page

Gift tax 41

Taxable GiftValuationImposition of TaxTaxable Gift-Exceptions

Capital gains tax 42

Chargeable AssetExclusion from Chargeable AssetCalculation of Capital GainExemption from Capital Gains TaxExampleSolution

Tax amnesty 45


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General provisions under the law

PricewaterhouseCoopers 2006 Tax Facts and Figures 1

Income liable to tax

Income tax is levied in each year of assessment on the total income

of both resident and non-resident persons in Ghana.

With respect to resident persons, the income must be derived from,accrued in, brought into or received in Ghana.

For non-resident persons, the income must be derived from oraccrued in Ghana.

Resident persons

An individual is resident for tax purposes if that individual is:

a citizen of Ghana, other than a citizen who has apermanent home outside Ghana for the whole of the year,

present in Ghana for a period or periods equal in total to 183

days or more in any twelve-month period that commences orends during the year ,

an employee or official of the Government of Ghana postedabroad during the year,

a Ghanaian who is temporarily absent from Ghana for aperiod not exceeding 365 continuous days where that

Ghanaian has a permanent home in Ghana.

A company is resident for tax purposes if that company:

is incorporated under the laws of Ghana, or

has its management and control exercised in Ghana at anytime during the year.


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General provisions under the law


A body of persons is a resident body of persons if that body ofpersons:

is established in Ghana

has a resident person as a manager at any time during theyear of assessment, or

is controlled directly or indirectly by a resident person orpersons at any time during the year.

A partnership is resident for tax purposes if at any time during theyear, any partner in the partnership is resident in Ghana.

Income sources

The chargeable income of a person for any year of assessment isthe total of that persons income for the year from each business,employment, and investment less the total amount of deductions

allowed to that person.


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Taxation of individuals


Monthly tax rates

Tax rates in the table below are built up for purposes of effecting

monthly deductions.

Year Chargeable Tax Cumulative Cumulative2006 Income Rate Payable Income Tax

GHC % GHC GHC GHCFirst 200,000 Nil Nil 200,000 NilNext 200,000 5 10,000 400,000 10,000Next 1,000,000 10 100,000 1,400,000 110,000

Next 6,600,000 17.5 1,155,000 8,000,000 1,265,500

Exceeding 8,000,000 25


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Income from employment

A persons income from an employment is that persons gains or

profits from that employment including any allowances or benefitspaid in cash or given in kind to, or on behalf of that person from thatemployment except where exempt.

Personal relief

The assessable income of a person for any year of assessment shallaccordingly be reduced as follows;

Conditions2006GHC

(i) An individual with a dependant spouse oran unmarried person with at least twodependant children 300,000

(ii) Disabled 25% of Y(iii) Aged 60 or more (income from

employment or business)

Lesser of

300,000 or totalincome isexempt

(iv) Dependant child or ward education (up tothree children) 240,000

(v) Aged dependants (over 60 years) up to amaximum of two dependants (per

dependent)

200,000

(vi) Professional, technical or vocationaltraining cost not exceeding 500,000

Y is assessable income from any business or employment(excluding income from investment.)


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Contributions to retirement benefit schemes

Individual contribution to the Social Security Scheme of 5% of salary

is tax exempt.The employers contribution of 12.5% on behalf of the employee istax exempt.

Retirement savings

The assessable income of an individual shall be reduced by any lifeinsurance premium paid by that individual in Ghanaian currency to a

Ghanaian insurance company within the year which does notexceed the lesser of 10% of the sum assured or 10% of thecombined total of business, employment and investment income,less any contributions to a retirement fund is exempt.

Non-cash benefits

Non-cash benefits received from employment, except where

specifically exempt are taxable.

