Contemporary Tax Issues Presentation

7/29/2019 Contemporary Tax Issues Presentation

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COMPLIANCE ADVISORY PAYROLL MANAGEMENT Corporate

Employee

Agency

Obligations

General Advisory

Tax Planning

TAX HEALTH CHECK


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CONTEMPORARY TAXISSUES

In 2010 two major tax policy initiativeswere introduced:

Integration of Revenue Agencies

Tax Policy Initiatives in 2011Budget


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INTEGRATION OF REVENUEAGENCIES

Ghana Revenue Authority (GRA) Act 2009[Act 791] merged:

Internal Revenue Service (IRS) Act 592,

VAT Service Act 546 and

Customs Excise & Preventive Service(CEPS) [PNDC Law 330]


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PRE MERGER

MINISTRY OF FINANCE &ECONOMIC PLANNING

[MOFEP]

IRSCOMMISSIONER

CEPSCOMMISSIONER

VAT SERVICECOMMISSIONER

BOARD OF DIRECTORS


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POST MERGERMINISTRY OF FINANCE &

ECONOMIC PLANNING

[MOFEP]

DOMESTIC DIVISION

COMMISSIONERCUSTOMS DIVISION

COMMISSIONERGENERAL SERVICES

COMMISSIONER

GHANA REVENUE AUTHORITY

COMMISSIONER-GENERAL

[GRA]

BOARD OF DIRECTORS


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EFFECT OF INTEGRATION

All powers of pre-integrationCommissioners are now vested in theCommissioner-General e.g.

Final Authority for Interpretation

Practice Notes

Private Rulings


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COMMENTARY ON TAX POLICY INITIATIVESIN THE 2011 BUDGET STATEMENT

SUMMARY OF MAJOR TAX INITIATIVES

Domestic tax initiatives include:

Increases in tax rates and thresholds for withholding taxesand VAT

Removal of Tax Holidays Extension of National Fiscal Stabilization Levy

Revision of personal tax rates

Extension of coverage of Communications Service Tax

Review of Exemptions and Zero-rated items under theVAT Act

Review of Excise Duty Rates


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COMMENTARY ON TAX POLICY INITIATIVESIN THE 2011 BUDGET STATEMENT

International tax initiatives include:

Increases in Duty rates

Review of operations of Bonded warehouses

Import tax on rice and poultry products


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REVIEW OF WITHHOLDING TAX REGIME

Introduction

Withholding taxes on payments by residents to:

Non-residents for the supply of services

Residents for supply of goods and services

Other withholding taxes (Section 86 of Act 592)


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PAYMENTS TO NON-RESIDENTS FORSERVICES SUPPLIED TO GHANA

Current PositionSection 3 of Act 592 imposes a final withholding tax on thefollowing payments

Service Tax Rate (%)

Dividend 8

Interest 8

Royalty 10

Endorsement Fees 15

Rent 10

Management & Technical Service Fees 15 No changes have been proposed in the 2011 fiscal policy

statement

Increase in withholding tax on Foreign Supplies ofServices


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PAYMENTS TO RESIDENTS FOR SUPPLYOF GOODS AND SERVICES BY

RESIDENTS

Current PositionA withholding tax of 5% applies where thecontract sum exceeds GH50.00

Proposed amendmentThe threshold raised from GH50.00 to GH500.00

Implication

The 5% withholding tax under Section 84 (2) ofthe Internal Revenue Act 2000 [Act 592] shallapply where the contract sum for the supply ofgoods and services exceed GH500.00


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TAX HOLIDAYS

Real Estate Developers for sale or letting

5 year Holidays abolished except for Developers in partnership with Ministry of Works and

Housing to provide affordable housing

Issues

Fate of those enjoying holiday uncertain

Hotels and Hospitality Industry

GIPC Regulations, 2005 [LI 1817] providing exemptions forthe industry repealed

Desirable LI 1817 provisions to be incorporated in Act 592

and managed by GRA Amendment is not clear

APEX Bank

Tax Holiday extended to 2014


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NATIONAL STABILIZATION LEVY[NSL]

Introduction

NSL imposed on 2009 and 2010 profit beforetax

The tax rate of 5% of profit before tax

The levy is not tax deductible

Proposed Amendment

The imposition of the levy is to be extended byone year


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GIFT TAX

The Internal Revenue Act 2000imposes a gift tax at the rate of5% on taxable gifts exceeding

Gh50.00

Proposed Amendment

The rate of tax imposed on taxablegifts is to be increased to 15%.


