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A A & K CONSULTING SERVICES A A & K CONSULTING SERVICES LIMITEDLIMITED
COMPLIANCE ADVISORY PAYROLL MANAGEMENT
Corporate
Employee
Agency Obligations
General Advisory
Tax Planning
OUR SERVICES
TAX HEALTH CHECK
CONTEMPORARY TAX CONTEMPORARY TAX ISSUESISSUES
In 2010 two major tax policy initiatives In 2010 two major tax policy initiatives were introduced:were introduced:
Integration of Revenue Agencies
Tax Policy Initiatives in 2011 Budget
INTEGRATION OF REVENUE INTEGRATION OF REVENUE AGENCIESAGENCIES
Ghana Revenue Authority (GRA) Act 2009 [Act 791] merged:
Internal Revenue Service (IRS) Act 592,
VAT Service Act 546 and
Customs Excise & Preventive Service (CEPS) [PNDC Law 330]
PRE MERGERPRE MERGER
MINISTRY OF FINANCE & ECONOMIC PLANNING
[MOFEP]
IRS COMMISSIONER
CEPS COMMISSIONER
VAT SERVICE COMMISSIONER
BOARD OF DIRECTORS
POST MERGERPOST MERGERMINISTRY OF FINANCE &
ECONOMIC PLANNING
[MOFEP]
DOMESTIC DIVISION COMMISSIONER
CUSTOMS DIVISION COMMISSIONER
GENERAL SERVICES COMMISSIONER
GHANA REVENUE AUTHORITY COMMISSIONER-GENERAL
[GRA]
BOARD OF DIRECTORS
EFFECT OF INTEGRATIONEFFECT OF INTEGRATIONAll powers of pre-integration Commissioners are now vested in the Commissioner-General e.g.
Final Authority for Interpretation
Practice Notes
Private Rulings
COMMENTARY ON TAX POLICY INITIATIVES COMMENTARY ON TAX POLICY INITIATIVES IN THE 2011 BUDGET STATEMENTIN THE 2011 BUDGET STATEMENT
SUMMARY OF MAJOR TAX INITIATIVES
Domestic tax initiatives include:
Increases in tax rates and thresholds for withholding taxes and VAT
Removal of Tax Holidays
Extension of National Fiscal Stabilization Levy
Revision of personal tax rates
Extension of coverage of Communications Service Tax
Review of Exemptions and Zero-rated items under the VAT Act
Review of Excise Duty Rates
COMMENTARY ON TAX POLICY INITIATIVES COMMENTARY ON TAX POLICY INITIATIVES IN THE 2011 BUDGET STATEMENTIN THE 2011 BUDGET STATEMENT
International tax initiatives include:
Increases in Duty rates
Review of operations of Bonded warehouses
Import tax on rice and poultry products
REVIEW OF WITHHOLDING TAX REGIMEREVIEW OF WITHHOLDING TAX REGIME
Introduction
Withholding taxes on payments by residents to:
Non-residents for the supply of services
Residents for supply of goods and services
Other withholding taxes (Section 86 of Act 592)
PAYMENTS TO NON-RESIDENTS FOR PAYMENTS TO NON-RESIDENTS FOR SERVICES SUPPLIED TO GHANASERVICES SUPPLIED TO GHANA
• Current Position Section 3 of Act 592 imposes a final withholding tax on the
following payments
Service Tax Rate (%)
Dividend 8
Interest 8
Royalty 10
Endorsement Fees 15
Rent 10
Management & Technical Service Fees 15 No changes have been proposed in the 2011 fiscal
policy statement Increase in withholding tax on Foreign Supplies of
Services
PAYMENTS TO RESIDENTS FOR SUPPLY PAYMENTS TO RESIDENTS FOR SUPPLY OF GOODS AND SERVICES BY OF GOODS AND SERVICES BY
RESIDENTSRESIDENTS• Current Position A withholding tax of 5% applies where the
contract sum exceeds GH¢50.00
• Proposed amendmentThe threshold raised from GH¢50.00 to GH¢500.00
• ImplicationThe 5% withholding tax under Section 84 (2) of
the Internal Revenue Act 2000 [Act 592] shall apply where the contract sum for the supply of goods and services exceed GH¢500.00
TAX HOLIDAYSTAX HOLIDAYS• Real Estate Developers – for sale or letting
– 5 year Holidays abolished except for • Developers in partnership with Ministry of Works and
Housing to provide affordable housing
– Issues• Fate of those enjoying holiday uncertain