Benefits received from use of accommodation and vehicleprovided by employer

Where the employer provides the following facilities to an employeethe benefit of the use of these facilities is taxed as follows:


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Facility provided 2006

Provision ofAccommodation

Value to be added for tax purposes

Accommodation withfurnishing

15% of the persons total cashemoluments

Accommodation only 10% of the persons total cashemoluments

Furnishings only 5% of the persons total cashemoluments

Sharedaccommodation

5% of the persons total cashemoluments

Provision of Meansof Transport

Value to be added for tax purposes

Vehicle with fuel 15% of the persons total cashemoluments up to a maximum of300,000 per month

Vehicle only 7.5% of the persons total cashemoluments up to a maximum of150,000 per month

Fuel only 7.5% of the persons total cashemoluments up to a maximum of150,000 per month

Non-taxable benefits/income

The following benefits are not taxable:

a) reimbursements of medical and dental cost or healthinsurance expenses where the benefit is available to allemployees


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b) passage costs of an employee who,

1. is recruited or engaged outside of Ghana,

2. is a non resident, and3. who is solely serving the employer in Ghana

c) accommodation provided by employer to employee on atimber, mining, building, construction or farming business atsite or place where field operation of the business is carriedon

d) reimbursement of cost incurred on behalf of employer

e) severance pay

f) night duty allowance (limited to 50% of monthly salary)

g) pension or lump sum payment upon retirement on account ofold age, sickness or other infirmity.


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Resident individuals

A resident individual is liable to tax on all income from his

employment in Ghana regardless of where paid. A resident personor an expatriate who is paid both in cedis and foreign currency isliable to tax in Ghana on both streams of income, in addition to anybenefits derived from the exercise of the employment in Ghana.

Non-resident individuals

A non-resident individual is liable to tax at the rate of 20% on any

income derived in Ghana or which accrues to him from anemployment exercised in Ghana. This rate applies to income earnedby a non-resident individual who has stayed in Ghana for a period orperiods, which in total is less than 183 days in a twelve-monthperiod.

Pay As You Earn (PAYE)

PAYE is a method of paying tax to the Revenue on incomes earnedby employees. The tax is deducted at source on salaries and wagesearned by the employee. It also applies to taxable benefits.

The employer deducts the tax and pays it to the Revenue by the 15thday of the month following the month in which the deduction wasmade.

Year of assessment (individuals)

The tax year of assessment for individuals and partnerships isJanuary 1 to December 31.

Method of calculating income tax payable

The example below demonstrates how an individual is assessed totax.


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Question

Calculate the income tax payable by a resident married individual

whose annual income is 50,000,000. The employee has use of afurnished accommodation and a fuelled car provided by hisemployer. He has two children attending approved educationalinstitutions in Ghana.

Solution

Item 2006

Salary 50,000,000Add:

Rent element (15% of 50,000,000) 7,500,000Car element 3,600,000Total Emoluments 61,100,000Less:

Social Security Contribution (SSC) (2,500,000)Marriage Allowance* (300,000)Child Education (2 x 240,000)* (480,000)Total Deductions (3,280,000)Taxable Income 57,820,000Tax Payable 8,498,500

* In the case of a married couple one individual only claims the

Marriage or Child Education relief.


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Examples of income tax payable at variouslevels of taxable income

The table below shows the income tax payable by an individual forthe 2006 year of assessment. The only relief granted is personalrelief.

Tax PayableMonthly Taxable Income 2006

GHC GHC

300,000 5,000

600,000 30,0001,000,000 70,0004,500,000 652,5007,600,000 1,195,0009,000,000 1,515,000

Personal non-taxable income for a resident person, the threshold is:

2006Item GHC Per Annum

Taxable individual 2,400,000Individual whoseincome does notexceed theminimum wage 4,224,000


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Corporate tax


Rates of tax

The income tax rate applicable to companies is as follows:

Entity 2006%

Companies (listed on GSE) 25

Companies (not listed) 25

Rural Banks first 10 years 0

Rural Banks after first 10 years 8

Free Zone Enterprise / Developers first 10 years inoperation

0

Free Zone Enterprise/Developers after first 10

years

8

Manufacturing companies located:

i. In Accra/Tema 25

ii. In all other regional capitals 18.75

iii. Elsewhere 12.5

Hotels 25

Banks income derived from loans granted tofarming enterprises

20

Banks income derived from loans granted toleasing companies

20

Companies engaged in non-traditional exports 8


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Corporate tax


Entity 2006%

Real estate companies

Income derived from construction for sale or letting of

residential premises:

i. first 5 years 0

ii. after first 5 years 25

Agro-processing companies

i first 5 years (from 2004) 0

ii. after first 5 years and located in Accra/Tema 20

iii after 5 years and located in other RegionalCapitals, excluding Tamale, Wa andBolgatanga

10

iv. after 5 years and located outside RegionalCapitals

0

v located in Northern, Upper East and Upper

West

0

Companies engaged in:

Farming tree crops first 10 years 0

Livestock farming (other than cattle) fish or cash crops first 5 years

0

Cattle farming first 10 years 0

Income from non traditional exports 8

Waste management companies first 7 years 0

Companies that process cocoa waste first 5 years 0


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Corporate tax


Year of assessment (companies)

The year of assessment covers the period January 1 to December 31.

