The tax system underwent several significant changes in 2018, and the government budget for 2019 seeks to consolidate and make additions to those changes, with its agenda focused on compliance. The key updates to the tax codes in 2019 will be as follows:
• Revision of personal income tax (PIT) rate: The monthly, tax-free band in the PIT rate was adjusted to reflect the change in the minimum wage, with the band increasing from GHS216 ($46.68) to GHS261 ($56.40), effective January 1, 2018. The tax-free amount will change again in 2019, as the daily minimum wage has increased to GHS10.65 ($2.30), also effective January 2019. This increase will result in a marginal reduction in PIT payable by resident individuals in Ghana. In August 2018 the PIT band was revised to tax eligible personal income above GHS10,000 ($2160) per month at a rate of 35%. The government announced in its 2019 Budget Statement and Economy Policy (BSEP) that this new rate and the taxable personal income threshold will be reduced to 30% and GHS20,000 ($4320), respectively. Additionally, the PIT rate for non-resident individuals was increased from 20% to 25% in August 2018, and will remain the same in 2019.
• Introduction of capitalisation of tax exemptions in the mining industry: The government will secure additional equity holdings in mining companies by capitalising exemptions granted to these companies, with the intention of optimising mining revenues. It seems that the implementation of this policy is already under way. In 2018 the Parliament passed the Mineral Income Investment Fund Act, which authorised the establishment of a fund to hold and manage the government’s equity interests in mining companies and to receive mineral royalties and rents owed to the government.
• Shift in point of withholding for small-scale mining operators: The government intends to shift the point of collecting withholding tax – or tax deducted at the source of income – on payment for minerals to the point of export. This change is intended to simplify the collection of withholding tax for both small-scale mining operators and the Ghana Revenue Authority (GRA).
• Implementation of excise stamp policy: In 2018 the government started enforcing the excise stamp tax, seized unstamped goods and granted accelerated depreciation to importers and manufacturers of excisable goods on machinery and equipment imported for the purpose of implementing the policy. These efforts are expected to intensify in 2019 to ensure that the policy is fully operational.
• Implementation of the Fiscal Electronic Device (FED) Act: The government is working to speed up the implementation of various automated systems in order to reduce human involvement in tax administration. In 2018 the Parliament passed the Taxation (Use of Fiscal Electronic Device) Act, which mandates that certain specified categories of taxable persons use an FED at the point of sale in order to help the GRA ensure the real-time monitoring of value-added tax (VAT) declarations.
• Introduction of tax incentives for domestic textile manufacturers: In a bid to revamp the domestic textile industry and protect it against smuggling and counterfeiting, the government will extend the excise tax stamp policy to include textile products. The government will also zero-rate VAT on the supply of locally made textiles for three years in order to make the industry more price competitive.
• Prosecution of tax evasion: Ghana is subject to significant revenue leakages each year as a result of deliberate undervaluation of imports, suppression of sales and non-issuance of VAT receipts, among other factors. Tax evaders are typically punished through the imposition of penalties, the revocation of their licenses or the publication of their names in newspaper lists of defaulters. The 2019 BSEP suggests that the government intends to intensify these punitive measures by fully prosecuting tax evaders, especially indirect tax evaders, as provided for in various tax laws.
• Renegotiation of ECOWAS common external tariff (CET): Ghana operates under the ECOWAS CET, which provides a framework for harmonising duties on all goods imported into ECOWAS. The tariff was adopted in 2013 to facilitate trade and advance greater economic integration within the sub-region. However, imports from certain ECOWAS member states are not currently subject to import duties under the ECOWAS Trade Liberalisation Scheme (ETLS). The Ghanaian government has indicated its commitment to working with the ECOWAS Commission to develop policy guidelines to provide a legal framework for the harmonisation and consolidation of all Customs duty reliefs. This will likely produce relief for taxpayers who import under the ETLS and simplifying taxpaying processes under the ETLS.
• Introduction of tax exemptions for fully electric vehicles: As part of the set of green initiatives adopted under the UN’s Sustainable Development Goals, the Ghanaian government will introduce tax-free solutions for fully electric vehicles in 2019. Based on past experiences, these solutions are likely to comprise import duties, VAT exemptions and tax holidays. However, this policy is unlikely to be operational in the short term because the government may need to conduct extensive negotiations with other stakeholders.
