2006 - Facts and Figures - IRS
Transcript of 2006 - Facts and Figures - IRS
-
8/14/2019 2006 - Facts and Figures - IRS
1/55
pwc
2006 Tax Facts and Figures*A quick guide to Taxation in Ghana
*connectedthinking
-
8/14/2019 2006 - Facts and Figures - IRS
2/55
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.
-
8/14/2019 2006 - Facts and Figures - IRS
3/55
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
-
8/14/2019 2006 - Facts and Figures - IRS
4/55
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
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
-
8/14/2019 2006 - Facts and Figures - IRS
5/55
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
-
8/14/2019 2006 - Facts and Figures - IRS
6/55
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
-
8/14/2019 2006 - Facts and Figures - IRS
7/55
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
-
8/14/2019 2006 - Facts and Figures - IRS
8/55
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
-
8/14/2019 2006 - Facts and Figures - IRS
9/55
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.
-
8/14/2019 2006 - Facts and Figures - IRS
10/55
General provisions under the law
PricewaterhouseCoopers 2006 Tax Facts and Figures 2
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.
-
8/14/2019 2006 - Facts and Figures - IRS
11/55
Taxation of individuals
PricewaterhouseCoopers 2006 Tax Facts and Figures 3
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
-
8/14/2019 2006 - Facts and Figures - IRS
12/55
Taxation of individuals
PricewaterhouseCoopers 2006 Tax Facts and Figures 4
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.)
-
8/14/2019 2006 - Facts and Figures - IRS
13/55
Taxation of individuals
PricewaterhouseCoopers 2006 Tax Facts and Figures 5
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:
-
8/14/2019 2006 - Facts and Figures - IRS
14/55
Taxation of individuals
PricewaterhouseCoopers 2006 Tax Facts and Figures 6
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
-
8/14/2019 2006 - Facts and Figures - IRS
15/55
Taxation of individuals
PricewaterhouseCoopers 2006 Tax Facts and Figures 7
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.
-
8/14/2019 2006 - Facts and Figures - IRS
16/55
Taxation of individuals
PricewaterhouseCoopers 2006 Tax Facts and Figures 8
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.
-
8/14/2019 2006 - Facts and Figures - IRS
17/55
Taxation of individuals
PricewaterhouseCoopers 2006 Tax Facts and Figures 9
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.
-
8/14/2019 2006 - Facts and Figures - IRS
18/55
Taxation of individuals
PricewaterhouseCoopers 2006 Tax Facts and Figures 10
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
-
8/14/2019 2006 - Facts and Figures - IRS
19/55
Corporate tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 11
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
-
8/14/2019 2006 - Facts and Figures - IRS
20/55
Corporate tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 12
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
-
8/14/2019 2006 - Facts and Figures - IRS
21/55
Corporate tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 13
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)
-
8/14/2019 2006 - Facts and Figures - IRS
22/55
Corporate tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 14
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.
-
8/14/2019 2006 - Facts and Figures - IRS
23/55
Corporate tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 15
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.
-
8/14/2019 2006 - Facts and Figures - IRS
24/55
Corporate tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 16
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.
-
8/14/2019 2006 - Facts and Figures - IRS
25/55
Corporate tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 17
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.
-
8/14/2019 2006 - Facts and Figures - IRS
26/55
Corporate tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 18
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
-
8/14/2019 2006 - Facts and Figures - IRS
27/55
Corporate tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 19
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.
-
8/14/2019 2006 - Facts and Figures - IRS
28/55
Corporate tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 20
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.
-
8/14/2019 2006 - Facts and Figures - IRS
29/55
Corporate tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 21
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.
-
8/14/2019 2006 - Facts and Figures - IRS
30/55
Taxation of insurance companies
PricewaterhouseCoopers 2006 Tax Facts and Figures 22
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.
-
8/14/2019 2006 - Facts and Figures - IRS
31/55
International transactions
PricewaterhouseCoopers 2006 Tax Facts and Figures 23
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.
-
8/14/2019 2006 - Facts and Figures - IRS
32/55
International transactions
PricewaterhouseCoopers 2006 Tax Facts and Figures 24
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.