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MINING ROYALTIES

Introduction

Mineral royalties are paid by mining companiesat the rate of 3% to 6%

The royalty is paid quarterly

Proposed Amendments

Mineral royalties to be accounted for on monthlybasis by the 15th of the following month


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CHANGES IN INDIVIDUAL TAXRATES AND RELIEFS

Proposed Amendment

Increase in tax free Chargeable Incomefrom GH1,008.00 to GH1,104.00

Increases in amount granted as reliefs toindividuals proposed

Chargeable Income above GH20,280.00(2010 GH16,200.00) to be taxed at 25%


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2 Types of VAT Schemes

(i) VAT Invoice Scheme (VIS)

Retailers with a minimum turnover of

GH10,000.00

(ii) VAT Flat Rate Scheme (VFRS)

Retailers under GH10,000.00 currently

operate under VFRS. The tax rate is 3% on selling price

No input tax credit is available for them.

OBJECTIVES

INITIATIVES UNDER INDIRECT TAXES


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PROPOSED AMENDMENT

Existing Proposed

Threshold - GH10,000 Threshold - GH90,000

Retailers with minimum of

GH10,000 need to register

Retailers with minimum of

GH90,000 need to register

VAT taxpayers under

GH90,000 to come under

new scheme of combinedVAT and Income Tax

Assessment


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Introduction

Introduced in 2008 - passage of theCommunications Service Tax Act, 2008 (Act754).

The tax applied to Class1 Telecom Operators

Class 1 License Telecom Operator authorizedto provide public communication service -National Communications regulations,2003 (LI1719).

Public communications service - service madeavailable to the general public for a fee orcharge without discrimination (LI 1719)

COMMUNICATIONS SERVICE TAX(CST)


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Private communications service is a serviceestablished by an individual, a body corporate orother legal entity to satisfy its own communicationsneeds.

LI 1719 defines communication service toinclude the following:

Telecommunications services Broadcasting services

Cable services

Satellite services

Value added services

Aeronautical services

Maritime services

Communications services may be provided as public

COMMUNICATIONS SERVICE TAX(CST) contd


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CST coverage to extend to all companies andpersons within the communication industry.

2011 budget statement does not clearly statewhether the extension of the tax base of CSTwill include companies with their own privateradio communications or other communicationsservices.

Details in relevant legislation to be passed.

PROPOSED AMENDMENT


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Locally produced items currently zero-rated

Pharmaceutical Products

Paper for the publishing industry

Agricultural input like cutlasses

Producers and wholesalers currently entitled torefund of input taxes incurred in the production.

RECLASSIFICATION OF DOMESTICZERO-RATED SUPPLIES


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Reclassification as exempt items under Act 546

Companies producing items no more entitled to

refunds of input taxes incurred in the course ofproduction.

All input taxes incurred to be incorporated into

cost build up.

RECLASSIFICATION OF ZERO-RATEDSUPPLIES

Proposed Amendment


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Manufacturers permitted to defer payment ofimport VAT on imported raw materials.

Practice is allowed to various manufacturersbased AGI recommendations.

Practice improved cash flow of the

manufacturing companies.

DEFERRED PAYMENT OF VALUEADDED TAX

O


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Reliefing manufacturers of importVAT/NHIL on imported raw materials tobe abolished.

No legislation is required.

Cash flow implications for affectedcompanies must be factored into currentyear budget.