The GRA administers taxation through three main divisions: the Domestic Tax Revenue Division (DTRD), the Customs Division and the Support Services Division. The DTRD organises taxpayers into three classes – or ‘offices’ – based on turnover: the large taxpayer office caters to taxpayers with turnover in excess of GHS5m ($1.08m); the medium taxpayer office for those with GHS90,000-5m ($19,400-1.1m) in turnover; and the small taxpayer office for liable parties with turnover of less than GHS90,000 ($19,400). Every GRA entity that administers taxes usually bear one of these three names to indicate which type of office it is. Moreover, every taxpayer is allowed to choose the office with which they register, based on the proximity of the taxpayer’s place of business to the office.
The main tax legislations that the GRA is responsible for administering are as follows:
• Income Tax Act, 2015 (Act 896);
• VAT Act, 2013 (Act 870);
• Communication Service Tax Act, 2008 (Act 754);
• Airport Tax Act, 1963 (Act 209);
• Customs Act, 2015 (Act 891);
• Excise Duty Act, 2014 (Act 878;
• Stamp Duty Act, 2005 (Act 689);
• National Fiscal Stabilisation Levy Act, 2013 (Act 862);
• Special Import Levy Act, 2013 (Act 861);
• Special Petroleum Tax Act, 2014 (Act 879); and
• Transfer Pricing Regulation, 2012 (LI 2188) Effective from 2017, the Parliament passed the Revenue Administration Act, 2016 (Act 915) to prescribe a common approach to the GRA’s administration of the various tax legislations listed above. Prior to the enactment of this act, each respective tax law prescribed its own administrative rules, and these frequently differed between one another.
Direct taxes are levied on income or profits, while indirect taxes are levied on undertaken transactions.
The principal direct tax is income tax.
Generally, income tax is levied on taxable profits that are generated in Ghana or have sufficient connection to the country. Both nationals and foreigners are subject to income tax on the basis of residency rules, defined principally by a taxable party’s presence in Ghana. Resident taxpayers are taxed on income earned worldwide, while non-resident taxpayers are taxed on income earned in Ghana.
An individual qualifies as tax resident in Ghana for the duration of a year if the individual is Ghanaian, excluding individual nationals who have permanent homes abroad and live there for the entire year. Additionally, foreign nationals who are present in Ghana for an aggregate equal to or greater than 183 days in any 12-month period – that is, at least half of the year – are likewise considered as tax resident in Ghana.
A partnership qualifies as tax resident for the duration of a year if any of its partners resided in Ghana at any time during that year.
Similarly, a company qualifies as tax resident for the duration of a year if:
• It is incorporated under the Companies Act, 1963 (Act 179); or
• Management and control of the company are exercised in Ghana at any time during the year. Permanent establishments are also treated as resident companies for tax purposes. Non-resident persons are those that do not meet the above definitions.
Sources of Income
The chargeable income of a person for any given year of assessment comprises the total of that person’s income for that year from their business, employment and investment, less the total value of the deductions allowed to that person. For resident persons, this income is defined as taxable regardless of its source. For non-resident taxpayers, the income must be sourced from Ghana – that is, generated in Ghana or having sufficient connection to the country. Some of the payments that are considered sourced from – and therefore as taxable in – Ghana are as follows:
• Dividends payments made by a tax-resident company;
• Interest payments made by a tax-resident person (including Ghanaian permanent establishments) or made in relation to a debt obligation secured by a real estate property located in Ghana;
• Payments made in respect of natural resources located in Ghana;
• Rent and royalty paid for the use of, right to use or forbearance from using an asset in Ghana; and
• Payments made for conducting or forbearance from conducting an activity in Ghana. Taxable persons are categorised by their nature either as individuals or entities. Entities mainly comprise companies (including branches), trusts and partnerships. As is the case in most jurisdictions, a company is taxed first on the profits that the establishment earns. Then, the shareholders are taxed on the residual profits that the company has distributed to them. The profits of a trust are taxed, while the amounts distributed to beneficiaries are not. In a partnership, only the partners are taxed, while the partnership as an entity is not.
A person’s nature, their residency status and income source together determine the approach to determining the amount that should be subject to taxation and the rate of tax that should apply.
Taxation of Individuals
Individuals who are resident in Ghana are currently taxed according to a graduated scale (see annual rate table), while non-resident individuals are taxed at a flat rate of 25%. The tax payable in respect of employment income is required to be withheld at its source and remitted to the GRA by the 15th of the month following the month for which the employment income tax was withheld.