Basis period

Basis period is defined as:

In the case of an individual or partnership the period January1 to December 31.

In the case of a company or body of persons, the accounting

year.

Deductions allowed

All outgoings and expenses are generally allowed for tax purposes.These expenses however, must be wholly, exclusively andnecessarily incurred in the production of the income that is thesubject of tax. The following expenses are generally allowed:

Capital allowance Specific bad debts Tax losses brought forward from previous years (limited to

five years and applies only to mining, farming or amanufacturing business that mainly exports)


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Corporate tax


Realised foreign currency exchange losses Contribution to a retirement fund on behalf of an employee

where such contribution is disclosed in the taxable income

of the employee and the contribution would not again bededucted as an expense in the year the fund is retired

Research and development expenditure As an incentive to hire recent graduates, an additional

deduction is between 10%-50% of the recent graduatessalary is allowed dependent on the percentage of recentgraduates employed by the company.

Deductions not allowed

Expenditure of a capital nature is not allowed. Expenditure notwholly, exclusively and necessarily incurred in the production ofincome is also not allowed. The following expenditure is generallynot allowed:

Personal or domestic expenditure

Interest payment and foreign exchange losses in excess ofthe debt: equity ratio of 2:1 in a thinly capitalised company

Depreciation Any income tax or profit tax or similar tax Cost recoverable under an insurance contract Non-arms length cost transfer between related parties

Capital allowances

Capital allowances are granted to persons who own depreciableassets and use such assets in the production of the income that isthe subject of taxation.


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Corporate tax


The Commissioner should be notified within one month afterpurchasing and putting a new asset to use.

Any unutilised accumulated capital allowance as at thecommencement of 2001 year of assessment shall be carried forwardand spread over five years. However, capital allowance grantedafter year 2001 could be carried forward indefinitely if not utilised.

Capital allowance granted to a person is not transferable eitherseparately or together with any depreciable asset.


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Corporate tax


Depreciable assets have been grouped in classes as below and thefollowing rates apply.

Class Assets included Rate

1 Computers and data handling equipment 40%2 i) Automobiles, trailers, construction

equipment, plant and machinery used inmanufacturingii) Plantation expenditure

30%

3 i) Mineral and petroleum exploration rights,

locomotives, water transportation equipmentin respect of mineral and petroleum in yearof operations.ii) Buildings, structures and works ofpermanent nature used in respect of mineraland petroleum explorationiii) Plant and machinery used in mining orpetroleum operations

80% of cost

in year ofpurchase,

50% ofwritten down

value(WDV)*annually

thereafter.

4 Locomotives, water transportationequipment, aircraftOffice furniture and fixturesEquipment not included in other class

20%

5 Buildings, structures and works of apermanent natureOther than those mentioned in class 3

above

10%

6 Intangible assets e.g. Goodwill Useful life

* WDV is sum total of 5% of cost of previous years additions toclass 3 assets + additions for year + WDV b/f from previous year tocurrent year.


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Corporate tax


Carry over of tax losses

Tax losses can be carried forward for five years after which if not

utilised the privilege is lost. This provision now applies only tofarming, mining, agro processing, tourism, ICT or manufacturingbusiness. Manufacturing business is defined as manufacturing forexport. Any other business therefore forfeits the right to deduct anyunutilised loss carry forward to 2002 and thereafter.

National Reconstruction Levy

The National Reconstruction Levy (NRL) was repealed for allcompanies in 2006 except for companies in the financial servicessector (i.e. banks and insurance companies.)

Companies in the financial service sector will be subject to a 2.5%-5.5% levy on the net profit before tax.

This levy is non-deductible in calculating corporate income tax.

The NRL should be repealed for all companies in 2007.


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Corporate tax


Specimen tax computation for a listed company

Following is an example of a listed company. The tax calculation has

been made on the assumption that the financial figures apply for theyear ended December 31 2006.