DEFERRED PAYMENT OF VALUEADDED TAX

Proposed Amendment


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Bonded Warehousing

Imported goods or locally manufactured goodsmay be stored under Customs control in a

Government or private bonded warehouse. Deferral of payment of duty and taxes until the

goods are needed for home consumption or forexport.

Bonded warehousing is allowed for bothfinished products and raw materials formanufacturing.

The goods may be re-entered for warehousing

after two years.

INTERNATIONAL TAX INITIATIVES


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Bonded warehousing facility to be restrictedonly to raw materials for manufacturing.

Importers of finished goods will not be

allowed to warehouse them for up to twoyears

The proposed amendment is likely to define

the maximum period that importers will beallowed to warehouse finished goods

INTERNATIONAL TAX INITIATIVES

Proposed Amendment

IMPORT DUTY ON RICE AND


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IMPORT DUTY ON RICE ANDPOULTRY PRODUCTS

Existing Proposed

Milled Rice 20% Milled Rice 35%

Poultry Products 20% Poultry Products 35%

The revised rates will apply in Ghana upon

ratification by ECOWAS.


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Exemptions from payment of import duty

Energy saving lamps, LED lamps and

Raw materials for local companies producingenergy saving bulbs

New taxes imposed

An environment tax on plastic packagingmaterials and products

OTHER TAX INITIATIVES

DOUBLE TAXATION AGREEMENT


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DOUBLE TAXATION AGREEMENTBETWEEN THE REPUBLIC OF GHANA

AND THE FRENCH REPUBLIC

INTRODUCTION

What is Double Taxation?Double Taxation has been defined as the imposition ofcomparable taxes in two or more states on the same

taxpayer in respect of the same subject matter.

Negative Effects of Double Taxation

It results in multiplicity of taxes

It inhibits the free flow of investment and trade activities

Purpose of Double Taxation AgreementsDue to the negative effects of Double Taxation, nationshave deemed it expedient to enter into Double TaxationTreaties toward attainment of the following:


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Removal of Tax Barriers to Trade and Investment

Resolution of Tax Disputes

Removal of uncertainties about a countrys Tax regime

Promotion of Investment through the granting of TaxIncentives

Reduction/Elimination of Tax Avoidance Schemes throughthe provision of a framework of co-operation between TaxAuthorities

LEGAL AUTHORITY FOR GHANA TO ENTER INTODOUBLE TAXATION ARRANGEMENTS

Provided for in Section 111 of the Internal Revenue Act 2000 (Act592)

Under Section 111 (1) of Act 592, the DTA prevail over the provisionsof the Act


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PROCESS OF RATIFICATION Each contracting state has to ratify the convention and give notice

to the other through diplomatic channels before the entry intoforce

In Ghana the ratification is done by Parliament in accordance withArticle 75 (2) of the 1992 Constitution of the Republic of Ghana

ENTRY INTO FORCE Normally, the convention is entered into force on the day the

latter of the notification is received

The provisions of the Convention normally have effect on thecommencement of the fiscal year next following that in which theConvention was entered into force

BASIS FOR TAXING EACH REVENUE ITEMSource of Revenue e.g. Directors Fees. Employment etcResidence of tax payer e.g. Business Profit, Air and Shipping Transport

Sharing e.g. Dividends, Interest, Royalties etc. shared between TreatyPartners


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PERSONAL SCOPE

It indicates that the convention is

applicable to persons who are residents of

one or both of the contracting states

CONDITION PRECEDENT OR PROOF TO BE


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CONDITION PRECEDENT OR PROOF TO BEFURNISHED BY A RESIDENT OF THE OTHER

CONTRACTING STATE SECTION 111 (4) OF ACT592

To benefit from a reduction in the Ghanaian Rate ofTax or exemption from Ghanaian tax, a Resident ofthe other contracting state is required to providethe proof below to the Commissioner-General of theGhana Revenue Authority.

- That no individual(s) resident outside the contracting stateowns 50% or more of the underlying ownership of thatpersons business.