Individuals are required to account for their incomes and expenses on the basis of cash. Thus, when computing their chargeable incomes for each calendar year, individuals must include both income received and deductions of expenses paid for. The tax year for an individual is the same as the calendar year. Every individual is required to file personal income tax returns by the end of April each year and settle any outstanding taxes, especially on their total income.
Taxation of Companies
Unlike individuals, companies and other corporate bodies are required to account for income and expenses on an accrual basis for each accounting – rather than calendar – year.
Most companies in Ghana are taxed at a rate of 25%, while those that are active in the extractive sector are generally taxed at a rate of 35%. However, there are varying concessionary tax rates available to some companies, based on the specific industry they are engaged in, their location and the type of their business.
Company taxes are mostly paid through self-assessments and withholding at the source, with the companies themselves acting as withholding agents for the government (see table for the various withholding tax rates). In the third month of each resident company’s accounting year, the firm is required to file a self-assessment form declaring an estimate of the its payable tax for the accounting year. The estimated tax must then be paid to the GRA in quarterly instalments, and the total amount paid must eventually constitute at least 90% of the actual tax payable for the accounting year.
Resident companies are also required to file corporate income tax returns no more than four months after the end of their accounting year. Then, after claiming credit for estimated taxes paid and taxes withheld during the year, they must pay up any outstanding corporate income taxes.
The GRA offers tax incentives that usually take the forms of tax holidays, tax exemptions and concessionary tax rates. Fixed-term tax holidays are as follows:
• A five-year tax exemption on the business income of young entrepreneurs operating in certain industries, as well as the incomes of real estate companies, livestock farmers and agro-processing companies; and
• A 10-year tax exemption for free zone developers and enterprises, as well as rural banks, venture capital financiers, tree crop farmers and cattle farmers. Tax exemptions are also available for the following sources of income:
• Proceeds paid to life insurance policyholders by a resident insurer;
• Incomes of approved real estate investment trusts, unit trusts and mutual funds;
• Dividends paid from one resident company to another, under the circumstance in which the company receiving the dividend controls at least 25% of the voting power in the company paying the dividend, though this exemption does not apply to certain special industries;
• Profit-after-tax of a private university, on the condition that 100% of the profits be ploughed back into the business; and
• Interests paid to individuals by resident financial institutions or on bonds issued by the government. Lastly, concessionary tax rates on certain kinds of income are available to individuals and companies active in specified industries:
• Income of manufacturing companies located in Accra and Tema are taxed at a rate of 25%; firms in other regional capitals at a rate of 18.75%; and manufacturers in all other locations at 12.5%;
• Income of free zone developers and enterprises derived from exports are taxed at 15%;
• Qualifying overtime payments to qualifying junior employees are taxed at either 5% or 10%;
• Bonus payments below 15% of the recipient’s annual basic salary are taxed at 5%; and
• Income of young entrepreneurs operating in certain businesses are taxed at 15% for the five years following the five-year tax holiday.
In ascertaining taxpayers’ chargeable incomes, taxpayers are permitted to deduct expenses incurred in generating their incomes, subject to certain conditions. Eligible expenses include the following:
• Capital allowance granted in lieu of accounting depreciation;
• Tax losses carried forward for three or five years, depending on the industry or sector in which a company operates;
• Finance costs, up to a specified limit. A thin capitalisation debt-to-equity ratio of 3:1 applies on qualifying, related-party finance costs. Non-related party finance costs are also subject to a specific limit;
• Repairs and improvement expenses, up to a specified limit;
• Contributions to approved pension schemes, up to a specified limit; and
• Qualifying bad debts. Domestic and excluded expenditures such as penalties, fines and bribes are not tax-deductible.
Resident taxpayers (excluding partnerships) are allowed to claim a tax credit against any income tax they pay in a foreign country in respect of foreign-sourced income, to the extent that the foreign-sourced income is included in the assessable income of that taxpayer.
Ghana has operational double tax treaties with France, Germany, the UK, South Africa, Italy, Belgium, the Netherlands, Switzerland and Denmark. In 2018 the government signed double tax treaties with the Czech Republic, Singapore, Mauritius, Morocco and Ireland, though only the deal with the Czech Republic is expected to take effect in 2019, as the other treaties have not yet been ratified by the contracting states. These treaties are intended to relieve residents of contracting states of an obligation to pay taxes on incomes accrued in both of the contracting states.
The National Fiscal Stabilisation Levy is a direct tax levied at 5% of the accounting profits of companies in specific industries, including selected financial services; telecommunications; breweries; mining support services, inspection and valuation; and shipping, maritime and airport terminals. The tax was designed to be temporary when it was introduced in 2013, but it has been repeatedly extended and is now scheduled to expire in December 2019.