Item 2006GHC

Trading ProfitOther Income (Rent Received investment income)

Profit before Tax

Included in profit before tax is:

Dividend income

180,000,0005,000,000

185,000,000

6,000,000Trading Profit is arrived at after

DepreciationDonation to unapproved charity 30,000,0001,000,0005% withholding tax paid deducted at sourceCapital allowance granted for year

1,600,00036,000,000


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Corporate tax


Computation

Item 2006

GHC

Trading Profit 185,000,000Deduct: Dividend income (6,000,000)

Rent Income (5,000,000)174,000,000

Add back Depreciation 30,000,000

Donation 1,000,000Adjusted Profits 205,000,000Less : Capital allowance 36,000,000Chargeable Income 169,000,000Tax on chargeable income at 25% 42,250,000Less tax already paid 5% withholding tax 1,600,000Tax due 40,650,000Add Tax on Rent Income:

Rent Income 5,000,000

Chargeable to tax 5,000,000Tax due on rent income 10% of 5,000,000 500,000Total Tax due 41,150,000

Dividends

Dividends received from an investment in Ghana by a resident and anon-resident person is subject to a withholding tax at 10%. This is afinal tax.

Capitalisation of profits is deemed to be a distribution of dividends.


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Corporate tax


Free Zone developers/enterprises

Companies registered to operate, as Free Zone

Developers/Enterprises do not pay corporate tax for the first 10years of operation. Thereafter the corporate tax rate is 8%.

Subject to the existence of a double tax agreement between theGovernment of Ghana and the Government of the foreign employeeengaged by a free zone enterprise or developer, the foreignemployee shall be liable to tax in accordance with the laws of Ghana

Lease transactions

The law currently recognizes both operating and finance leases.Under an operating lease arrangement, the lessor qualifies forcapital allowances while paying tax on the lease payments. In thecase of a finance lease, the lessor is liable to tax on the leaserentals (excluding capital repayments) and does not qualify forcapital allowances.

Under both arrangements, however, the lessee qualifies for a fulldeduction of payments made under the lease agreement. Note thatin a finance lease agreement, neither the lessee nor the lessorqualifies for capital allowances if the lessor does not report for taxpurposes the capital payments by the lessee.

Telecommunications

A non-resident person who has his apparatus established in Ghanaand who carries on a business of transmitting messages by cable,radio, optical fibre, or satellite communication from the apparatus, isliable to tax on his Ghana gross receipts.


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Corporate tax


Change in control

Where there is a change of 50% or more in the underlying

ownership of an entity as compared with its ownership in theprevious year, the company would not be allowed to take advantageof bad debts and losses incurred prior to the change in control.

Profit or dividend stripping

No deduction is allowed for a loss incurred on the disposal of sharesor an interest in shares of a company or interest in a body of

persons where the disposal forms part of a profit or dividendstripping arrangement.


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Taxation of insurance companies


General business

The general business of an Insurance Company is taxed as follows:

Ascertain net premium (gross premium less returns) Investment income (excluding dividend income) Commissions received and reinsurance income Previous year statutory reserve

Deduct

Net claims admitted Operating expenses Current year statutory reserve

Tax losses incurred can be carried forward for 5 years.

Premiums paid to a non-resident short-term insurer attract 5%withholding tax on the gross premium.

Life business

A person carrying on life insurance business is taxed on investmentincome derived from its investment activities. Deductions includemanagement expenses and commissions paid out to agents.


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International transactions


Geographic source of income

Income from any employment exercised in Ghana is treated as

derived from or accrued in Ghana and therefore taxable in Ghanawhether paid in Ghana or elsewhere.

The income of a non-resident person is treated as accruing in orderived in Ghana if the income is attributable to a permanentestablishment of the non-resident person in Ghana.

A dividend is treated as accruing in or derived from Ghana where a

resident company pays it.

Interest is treated as accruing in or derived from Ghana where:

The debt obligation giving rise to the interest is secured byreal estate located in Ghana

The interest is paid by a resident person or The interest is borne by a permanent establishment of a

non-resident company.

