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Ghana enacts income tax amendments related to various tax matters

Executive summary

Following the passage of Ghana’s Income Tax Act, 2015, Act 896 (the Principal Act), Parliament passed a first amendment that came into force on 18 February 2016. A second amendment - Income Tax (Amendment) (No. 2) Act, 2016 (Act 924) was published in the Official Gazette on 9 September 2016. No date was specified in the Act as the date of entry into force. Thus, in accordance with the Constitution of the Republic of Ghana (Constitution, 1992), the Act entered into force on the date of publication, 9 September 2016.

The Act addresses various tax matters including: (i) taxation of interest on bonds issued by the Government of Ghana; (ii) limitations on deductibility of financial costs; (iii) taxation of operating lease arrangements; and (iv) taxation of gifts and additional incentives for agro-processing businesses located outside Accra and Tema.

Detailed discussion

Some key issues covered by the Act are highlighted below:

  • The following have been added to amounts exempt from tax:
    • Interest paid to a nonresident person on bonds issued by the Government of Ghana
    • Gains from the realization of bonds issued by the Government of Ghana by a nonresident person
  • The amount of financial costs excluding interest which is deductible from the income of a person is limited to the sum of:
    • The financial gain derived by that person that is to be included in calculating the income of the person from investment or business for the year of assessment; and
    • Fifty percent of the chargeable income of the person from the business or investment excluding the financial gain or cost incurred by the person.
  • When calculating the income of a lessor who leases an asset under an operating lease, the whole amount of the rent paid is required to be included in the income of the lessor. Further, the lessor may be granted capital allowance with respect to the asset in accordance with the relevant provisions of the Act dealing with capital allowance.
  • When calculating the income from general insurance business for a year of assessment, the amount of any reserve for unexpired risk deducted in a previous basis period is required to be added to the income.
  • Tax withheld on an amount due to a resident petroleum subcontractor in respect of works or services for or in connection with a petroleum agreement is not treated as a final tax.
  • A resident individual whose tax payable for the year of assessment relates exclusively to income from employment is now required to file an income tax return regardless of the fact that the income has been subject to withholding tax by the employer. Prior to this amendment, resident individuals falling into this category were not required to file income tax returns.
  • A gift received other than a gift received in respect of business or employment shall be included in the income of a person from investment unless the gift is exempt from tax.
  • Where an individual receives a gift which is not in respect of the business or employment, the individual may elect to pay tax on the gift at 15%. The remainder of the individual’s chargeable income will be taxed at the appropriate rate depending on whether the individual is resident or nonresident.
  • The following income tax rates shall apply, after the initial temporary concession period, to persons engaged in Ghana in a farming business, agro-processing business and/or production business in Ghana using cocoa by-products:

LOCATION

RATE OF INCOME TAX

Accra and Tema

20%

Other Regional Capitals outside the Northern Savannah Ecological Zone

15%

Outside other Regional Capitals

10%

The Northern Savannah Ecological Zone*

5%

*Businesses that benefit from these concessions do not qualify for any other location incentives available to a manufacturing concern.

  • The withholding tax rate that shall apply to service fees paid to a resident person and which is not specifically covered under any other section of the Act shall be 7.5%.
  • The rate of tax to be withheld from the payment to a petroleum subcontractor in respect of works or services is as follows:
    • Nonresident person - 15%
    • Resident person – 7.5%

EYG no. 00222-171Gbl

Download this Tax Alert as a PDF file

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