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Backtrack: Gov’t reverses 1% tax on investment

The tax imposition on interests is part of provisions in the new Income Tax Act, 2015 (Act 896) which came into force on January 1, 2016. 

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The Ministry of Finance has submitted proposals to Parliament to reverse the 1% withholding tax on local investors its imposed last week.

The tax imposition on interests is part of provisions in the new Income Tax Act, 2015 (Act 896) which came into force on January 1, 2016. 

Under the new law, local investors were required to pay 1% Withholding Taxes on their returns. This means that all interests accruing from investment in bonds, treasury bills and shares will be reduced by 1%, an amount which will be paid to government.

Following the imposition of the tax, there was huge public outcry over the issue after banks and financial institutions sent SMS alerts to their customers about the provision and how it would affect them.

But a statement issued by the Minister of Finance, Mr Seth Terkper, said that the government had taken note of the concerns of taxpayers and the general public on some provisions of the Act, particularly those relating to withholding tax on the provision of services and the payment of tax on interests paid to individuals.

“On the issue of the imposition of a 1% tax on interest earned by individuals, Government has already submitted proposals to Parliament to reverse the position,” the statement said.

The essence of the withholding tax regime on services is to improve tax compliance. It is not a final tax but a payment on account. Therefore, the increase in withholding tax on services to 15 per cent is to encourage taxpayers to file their returns, after which they will be entitled to a credit for the amount withheld,” the statement explained further

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