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Domestic Tax News

Rates of Income Tax Contained in Income Tax Act, 2015 (Act 896)

The Commissioner-General of the Ghana Revenue Authority (GRA) wishes to inform the general public of the following

 

Rates of Income Tax contained in the Income Tax Act, 2015 (Act 896) for compliance. 

 

The effective date of implementation of the Income Tax Act, 2015 (Act 896) is 1st January, 2016. 

 

                 Rates of Income Tax Contained in Income Tax Act, 2015 (Act 896)

Entity

Rate of Tax %

Corporate income tax

25%

Company principally engaged in the hotel industry

22

Company income from the export of non-traditional goods

8

Chargeable income derived by a financial institution from loan granted to a farming enterprise in the production of income of the enterprise

20

Chargeable income derived by a financial institution from loan granted to a leasing company to fund acquisition of assets for lease

20

Manufacturing business located in regional capitals (except Accra & Tema)

75% of corporate tax rate

Manufacturing business located outside the Regional capitals

50% of corporate tax rate

Free zone enterprise/developers for the first ten (10) years in operation

0

Free zone enterprise/developers after 10 years in operation (on export of goods and services)

15

Free zone enterprise/developers after 10 years in operation (on domestic sales)

25

Chargeable income of a person from petroleum operations

35

Chargeable income of a person from mineral operations

35

 

AGRO PROCESSING COMPANIES

 

Agro processing business conducted wholly in the country for the first 5 years

1

Cocoa- by product business conducted wholly in the country for the first 5 years

1

Rural banking business for the first 10 years

1

Tree crop farming for the first 5 years

1

Cash crops or livestock(excluding cattle) for the first 5 years

1

Waste processing business for the first 7 years

1

Income derived from letting for sale of low cost affordable residential premises approved by Minister for Works and Housing for the first  5 years

1

 

 

Chargeable income of trust

25

 

APPROVED UNIT TRUST AND MUTUAL FUND

 

Approved unit trust scheme and mutual fund for the first 10 years

1

Interest or dividend paid to a member or a holder of an approved unit trust or mutual fund

1

Income from qualifying venture capital financing company for  the first 10 years

1

Interest or dividend paid or credited to a person on a qualifying investment in a qualifying venture capital financing company for the first 10 years

1

Resident Individual

Graduated rates provided in the First Schedule

Non-resident Individual

20

Gain on realisation of investment asset by an individual

15

 

 

 

 

 

 

 

 

 

 

 

WITHHOLDING TAX

Withholding tax is deductible from payment for supply of goods and services, and other payments as follows:

INCOME

RATE (%)

COMMENTS

Resident Persons

 

 

Interest (excluding individuals and resident financial institutions)

8

 

On Account

Interest paid to Individual

1

On Account

  

Dividend

8

Final tax

Rent of residential property (for individuals and as investment income)

8

Final tax

Rent of non-residential property

15

Final tax

Fees, allowance to resident director/manager, board member, trustee

20

On Account

Fees to lecturers, invigilators, examiners, part-time teachers, non-executive directors/board members and endorsement fees

10

Final

Commissions to insurance agents, sales and persons

10

On account

Commissions to resident lotto  receivers or agents

10

On account

Supply of goods exceeding GH₵ 2,000 p.a

 

3

On account

 

Supply of works

5

On account

Supply of services

15

On account

Lottery winnings

5

Final

Payment to petroleum subcontractor

15

Final

Payment for unprocessed precious minerals

10

On account

Royalty, natural resource payment

15

On account

 

 

Non-Resident Persons

Income of non-resident individual from employment

20

Final

Dividend

8

Final tax

Royalties, natural resources payments and rents

15

Final tax

Management, consulting and technical service fee and endorsement

20

Final tax

Repatriated Branch after tax profits

8

Final tax

Interest income

8

Final tax

Short term insurance premium

5

Final tax

Endorsement fees

20

Final tax

Payment for services

20

Final tax

Goods, works and services that give rise to income accruing in or derived from Ghana (that is trading in Ghana (i.e. where a Permanent Establishment exists) as against with Ghana)