Any charge, annuity management and technical service fee,proceeds of a life insurance policy, or pension or other payment froma retirement fund is treated as accruing in or derived from Ghanawhere it is paid by a resident person or is borne by a permanentestablishment of a non-resident person in Ghana.

A royalty is treated as accruing in or derived from Ghana where theroyalty arises from the use of or right to use a copy-right or any rightin Ghana including the use of or right to use any industrial,commercial, or scientific equipment in Ghana.

Premiums and reinsurance premiums in respect of insurancebusiness undertaken in Ghana are treated as accruing in or derivedfrom Ghana.


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Income attributable to a permanent establishment

In ascertaining the income of a permanent establishment of a non-resident person, charges or fees billed by the non-resident to thepermanent establishment is excluded. Actual reimbursement of costbetween them is however allowed.

Branch profit tax

Repatriated branch profit attracts tax at 10%. This is in addition to

the corporate tax that the branch entity pays.

Relief from double taxation

In ascertaining the income of a person accruing in or derived fromoutside Ghana any foreign tax paid is a credit towards the tax liabilityon that income. Professional advice is required in order tounderstand the process involved in the calculation and claim for the

credit.

Double tax treaties

Ghana has, for the relief from double taxation on income arising inGhana, double tax treaties with France, Germany, the UnitedKingdom, South Africa and Belgium.

The double tax treaties with South Africa and Belgium have beensigned but are not yet in force.


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Tax rates

Tax rates applicable under the terms of these treaties are as follows:

Type ofincome France

%

UnitedKingdom

%Germany

%

SouthAfrica

%Belgium

%

Dividends(Whererecipientholds at

least 10%shares)

7.5 7.5 5 5 5

Dividends (Inany othercase)

15 15 15 15 15

Royalties 10 12.5 8 10 10Managementfees

10 10 8 10 10

Interest 10 12.5 10 10 (5%for non-residentbanks)

10

In a circumstance where the applicable rate is higher than thatallowable under the laws of Ghana, the lower of the two rates wouldapply.


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Anti-avoidance rules


Income splitting

Income splitting is not allowable and includes transfers of income

and or property to associates with a view to reducing the tax liability.

Transfer pricing

The Commissioner is allowed to adjust non-arms-length transfersbetween associates.

A permanent establishment of a non-resident company may be

assessed tax based on:

The total consolidated income of the non-resident or The proportion its income bears to the non-residents income

or Any other appropriate formula where the Commissioner is

satisfied that some transactions have not been conducted atarms length between the non-resident and the permanent

establishment.

Thin capitalisation

The recommended interest bearing debt to equity contribution ratioby a non-resident in its permanent establishment is 2:1. A companyis deemed as thinly capitalised if the ratio of its interest bearing debtto its equity contribution is greater than the ratio of 2:1.

Any interest charges or exchange losses arising on the debt inexcess of the ratio are disallowed in assessing tax to the permanentestablishment.


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Withholding taxes


The following are currently applicable rates of withholding taxes.

Income Rate % Remarks

Resident persons

Interest (excluding individuals) 10 Not final taxDividend 10 Final TaxRent (for individuals and as investmentincome)

10 Final Tax

Fees 15 Not final TaxCommissions to insurance agents and

sales persons

15 Not final tax

Commissions to lotto agents 7.5 Not final taxSupply of goods and services exceeding500,000

5 Not final tax

Non-Resident persons

Dividend 10 Final TaxRoyalties and rents 15 Final TaxManagement, consulting and technical

service fees

20 Final Tax

Branch after tax profits 10 Final TaxInterest income 10 Final TaxShort term insurance premium 5 Final Tax


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Income tax exempt


The following incomes are exempt:

a) Proceeds from a life insurance policy where the policy

premiums were paid in Ghana.

b) The income of a non-resident person from any business ofoperating ships or aircraft if the Commissioner is satisfiedthat an equivalent exemption is granted by that personscountry of residence to persons resident in Ghana.

c) The interest, dividend or

i) any other income of an approved unit trustscheme or mutual fund

ii) any other income payable under an approved unittrust scheme or mutual fund to a holder ormember of that scheme.

d) Capital sums paid to a person as compensation or gratuity

for injuries or death of a person.

e) The income of an individual to the extent provided for in anagreement with the Government of Ghana and a foreigngovernment or public international organisation for theprovision of technical service to Ghana under specifiedconditions.

f) Severance pay

g) Night duty allowance (limited to 5% of monthly income)

h) Interest income paid to individuals by a resident financialinstitution or received on bonds issued by the Government ofGhana.