• Hotels and Hospitality Industry – GIPC Regulations, 2005 [LI 1817] providing exemptions for
the industry repealed– Desirable LI 1817 provisions to be incorporated in Act 592
and managed by GRA– Amendment is not clear
• APEX Bank– Tax Holiday extended to 2014
NATIONAL STABILIZATION LEVY NATIONAL STABILIZATION LEVY [NSL][NSL]
Introduction NSL imposed on 2009 and 2010 profit
before tax The tax rate of 5% of profit before tax The levy is not tax deductible
Proposed AmendmentThe imposition of the levy is to be extended by
one year
GIFT TAXGIFT TAX
• The Internal Revenue Act 2000 imposes a gift tax at the rate of 5% on taxable gifts exceeding Gh¢50.00
Proposed AmendmentThe rate of tax imposed on taxable gifts is to be increased to 15%.
MINING ROYALTIESMINING ROYALTIES
Introduction
Mineral royalties are paid by mining companies at the rate of 3% to 6%
The royalty is paid quarterly
Proposed Amendments
Mineral royalties to be accounted for on monthly basis by the 15th of the following month
CHANGES IN INDIVIDUAL TAX CHANGES IN INDIVIDUAL TAX RATES AND RELIEFSRATES AND RELIEFS
Proposed Amendment
Increase in tax free Chargeable Income from GH¢1,008.00 to GH¢1,104.00
Increases in amount granted as reliefs to individuals proposed
Chargeable Income above GH¢20,280.00 (2010 GH¢16,200.00) to be taxed at 25%
2 Types of VAT Schemes(i) VAT Invoice Scheme (VIS)• Retailers with a minimum turnover of GH
¢10,000.00 (ii) VAT Flat Rate Scheme (VFRS)• Retailers under GH¢10,000.00 currently
operate under VFRS.• The tax rate is 3% on selling price• No input tax credit is available for them.
OBJECTIVES
INITIATIVES UNDER INDIRECT TAXES
PROPOSED AMENDMENT
Existing Proposed
Threshold - GH¢10,000 Threshold - GH¢90,000
Retailers with minimum of GH¢10,000 need to register
Retailers with minimum of GH¢90,000 need to register
VAT taxpayers under GH¢90,000 to come under new scheme of combined VAT and Income Tax Assessment
Introduction• Introduced in 2008 - passage of the
Communications Service Tax Act, 2008 (Act 754).• The tax applied to Class1 Telecom Operators• Class 1 License Telecom Operator authorized to
provide public communication service - National Communications regulations,2003 (LI 1719).
• Public communications service - service made available to the general public for a fee or charge without discrimination (LI 1719)
COMMUNICATIONS SERVICE TAX (CST)
• Private communications service is a service established by an individual, a body corporate or other legal entity to satisfy its own communications needs.
• LI 1719 defines communication service to include the following:
Telecommunications services Broadcasting services Cable services Satellite services Value added services Aeronautical services Maritime services
• Communications services may be provided as public or private services
COMMUNICATIONS SERVICE TAX (CST) cont’d
• CST coverage to extend to all companies and persons within the communication industry.
• 2011 budget statement does not clearly state whether the extension of the tax base of CST will include companies with their own private radio communications or other communications services.
• Details in relevant legislation to be passed.
PROPOSED AMENDMENT
• Locally produced items currently zero-rated Pharmaceutical Products Paper for the publishing industry Agricultural input like cutlasses
• Producers and wholesalers currently entitled to refund of input taxes incurred in the production.
RECLASSIFICATION OF DOMESTIC ZERO-RATED SUPPLIES
• Reclassification as exempt items under Act 546
• Companies producing items no more entitled to refunds of input taxes incurred in the course of production.