20

Final tax

Petroleum sub-contractor

15%

Final

 

Payments received by a person who conducts a relevant transport business as payment for

 

(i)  carrying passengers, cargo, mail or other movable tangible assets that are embarked in the country, other than as a result of transhipment; or

(ii)   renting containers and related equipment which are supplementary or incidental to the business referred to in subparagraph (i);

 

15%

Final

Payments received by a person who conducts a business of transmitting or receiving messages by cable, radio, optical fibre or satellite or electronic communication in respect of the transmission, reception or emission of messages by an apparatus located in the country, whether or not the messages originate, terminate or are used in the country;

 

15%

Final

 

COMMISSIONER-GENERAL

 

GRA - INTEGRITY FAIRNESS SERVICE

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Highlights of the Income Tax Act, 2015 (Act 896)

1. OBJECTIVES OF THE INCOME TAX ACT, 2015, (ACT 896).

• To revise and consolidate the law relating to income tax.

(Consolidated the general fiscal regime, Minerals and Mining Income Tax, Petroleum Operations Tax, and the taxation of new entities such as   Public, Mutual, and Non-Profit Cause).

• Simplify the provisions of the Act.

• Make the Act more user- friendly.

• Enhance efficiency and facilitate compliance.

• Retain provisions that are peculiar to income tax administration. 

(Eg withholding tax, tax payable by instalment provisions retained)

• Broadening the tax base.

• Remove the narrow and distorted tax base of the Internal Revenue Act, 2000 (Act 592).

• Rationalize, streamline and restrict tax concessions.

• Tackle erosion of the tax base.

• Align domestic tax rules with current international tax rules. 

2. INTRODUCTION OF A FULL WORLDWIDE BASIS OF TAXATION FOR RESIDENTS

This means that residents will now be taxed on all incomes regardless of source and whether or not foreign income earned is brought into Ghana. 

3. CHARGEABLE INCOME

• The chargeable income of a person for a year of assessment is the total of the assessable income from employment, business or investment less the total amount of deduction allowed.

• The chargeable income shall be determined from each source separately.

  (The concept of ring fencing in introduced

4. INCOME FROM BUSINESS

   Shall Include:

• a gain from the realization of capital assets and liabilities of the business. 

• a gift received in respect of the business.

5. INCOME FROM INVESTMENT

Shall Include :

• a gain from the realisation of an investment asset.

• winnings from lottery; (this is taxed at a rate of 5%-final Withholding Tax).

• a gift received in respect of the investment.

6. EXEMPT INCOME

• Interest paid to an individual is no longer exempted from tax. 

• This is taxed at a concessionary rate of 1% as a final tax.

• Interest or dividend paid to a member or a holder of an approved unit trust or mutual fund is taxed at 1% where the holder is an individual otherwise is 8%.

• All Pension income is now included as an exempt income.

7. CAPITAL GAIN/GIFTS

Capital Gains Tax is no more a separate tax on its own. Gains realized on disposal of assets (“now called gain on realisation of an asset”) or liabilities are to be included in business or investment income and taxed at the applicable income tax rate. Individuals may however, opt not to subsume the gain and pay at a rate of 15% on the disposal.  Gift Tax is also no more a separate tax on its own. Gifts received in respect of employment, business and investment are to be included in calculating the gains and profits from employment, business and investment. 

8. MORTGAGE INTEREST DEDUCTION

Limit mortgage interest deductions for individuals to just one residential building for a life time. Interest on mortgage loan for individuals to acquire residential buildings is allowed as a deduction in the assessment of that individual. This means that mortgage interest which previously was available for more than one residential  building for individuals will now be restricted to just one building during the life time of that person.

9.   WITHHOLDING TAX

• Withholding tax rate on services for residents is now 15%.

• Reduction on withholding rate on goods from 5% to 3%.  

• Introduction of 5% withholding rate on the provision of any works.

• Lottery winnings are subject to 5% final withholding tax.

• Dividend paid in petroleum operations is subject to a final withholding tax of 8%.

