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Pulse Feature How the New Tax Law affects you in practical terms

This article hopes to objectively explain the income and withholding tax components of the law, who it affects, and how it affects them in practical terms.

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Many have gotten incensed by the passing of the New Tax Law, ACT 896.

Let's face it, almost everyone hates the idea of having to pay taxes, especially in the context of Ghana and Africa where citizens feel their monies are misused, embezzled and mismanaged by a small ruling class. “Why should we pay taxes?” citizens often ask.

In the midst of all the noise we find that even the highly educated in society may not totally understand the interpretations of the directives under the law.

This article hopes to objectively explain the income and withholding tax components of the law, who it affects, and how it affects them in practical terms.

1. 8% interest on investments excluding individuals and resident financial institutions

For instance if American reporter and businessman Anderson Cooper invests a sum of 20, 0000 dollars in governments bonds at a rate of 24.3 percent, his interest after the tenure of the bond will be $48, 600.  A tax of 8%, which is , $3,888 will be deducted from his interest as tax.

 

2. 1% on interests on investments

Who is Affected

All individuals  resident in Ghana

Practical Illustration

Imagine Mr. Kofi Mensah invests a  total amount of GHC20, 000 in a mutual fund with a rate of 20%. His interest after 90 days is gHC4,000. On this, Mr. Kofi Mensah will pay a tax of GHC40 which represents 1% of interest.

3. 8% on Dividends

Who is Affected

Dividends are paid to shareholders of a company. That is, those who purchase shares on the Stock Exchange or groups of financiers of a company. They are monies that are paid to these category of people when the company makes enough profits at thresholds already agreed by the company.

Practical Illustration

Say Mr. Binney owns 10% of Uniliver Ghana Limited and his paid  GHC50, 000 as dividends at the end of 2015. According to this tax, a sum of GHC 4000 will be deducted from the dividends as Withholding tax.

4. 8% Rent on residential property for individuals and as investments

Who is Affected

This affects landlords who rent out their buildings to individuals as a place of aboard.

Practical Illustration

If you pay a sum of GHC6000 as two- year advance  for a chamber and Hall Self- Contained building, the landlord will pay Ghc480 to the Ghana Revenue Authority as Tax.

5. 15% Tax on Rents on non- residential  Property

Who is Affected

This affects landlords still.

Practical Illustration

Let's say Stanbic Bank leases  the Yaa Densua Building from the owner Mr. Kofi Asare at a total cost of GHC500,000. Mr. Asare must pay GHC75,000 to the Ghana Revenue Authority as a final tax. This means no other direct tax will be incurred on this amount.

 

6. 20% Fees and allowances on resident directors/ managers, board and trustees

Who is Affected

Any individual who serves on the board of a public or private entity, be it a business, public institution or corporation. These individuals are entitled to some fees and allowances on a periodic basis.

Practical Illustration

The Electricity Company of Ghana, ECG, has a  board. Let’s say each member of the board is given a Ghc10,000 end of year bonus, each member will have to pay GHC2000 on this amount as tax on the account. This IS before any other deductions like income tax amongst others are applied

7. 20% Fees to lectures, examiners, invigilators, non- executives/ board members part time teachers and endorsement fees.

Who is Affected

The tax spells out those who are affected by this tax: lecturers, examiners, invigilators, non- executives and non- board members, part-time teachers and  similar professionals.


8. 10% Commissions to insurance agents, sales and persons

Who is Affected

An individual person who represents an insurance firm and sells insurance policies on its behalf.

Practical Illustration

Insurance salespeople and agents get commissions when they sell insurance policies. In relation to this law, therefore, if an agent makes GHC500 commission on a sale, he will have to pay a tax of 50 cedis.


9. 10% Commissions to residents lotto receivers and agents

Who is Affected

Agents and lottery vendors resident in Ghana

Practical Illustrations

For all stakes, the lottery vendor makes a commission. Say he makes a commission of GHC1000  at the end of the month, he will have to pay a tax of GHC100 as 10% withholding tax to the government.

10. 3%  Supply of goods exceeding 2000 p.a

Who is Affected

Suppliers of goods of all kind to a corporate entity exceeding GHC2000 per anum.

Practical Illustration

If an iron-rods dealer supplies the Ministry of Works and Housing goods worth GHC1 million , the Ministry of Works and Housing is enjoined to withhold 5% which is, GHC50,000 of the money as Withholding tax

11. 5% Supply of works

Who is Affected

All professional and fabricators who manufacture items used by a corporate body as a finished product or as an input in a production process as carried out by artisans.

Practical Illustration

If a plumber, Kojo Mawuena, does some plumbing works for a company in Accra to the tune of GHC15,000, the company will withhold 5% of that which is GHC750.

12. 15% Supply of Services

Who is Affected

Businesses or individuals who render services to other corporate bodies. This includes accountants, physicians, bankers among others.

Practical Illustration

If a private accountant or auditor does an auditing job  for let’s say XYZ SME Limited for which he charges GHC5000, the company will withhold 15%  of the amount which is GHC750.

13. 5%  Lottery Winnings

Who is Affected

All individuals who win lotteries

Practical Illustration

If you win  GHC1000 on one of this soccer betting sites, GHC50 cedis will be withheld by the agent as Withholding Tax to be filed to the Ghana Revenue Authority


As you can see, these taxes will potentially change your life so you need to understand and watch for them.

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Submit your stories, pictures and videos to us now via WhatsApp: +233507713497, Social Media @pulseghana: #PulseEyewitness & DM or Email: eyewitness@pulse.com.gh.

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