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Administrative procedures


Furnishing of returns of income

A return on income should be filed with the Internal Revenue Service

within 4 months after the end of the persons accounting year. Thereturn should include a separate statement of income andexpenditure and a statement of assets and liabilities for eachbusiness undertaking carried on within that business by that person.

An employer should by the end of March 31st every year submit areturn on all employees who were in his employment the previousyear.

Cases where a return is not required

In the following cases, unless the Commissioner requests in writinga return shall not be filed by:

A non-resident person who has no income accruing in orderived from Ghana during the year

A non-resident person who suffers a final withholding tax onincome derived in Ghana

A resident who has no chargeable income or whosechargeable income is below 2,400,000

A resident employee whose only income is employment

income and on whose behalf an employer has furnished areturn


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Provisional Assessment

The Commissioner may after the commencement of each year raise

an assessment on a taxpayer.

Self-Assessment

The Commissioner may require specified persons to submit selfassessed provisional tax liability for the year. Such self -assessedtax estimate may later on be revised but the taxpayer will have to

justify why there is the need to revise the estimate.

Payment of tax

Provisional assessments are due every quarterly period on the lastday of the third, sixth, ninth, and twelfth months of the year forpersons whos accounting year begins on January 1. In any othercase, assessments are due at the end of each three-month periodbeginning at the commencement of the persons accounting year.

Withholding tax is due on the 15th day after the month in which thededuction was made.

When the Commissioner specifies that a tax is due on a particulardate the tax should be paid on that date.

In any other case tax is due 30 days after the service of the notice ofassessment.

Offences and penalties

The following penalties and in some cases criminal liability apply forthe under listed offences.


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Offence Penalty

Failure to keep books of account

Failure to furnish a return

Failure to pay tax on due date

Understating estimated taxpayable by instalment (self-assessment)

Making false or misleadingstatements

Aiding and abetting

Failure to comply with the Act.

Failure to withhold tax

5% of the amount of tax payable

Individuals pay 10,000 andcompanies pay 20,000 per dayfor each day of default.

Where default is not more than 3months, 10% of tax payable andwhere default exceeds 3 months

20%. If it is withholding tax thepenalty for offences less than 3months and more than 3 monthsis 20% and 30% respectively.

30 % where estimate is less than90% of chargeable income

Double or treble the amount ofthe underpayment of the taxwhich may result if not detected

Treble the amount of theunderpayment of the tax whichmay result if the offence wentunnoticed

Where resulting underpayment ismore than 5,000,000 tobetween 50 and 300 penaltyunits in any other case between10 and 100 penalty units.

Personal liability to pay to theCommissioner the tax due but

not withheld.


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Penalties have been prescribed for offences committed byauthorized and unauthorized persons, and entities. The

Commissioner may at any time prior to the commencement of courtproceedings compound the offence.


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Value Added Tax/National Health Insurance Levy


Scope

Other than exempt good and services, Value Added Tax (VAT) and

the National Health Insurance Levy (NHIL) are charged on thefollowing: -

(a) Every supply of goods and services made in Ghana(b) Every importation of goods; and(c) Supply of any imported service,

The tax shall be charged on supply of goods and services where the

supply is a taxable supply and made by a taxable person in thecourse of his business. The tax shall be paid:

(a) In the case of taxable supply by the taxable person makingthe supply;

(b) In the case of imported goods, by the importer; and(c) In the case of imported service, by the receiver of the

service.

Except for export that is zero-rated, the rates of the taxes are 12.5%for VAT and 2.5% NHIL and are calculated on the value of thetaxable supply of the goods, services or import. The value is definedto be inclusive of cost, insurance, freight and import duty.

A taxable person is a person registered by the Commissioner andissued a certificate of registration that shall be exhibited at theprincipal place of business of the taxable person. The effective dateof registration as a taxable person shall be such date as shall bespecified in the certificate of registration issued by theCommissioner.


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Turnover threshold for supplies relating to taxable goods is 100million. There is no turnover threshold for supplies relating toservices. There is the possibility for group registration. Upon

application the Commissioner shall cancel the registration of ataxable person where he is satisfied that the registered person nolonger exists.