• Subcontractors that perform works or services for or in connection with a petroleum agreement shall be liable to withholding tax of 15%. The 15% is a final tax for a non- resident.

• A resident person who purchases unprocessed precious minerals located in the country or won from the country shall withhold tax at the rate of 10%.

• A resident person shall withhold tax at 1% where that person pays interest to individuals.

• A withholding agent is required to prepare and serve on the person paying the tax a withholding certificate in the prescribed form. 

10.  THRESHOLD FOR WITHHOLDING TAX

Increase in the threshold for withholding tax from GHC 500 to GHC 2,000 for supply of goods, works and services.

11.  SELF ASSESSMENT

Due date of self-assessment returns is by the date for the payment of the first tax instalment. i.e if your basis period starts from January to  31st December, then you have up to 31st March 2016 to file your estimates for 2016 year of assessment.

Understating estimated tax payable by instalment

A person who understates his estimate or revised estimate shall be liable to pay interest at 125% of Bank of Ghana (BOG) discount rate of the tax unpaid for the period for which the tax is outstanding compounded monthly. 

12. Loss from the realization of a capital asset or liability used in the production of income from a business or investment is tax deductible

13. DEDUCTIONS

• General deductibility principle applied.

      Repairs and Improvements

• Expenses for the repair or improvement of depreciable assets that are incurred in the production of income may be deducted irrespective of whether they are of a capital nature.

       Deductions rule:

(a) should not exceed five per cent of the written down value of the pool at the end of the year and

(b) are allowed in the order in which the expenses are incurred.

Excess expense for which a deduction is not allowed as a result of the limitation is added to the depreciation basis of the pool to which it relates.

Research and Development Expenses

Research and development expenses may be deducted irrespective of whether or not they are of a capital nature.

Losses on Realisation of Assets and Liabilities

A person may deduct

(a) Losses on the realisation of a capital asset of a business to the extent to which the asset was used in the production of income  from the business;

 (b) Losses from the realisation of a liability of a business:

 in the case of a liability that is a debt obligation incurred in borrowing money, the money was used or an asset purchased with the money was used in the production of income from the business; and

• in the case of any other liability, the liability was wholly, exclusively and necessarily incurred in the production of income from the business.

• Losses from the realisation of a capital asset of an investment to the extent to which the assets were used wholly, exclusively and necessarily in the production of income from the investment.

Limit on Deduction of Financial Costs

The amount of financial costs other than interest deducted in calculating a person's income from conducting a business or investment for a year of assessment shall not exceed the sum of-

– financial gains derived by the person that are to be included in calculating the person's income from the business or investment for the year of assessment; plus

– 50 percent of the person's income for the year from the business or investment calculated without including financial gains derived or deducting financial costs incurred by the person.

– Financial costs for which a deduction is denied may be carried forward and treated as incurred during any of the following five years of assessment, but only to the extent of any unused limitation. Carry forwards are used in the order in which they are incurred. 

– Regulations may prescribe circumstances in which losses on financial instruments may only be set against gains on financial instruments.

14. LOSSES FROM A BUSINESS OR INVESTMENT

CARRY FORWARD OF LOSSES

a. The carry forward of losses which were previously limited to business entities in particular industries is now available:

a. in a specified priority area for five years.

b. in any other area for three years. 

b. Where a person makes a loss and if the loss were a profit it would be taxed at a reduced rate, the loss is deducted only in calculating income taxed at the same reduced rate, a lower reduced rate or exempt amounts. 

c. If the loss were a profit and the profit would be exempt, the loss is deducted only in calculating exempt amounts

     The rules also apply to calculating income from an investment.  

d. Business losses may be deducted in calculating income from an investment.

e. Losses from an investment are deducted only in calculating income from an investment.

15. TEMPORARY CONCESSIONS

Individuals and companies granted temporary concessions from tax in specified sectors are required to pay 1% tax on their chargeable income during the period of concession.

16.  ARM’S LENGTH STANDARD AND ARRANGEMENTS BETWEEN ASSOCIATES

• Where an arrangement exists between persons who are in a controlled relationship, the persons shall calculate their income, and tax payable in accordance with the arm’s length standard.