• All input taxes incurred to be incorporated into cost build up.
RECLASSIFICATION OF ZERO-RATED SUPPLIES
Proposed Amendment
• Manufacturers permitted to defer payment of import VAT on imported raw materials.
• Practice is allowed to various manufacturers based AGI recommendations.
• Practice improved cash flow of the manufacturing companies.
DEFERRED PAYMENT OF VALUE ADDED TAX
• ‘Reliefing’ manufacturers of import VAT/NHIL on imported raw materials to be abolished.
• No legislation is required.
• Cash flow implications for affected companies must be factored into current year budget.
DEFERRED PAYMENT OF VALUE ADDED TAX
Proposed Amendment
Bonded Warehousing
• Imported goods or locally manufactured goods may be stored under Customs control in a Government or private bonded warehouse.
• Deferral of payment of duty and taxes until the goods are needed for home consumption or for export.
• Bonded warehousing is allowed for both finished products and raw materials for manufacturing.
• The goods may be re-entered for warehousing after two years.
INTERNATIONAL TAX INITIATIVES
• Bonded warehousing facility to be restricted only to raw materials for manufacturing.
• Importers of finished goods will not be allowed to warehouse them for up to two years
• The proposed amendment is likely to define the maximum period that importers will be allowed to warehouse finished goods
INTERNATIONAL TAX INITIATIVES
Proposed Amendment
IMPORT DUTY ON RICE AND POULTRY PRODUCTS
Existing Proposed
Milled Rice – 20% Milled Rice – 35%
Poultry Products – 20% Poultry Products – 35%
• The revised rates will apply in Ghana upon ratification by ECOWAS.
Exemptions from payment of import duty
• Energy saving lamps, LED lamps and
• Raw materials for local companies producing energy saving bulbs
• New taxes imposed
• An environment tax on plastic packaging materials and products
OTHER TAX INITIATIVES
DOUBLE TAXATION AGREEMENT DOUBLE TAXATION AGREEMENT BETWEEN THE REPUBLIC OF GHANA BETWEEN THE REPUBLIC OF GHANA
AND THE FRENCH REPUBLICAND THE FRENCH REPUBLICINTRODUCTIONWhat is Double Taxation?
Double Taxation has been defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter.
Negative Effects of Double TaxationIt results in multiplicity of taxesIt inhibits the free flow of investment and trade activities
Purpose of Double Taxation AgreementsDue to the negative effects of Double Taxation, nations have deemed it expedient to enter into Double Taxation Treaties toward attainment of the following:
• Removal of Tax Barriers to Trade and Investment• Resolution of Tax Disputes• Removal of uncertainties about a country’s Tax regime• Promotion of Investment through the granting of Tax
Incentives• Reduction/Elimination of Tax Avoidance Schemes through
the provision of a framework of co-operation between Tax Authorities
LEGAL AUTHORITY FOR GHANA TO ENTER INTO DOUBLE TAXATION ARRANGEMENTS
• Provided for in Section 111 of the Internal Revenue Act 2000 (Act 592)
• Under Section 111 (1) of Act 592, the DTA prevail over the provisions of the Act
PROCESS OF RATIFICATIONPROCESS OF RATIFICATION• Each contracting state has to ratify the convention and give notice
to the other through diplomatic channels before the entry into force
• In Ghana the ratification is done by Parliament in accordance with Article 75 (2) of the 1992 Constitution of the Republic of Ghana
ENTRY INTO FORCE• Normally, the convention is entered into force on the day the latter of the notification is received
• The provisions of the Convention normally have effect on the commencement of the fiscal year next following that in which the Convention was entered into force
BASIS FOR TAXING EACH REVENUE ITEMSource of Revenue – e.g. Directors Fees. Employment etc
Residence of tax payer – e.g. Business Profit, Air and Shipping Transport
Sharing – e.g. Dividends, Interest, Royalties etc. shared between Treaty Partners
PERSONAL SCOPEPERSONAL SCOPE
• It indicates that the convention is applicable to persons who are residents of one or both of the contracting states
CONDITION PRECEDENT OR PROOF TO BE CONDITION PRECEDENT OR PROOF TO BE FURNISHED BY A RESIDENT OF THE OTHER FURNISHED BY A RESIDENT OF THE OTHER
CONTRACTING STATE SECTION 111 (4) OF ACT CONTRACTING STATE SECTION 111 (4) OF ACT 592592
To benefit from a reduction in the Ghanaian Rate of Tax or exemption from Ghanaian tax, a Resident of the other contracting state is required to provide the proof below to the Commissioner-General of the Ghana Revenue Authority.- That no individual(s) resident outside the contracting state
owns 50% or more of the underlying ownership of that person’s business.