-
8/14/2019 2006 - Facts and Figures - IRS
33/55
International transactions
PricewaterhouseCoopers 2006 Tax Facts and Figures 25
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.
-
8/14/2019 2006 - Facts and Figures - IRS
34/55
Anti-avoidance rules
PricewaterhouseCoopers 2006 Tax Facts and Figures 26
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.
-
8/14/2019 2006 - Facts and Figures - IRS
35/55
Withholding taxes
PricewaterhouseCoopers 2006 Tax Facts and Figures 27
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
-
8/14/2019 2006 - Facts and Figures - IRS
36/55
Income tax exempt
PricewaterhouseCoopers 2006 Tax Facts and Figures 28
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.
-
8/14/2019 2006 - Facts and Figures - IRS
37/55
Administrative procedures
PricewaterhouseCoopers 2006 Tax Facts and Figures 29
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
-
8/14/2019 2006 - Facts and Figures - IRS
38/55
Administrative procedures
PricewaterhouseCoopers 2006 Tax Facts and Figures 30
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.
-
8/14/2019 2006 - Facts and Figures - IRS
39/55
Administrative procedures
PricewaterhouseCoopers 2006 Tax Facts and Figures 31
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.
-
8/14/2019 2006 - Facts and Figures - IRS
40/55
Administrative procedures
PricewaterhouseCoopers 2006 Tax Facts and Figures 32
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.
-
8/14/2019 2006 - Facts and Figures - IRS
41/55
Value Added Tax/National Health Insurance Levy
PricewaterhouseCoopers 2006 Tax Facts and Figures 33
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.
-
8/14/2019 2006 - Facts and Figures - IRS
42/55
Value Added Tax/National Health Insurance Levy
PricewaterhouseCoopers 2006 Tax Facts and Figures 34
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.
-
8/14/2019 2006 - Facts and Figures - IRS
43/55
Value Added Tax/National Health Insurance Levy
PricewaterhouseCoopers 2006 Tax Facts and Figures 35
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.
-
8/14/2019 2006 - Facts and Figures - IRS
44/55
Value Added Tax/National Health Insurance Levy
PricewaterhouseCoopers 2006 Tax Facts and Figures 36
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.
-
8/14/2019 2006 - Facts and Figures - IRS
45/55
Value Added Tax/National Health Insurance Levy
PricewaterhouseCoopers 2006 Tax Facts and Figures 37
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.
-
8/14/2019 2006 - Facts and Figures - IRS
46/55
Value Added Tax/National Health Insurance Levy
PricewaterhouseCoopers 2006 Tax Facts and Figures 38
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.
-
8/14/2019 2006 - Facts and Figures - IRS
47/55
Value Added Tax/National Health Insurance Levy
PricewaterhouseCoopers 2006 Tax Facts and Figures 39
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.
-
8/14/2019 2006 - Facts and Figures - IRS
48/55
Value Added Tax/National Health Insurance Levy
PricewaterhouseCoopers 2006 Tax Facts and Figures 40
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
-
8/14/2019 2006 - Facts and Figures - IRS
49/55
-
8/14/2019 2006 - Facts and Figures - IRS
50/55
Capital gains tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 42
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.
-
8/14/2019 2006 - Facts and Figures - IRS
51/55
Capital gains tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 43
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.
-
8/14/2019 2006 - Facts and Figures - IRS
52/55
Capital gains tax
PricewaterhouseCoopers 2006 Tax Facts and Figures 44
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
-
8/14/2019 2006 - Facts and Figures - IRS
53/55
-
8/14/2019 2006 - Facts and Figures - IRS
54/55
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory servicesto build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in
148 countries work collaboratively through Connected Thinking to develop fresh perspectives and practical
advice.
2006 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of
member firms of PricewaterhouseCoopers International Limited, each of which is a separate and
independent legal entity.
*connectedthinking is a trademark of PricewaterhouseCoopers
-
8/14/2019 2006 - Facts and Figures - IRS
55/55
www.pwc.com