. 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
• 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
• 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.
(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).
(Addition files from gra.gov.gh was added.)