The essence of the proof is to prevent TreatyShopping that is a situation where a resident of anon-contracting state tries to enjoy the benefits of aDouble Taxation Agreement between two other states.


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BASIS FOR TAXING REVENUE ITEM UNDERGHANA/FRANCE DOUBLE TAXATION AGREEMENT

TYPE OF INCOME REFERENCE UNDER DTA BASIS OF TAXATION

1. INCOME FROM IMMOVABLE

PROPERTY

Article 6 SOURCE

2. BUSINESS PROFITS OTHER THAN

PROFITS OF A PERMANENT

ESTABLISHMENT

Article 7 RESIDENCE

3. SHIPPING AND AIR TRANSPORT Article 8 RESIDENCE

4. DIVIDENDS Article10 SHARED BETWEEN

RESIDENCE AND SOURCE

5. INTEREST Article 11 SHARED BETWEEN


6. ROYALTIES Article 12 SHARED BETWEEN


7. MANAGEMENT & TECHNICAL

SERVICE FEES

Article 13 SHARED BETWEEN



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BASIS FOR TAXING REVENUE ITEM UNDERGHANA/FRANCE DOUBLE TAXATION

AGREEMENT

TYPE OF INCOME REFERENCE UNDER DTA BASIS OF TAXATION8. CAPITAL GAINS IMMOVABLE

PROPERTY

Article 14 SOURCE

9. INDEPENDENT PERSONAL SERVICES

(SELFEMPLOYED)

Article 15 SHARED BETWEEN


10.DEPENDENT PERSONAL SERVICES(EMPLOYMENT)

Article 16 SOURCE

11.ARTISTES AND ATHLETES Article 18 SOURCE

12.STUDENTS AND BUSINESS

APPRENTICES

Article 21 EXEMPT FROM INCOME

OUTSIDE

13.VISITING PROFESSORS ANDTEACHERS Article 22 EXEMPT FOR 2 YEARS

14.OTHER INCOME NOT PROVIDED IN

THE DTA

Article 23 SOURCE

COMPARISON BETWEEN LOCAL RATES AND RATES


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COMPARISON BETWEEN LOCAL RATES AND RATESUNDER

GHANA/FRANCE DOUBLE TAXATION AGREEMENTTYPE OF INCOME REFERENCE

UNDER DTA

REFERENCE

UNDER ACT592

RATE OF TAX UNDER DTA RATE OF TAX

UNDER ACT592

REMARK

1. DIVIDENDS Article 10 Section 3 a) Beneficial owner Resident in

France 5%

b) Beneficial owner Resident in

Ghana 7.5%

c) In all other cases - 15%

8% a) DTA Rate shall apply

b) The lower of the DTA

and France Rate shall

apply

c) Act shall apply

2. INTEREST Article 11 Section 3 a) Beneficial owner Resident inFrance 12.5%

b) Beneficial Owner Resident

in Ghana 10%

8% a) Act shall apply

b) The Lower of DTA and

France Rate shall apply

3. ROYALTIES Article 12 Section 3 a) Beneficial owner Resident in

France 12.5%

b) Beneficial Owner Resident in

Ghana

10%

10% a) The Act shall apply


France Rate shall apply

4. MANAGEMENT

& TECHNICAL

SERVICES FEES

Article 13 Section 3 a) Beneficial Owner Resident in

France not exceeding 10%

b) Beneficial owner in Ghana -

not exceeding 10%

15% a) The DTA shall apply


France shall apply

NOTE: Under dividends in the DTA, the rates of 5% or 7.5% Are applicable where the beneficial owner has at

least 10% Interest in the company paying the Dividend.


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CONCLUSION

Double Taxation Treaties provide sometax incentives and exemptions thatpave the way for the free flow of tradeand investment activities.

It is important for residents of thecontracting states to acquaint

themselves with the provisions of therelevant conventions so as to take fulladvantage of the opportunities therein.

Documents

Contemporary Tax Issues Presentation