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Exempt supplies

Supplies that are specifically exempt are listed below as:

Item Description

1. Animals, livestock and poultry All live animals

2. Animals, livestock and

poultry imported for breedingpurposes

Live asses, mules, and hinnies; live

bovine animals; live swine; livesheep and goats; live poultry

3. Animal product in its rawstateProduced in Ghana

Edible meat and offal of the animalslisted in item I, provided anyprocessing is restricted to salting,smoking or similar process, butexcluding pate, fatty livers of geeseand ducks and similar products

4. Agricultural and aquatic food

product in its raw state.Produced in Ghana

Fish crustaceans, molluscs, (but

excluding ornamental fish);Vegetables and fruits, nuts, coffee,cocoa, shea butter, maize sorghummillet, tubers, guinea corn and rise.

5. Seeds, bulbs rootings, andother forms or propagation

Of edible fruits, nuts and vegetables

6. Agricultural inputs Chemicals including all forms offertilisers, acaricides, fungicides,nematicides, growth regulationspesticides, veterinary drugs andvaccines, feed and feed ingredient.

7. Fishing equipment: Boats, nets, floats, twines, hooksand other fishing gear.


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Item Description

8. Water Supply of water excluding bottled anddistilled waters.

9. Electricity Domestic use of electricity up to aminimum consumption levelprescribed in regulations by the

Minister

10. Printed matter (Books andNewspapers)

Fully printed or produced by anyduplicating process, including atlases,books, charts, maps, music, butexcluding newspapers (imported),plans and drawings, scientific andtechnical works, periodicals,magazines, trade catalogues, price

lists, greeting cards, almanacs,calendars and stationery

11. Education The supply of educational services at

any level by an educationalestablishment approved by theMinister of Education. Laboratoryequipment for educational purposesand library equipment

12. Medical supplies and service- Pharmaceuticals:

Essential drug list and medicalsupplies determined by the Ministerfor Health and approved byParliament.

13. Transportation Includes transportation by bus andsimilar vehicles, train, boat and air.


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Item Description

14. Machinery Machinery, apparatus, appliances and

parts thereof, designed for use in a) Agriculture, veterinary, fishing and

horticulture;

b) Industry;c) Mining as specified in the mining

list and dredging; andd) Railway and tramway.

15. Crude oil and hydrocarbonProducts

Petrol, diesel, liquefied petroleumgas, kerosene and residual fuel oil

16. Land, buildings andConstruction

(a) Land and buildings; thegranting assignment orsurrender of an interest in landor building; the right to occupyland or buildings;

(b) Civil engineering work;(c) Services supplied in the course

of construction, demolition,alteration, maintenance, tobuildings or other works under(a) or (b) above, including theprovision of labour, butexcluding professional servicessuch as architectural orsurveying;

17. Financial services Provision of insurance; issue,

transfer, receipt or, or dealing withmoney (including foreign exchange)or any note or order of payment ofany bank (or similar institutions)account; but excluding professionaladvise such as accountancy,investment and legal.


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Item Description

18. Goods for the disabled Articles designed exclusively foruse by the disabled.

19. Transfer of going concern The supply of goods as part of thetransfer of a business as a goingconcern by one taxable person toanother taxable person

20. Postal services Supply of postage stamps.

Reverse charge

Importation of taxable services is subject to VAT and NHIL at thestandard rates of 12.5% and 2.5% respectively. The recipient of theservice is required to account for VAT and NHIL by means of a

reverse charge. A registered recipient would be entitled to reclaimthe amount of VAT and NHIL paid, subject to certain restrictions.

VAT and NHIL incurred

A registered business, which makes only taxable supplies, canrecover all the VAT and NHIL incurred on goods or servicespurchased for the business except certain disallowed items

(principally cars and entertainment).

If a registered person makes both taxable and exempt supplies aproportion of VAT and NHIL incurred may be recoverable.Businesses, which make only exempt supplies, are not eligible toregister and all VAT and NHIL incurred, represents a cost.

There is a time limit of 36 months from the date of the invoice forclaiming relief for VAT and NHIL incurred on goods and servicesreceived.