17. THIN CAPITALIZATION RULE

• Debt-to-equity ratio is provided as 3:1

18. TAXATION OF TRUSTS

Replaces provisions on ‘body of persons’

The act also provides for 

• Taxation of trusts and the beneficiaries of the trust.

19. SPECIAL INDUSTRIES

The Act has provisions for the following special Industries:

• Petroleum operations

• Minerals and Mining Operations

• Financial Institutions

• Public, mutual and non-profit causes 

20. CAPITAL ALLOWANCE

This is now classified into 5 instead 6.

• Depreciation allowance for assets in Classes 1, 2, or 3 are computed in accordance with the reducing balance method.

• Depreciation allowance for assets in Classes 4 and 5 are computed in accordance with the straight line method.

21. COMPENSATION AND RECOVERY PAYMENTS

Where a person or an associate of a person derives an amount as compensation for the recovery of 

(a) Income or an amount to be included in calculating income, which the person expects or is expected to derive; or

(b) A loss or an amount to be deducted in calculating income, which the person has incurred or which the person expects or is expected to incur;

• the compensation amount is included in calculating income of the person

• (this provision takes care of  the taxability of judgment debts)

22. MODIFIED TAXATION

 The Act has introduced the principle of modified taxation for certain eligible resident individuals by-

 (a)  Imposing presumptive tax on individuals that only have income from certain types of business. 

(b) Applying a modified cash basis in calculating income from certain businesses. Persons with turnover below GHC 20,000 per annum will be based on rates determined by the Commissioner-General.

23. OTHER MODIFICATIONS

(a) Act 896 exempts from tax, gains made from realization of assets from merger, amalgamation or re-organization where there is a continuity of at least 50% of the underlying ownership.

(b) A Private Ruling is binding on the Commissioner General with respect to the application of the Act at the time of the ruling, and it is also binding on the applicant as far as the transaction in respect of which the ruling is given is concerned.

(c) The Act makes provisions for amendment and revocation of Practice Notes and Private Rulings.

(d). Despite the binding nature of the ruling of the CG, a taxpayer can challenge same in court

26.   TAX ADMINISTRATION

Until the date the Revenue Administration law to be administered by the Ghana Revenue Authority comes into force, the Seventh Schedule of Act 896 shall, in addition to the Ghana Revenue Act 2009 (Act 791) be used to administer the Income Tax , 2015 (Act 896).

 

COMMISSIONER-GENERAL

GRA - INTEGRITY FAIRNESS SERVICE

 

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Implementation of the New Income Tax Act, 2015, ACT 896

The Commissioner-General of the Ghana Revenue Authority (GRA) wishes to inform the general public, especially all income earners that a new Income Tax Act 2015, (Act 896) has been passed by Parliament and signed into law by the President.

The Income Tax Act, 2015, (Act 896) assented to by the President on 1st September, 2015, will come into effect on 1st January, 2016 to replace the Internal Revenue Act, 2000 (Act 592).

To facilitate compliance, GRA will publish significant aspects of the Act in the print media in subsequent days for the attention of the general public.

Copies of the Income Tax Act, 2015 (Act 896) can be obtained from the Assembly Press, Accra.

 

COMMISSIONER-GENERAL

GRA- INTEGRITY FAIRNESS SERVICE

 

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Compliments of the Season

 Merry Christmas, a Prosperous and Happy New Year.  The Board, Management and Staff of the Ghana Revenue Authority (GRA) wish to acknowledge the immense support of our stakeholders especially our loyal taxpayers who have voluntarily complied with their tax obligations throughout the year 2015.

 

We appreciate your contribute on to the mobilization of revenue for national development and wish to encourage you to continue in this effort.

 

We look forward to an enhanced and more cordial working relationship with all taxpayers and potential taxpayers in the coming year 2016.

Afehyiapaaooo!!!

 

Afi oo Afi!!

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Contact Us

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

Tel: +233- (0) 302 675701-9/684363-686106/684363

Fax: +233- (0) 302 681163/664938

 

 

 

 

 

 

 

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