VAT is charged and remitted to the GRA by VAT-registered suppliers on all goods and services made in or imported into Ghana, provided that these goods and services are not exempt. Generally, VAT-registered suppliers are defined as those with annual taxable supplies that exceed or are expected to exceed a turnover threshold of GHS200,000 ($43,200).
The VAT rates are 0% for exported supplies and other designated supplies, 3% on taxable supplies made by wholesalers and retailers, and 12.5% for all other taxable supplies.
The VAT base for local supplies is equal to the sum of the invoice value, plus the values of the National Health Insurance Levy (NHIL) and the Ghana Education Trust Fund Levy (GETFL). In the case of imported supplies, the VAT base is equal to the sum of duty-inclusive costs, insurance costs and freight value.
VAT-registered suppliers are required to submit monthly VAT returns and remit VAT payable to the GRA by the last working day of the month following the month to which the return relates. In determining the VAT payable for each month, VAT-registered suppliers are permitted to deduct VAT incurred in their registered business activities, provided certain conditions are met. Some specifically exempted supplies are as follows:
• Agricultural inputs;
• Crude oil and hydrocarbon products;
• Medical services and medical supplies;
• Machinery and parts of machinery;
• Accommodation in a dwelling or land for agricultural use and civil engineering public works;
• Financial services; and
• Domestic transportation.
Effective May 1, 2018 designated, VAT-registered entities are required to withhold VAT on payment for standard-rated VAT supplies and remit the withheld VAT to the GRA by the 15th of the month following the month for which the VAT was withheld. The withholding VAT is calculated as 7% of the taxable value of the supply. The VAT-registered entities were broadly selected from the financial sector, the upstream petroleum sector, the mining sector and various government agencies.
The designated VAT-registered entities are required to issue withholding VAT credit certificates, which may be used by the affected suppliers to reduce VAT payable.
NHIL & GETFL
In August 2018 the NHIL and the GETFL – both levied at 2.5% of the invoice value of supplies – were decoupled from VAT and are no longer deductible in calculating the monthly VAT payable by VAT-registered suppliers. Unlike VAT, the NHIL and the GETFL apply to imported services regardless of whether or not the service itself is eventually used in the taxable activity.
VAT-registered suppliers are required to file separate NHIL and GETFL returns by the same due date as VAT.
Special Petroleum Tax
Licensed oil marketing companies are required to charge special petroleum tax (SPT) at specific rates per litre or kilogram on petrol, diesel, liquefied petroleum gas, natural petroleum gas and kerosene. The collected SPT must be remitted by the same due date as VAT.
Imports typically attract duties of up to 35% of the cost of the insurance and freight of imported items, depending on the nature of the item. Certain goods also attract an additional 2% special import levy, though this levy is expected to expire in December 2019.
An additional African Union (AU) levy of 0.2% applies to eligible goods imported from non-AU member states into AU member states for consumption within the member state. The aim of the levy is to provide a reliable and predictable source of funding for the AU and some of its specialised agencies.
Other taxes imposed in Ghana include:
• Environmental excise tax of 10% on plastic products;
• Airport tax of GHS5 ($1.08) on local travels and $60-200 on foreign travels;
• Excise tax stamp on specified manufactured product such as alcoholic beverages;
• Stamp duties on issuance of new shares and on written contracts at various rates;
• Excise duties of between 0% to 175% on certain products like beer and tobacco products;
• Communication service tax at 6% on electronic communication services; and
• Mineral royalties of 5% from mining companies subject to any fiscal stability agreement.
Since 2017 the government has intensified its efforts to enforce laws regarding transfer pricing, which exist to determine the market price of transactions – of supplies, labour and the like – between entities owned by a single company. Transactions between persons in controlled relationships must occur at arms’ length. The acceptable transfer pricing methods used in Ghana are similar to those advised by the OECD.
Such transactions must be declared to the GRA in annual transfer pricing returns, which are due for filing on the same date as corporate income tax returns. These returns must supply appropriate documentation showing that such transactions have indeed occurred at arm’s length.
General Anti-Avoidance Rule
The GRA has been empowered under the General Anti-Avoidance Rule to recharacterise or disregard an arrangement or any part of an arrangement that is entered into or carried out as part of a scheme that seeks to either avoid or reduce a party’s tax liability. This rule is relatively broad, and as of yet the GRA has not provided any further guidance as to how it could be effectively implemented going forward.
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