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Returns

Registered businesses make monthly returns showing VAT and

NHIL charged on sales, VAT and NHIL incurred on purchase ofgoods and services and net VAT and NHIL payable or reclaimable.VAT and NHIL on imported goods is paid at time of entry. VAT andNHIL returns are due for submission and VAT and NHIL on supply ofgoods and services is payable, by the last working day of the monthfollowing the month in which the VAT and NHIL became due andpayable.

Businesses entitled to regular repayments, such as exporters, arerequired to submit returns monthly and duly completed VAT andNHIL refunds claim forms (VAT 35). VAT and NHIL refund claimsare required to be audited before any remissions are made.

Penalties

There is a comprehensive and rather punitive system of fixed

penalties and interest payable for mis-declaration of VAT, latesubmission of returns, late payment and other infringements of theprovision of the VAT Act. The penalty on late filing is 1,000,000and 5,000 for each day of default in respect of non-submission orlate submission of returns (including NHIL returns). VAT interestand penalties are not allowable deductions for income tax purposes.

Where a person formally admits to the commission of an offence,the Commissioner may at any time before proceedings arecommenced in court, compound the offence and order for thepayment of an amount not exceeding three times the amount of taxor revenue involved.


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Monetary penalties are as illustrated on the table below and aresupplemented with possible jail terms in many cases:

Offence Penalty

Failure to register 5 10 millionFailure to issue tax invoice 10 millionFalse or misleading statement 5 10 millionFalsification and alteration of documents 2 10 millionEvasion of tax payment Three time amount of

tax involved

General penalty for unspecified offences Three times amount oftax involved

Failure to maintain proper records 5 10 millionObstruction of officer of the Service 0.5 5 millionUnauthorised collection of tax Ten times amount of

tax involvedOffences relating to officers Three times amount of

tax involved


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Capital gains tax


Capital gains tax is payable by a person at the rate of 10% of capitalgains accruing to or derived by that person from the realisation of achargeable asset owned by that person.

Chargeable asset

Chargeable asset means any of the following assets:

(i) Buildings of a permanent or temporary nature situated inGhana;

(ii) Business and business assets, including goodwill, of a

permanent establishment situated in Ghana;(iii) Land situated in Ghana;(iv) Shares of a resident company;(v) Part of, or any right or interest in, to or over any of the assets

referred to above

Exclusions from chargeable asset

1. Securities of a company listed on the Ghana Stock Exchangeduring the fifteen years after the establishment of the GhanaStock Exchange;

2. Agricultural land situated in Ghana; and3. Trading stock or a Class 1, 2, 3, or 4 depreciable asset, (as

referred to under capital allowances on page 12).

Calculation of capital gain

The amount of a capital gain is the excess of the considerationreceived by that person from the realisation over the cost base at thetime of realisation.


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Capital gains tax


Exemption from capital gains tax

The following capital gains are exempt:

1. Capital gains of a person up to a total of 500,000 per yearof assessment;

2. Capital gains accruing to or derived by a company arising outof a merger, amalgamation, or re-organisation of thecompany where there is continuity underlying ownership inthe asset of at least twenty five per cent;

3. Capital gains resulting from a transfer of ownership of theasset by a person to that persons spouse, child, parent,brother, sister, aunt, uncle, nephew or niece;

4. Capital gains resulting from a transfer of ownership of theasset between former spouses as part of a divorcesettlement or a genuine separation agreement;

5. Capital gains where the amount received on realization is,within one year of realization, used to acquire a replacementasset; and

6. Where part only of the amount received on realisation iswithin one year used to acquire a replacement asset, anypart of the capital gain represented by the amount used toacquire the replacement asset less the cost base of the assetrealized at the time of realisation.


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Capital gains tax


Example

Kofi Mensah put up a building at a cost of 200,000,000. He made

extensions costing 100,000,000 to the building. He sold thebuilding for 400,000,000. Incidental expenses including legal fees,valuation fees and commissions on the sale amounted to2,500,000.

Solution

Item 2006

GHC

Cost 200,000,000Additions 100,000,000Specified expenditure 2,500,000Cost Base 302,500,000Capital Gain:Realised Sum 400,000,000

Less: the cost base 302,500,000Capital Gain 97,500,000Capital Gain Tax @10% in excess of 500,000 9,700,000


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Documents

2006 - Facts and Figures - IRS