The essence of the proof is to prevent ‘Treaty Shopping’ that is a situation where a resident of a non-contracting state tries to enjoy the benefits of a Double Taxation Agreement between two other states.
BASIS FOR TAXING REVENUE ITEM UNDER BASIS FOR TAXING REVENUE ITEM UNDER GHANA/FRANCE DOUBLE TAXATION AGREEMENTGHANA/FRANCE DOUBLE TAXATION AGREEMENT
TYPE OF INCOME REFERENCE UNDER DTA BASIS OF TAXATION
1. INCOME FROM IMMOVABLE PROPERTY
Article 6 SOURCE
2. BUSINESS PROFITS OTHER THAN PROFITS OF A PERMANENT ESTABLISHMENT
Article 7 RESIDENCE
3. SHIPPING AND AIR TRANSPORT Article 8 RESIDENCE
4. DIVIDENDS Article10 SHARED BETWEEN RESIDENCE AND SOURCE
5. INTEREST Article 11 SHARED BETWEEN RESIDENCE AND SOURCE
6. ROYALTIES Article 12 SHARED BETWEEN RESIDENCE AND SOURCE
7. MANAGEMENT & TECHNICAL SERVICE FEES
Article 13 SHARED BETWEEN RESIDENCE AND SOURCE
BASIS FOR TAXING REVENUE ITEM UNDER BASIS FOR TAXING REVENUE ITEM UNDER GHANA/FRANCE DOUBLE TAXATION AGREEMENTGHANA/FRANCE DOUBLE TAXATION AGREEMENT
TYPE OF INCOME REFERENCE UNDER DTA BASIS OF TAXATION
8. CAPITAL GAINS IMMOVABLE PROPERTY
Article 14 SOURCE
9. INDEPENDENT PERSONAL SERVICES (SELF –EMPLOYED)
Article 15 SHARED BETWEEN RESIDENCE AND SOURCE
10.DEPENDENT PERSONAL SERVICES (EMPLOYMENT)
Article 16 SOURCE
11.ARTISTES AND ATHLETES Article 18 SOURCE
12.STUDENTS AND BUSINESS APPRENTICES
Article 21 EXEMPT FROM INCOME OUTSIDE
13.VISITING PROFESSORS AND TEACHERS
Article 22 EXEMPT FOR 2 YEARS
14.OTHER INCOME NOT PROVIDED IN THE DTA
Article 23 SOURCE
COMPARISON BETWEEN LOCAL RATES AND RATES COMPARISON BETWEEN LOCAL RATES AND RATES UNDERUNDER
GHANA/FRANCE DOUBLE TAXATION AGREEMENTGHANA/FRANCE DOUBLE TAXATION AGREEMENTTYPE OF INCOME REFERENCE
UNDER DTAREFERENCE UNDER ACT 592
RATE OF TAX UNDER DTA RATE OF TAX UNDER
ACT 592
REMARK
1. DIVIDENDS Article 10 Section 3 a) Beneficial owner Resident in France – 5%
b) Beneficial owner Resident in Ghana – 7.5%
c) In all other cases - 15%
8% a) DTA Rate shall applyb) The lower of the DTA
and France Rate shall apply
c) Act shall apply
2. INTEREST Article 11 Section 3 a) Beneficial owner Resident in France – 12.5%
b) Beneficial Owner – Resident in Ghana – 10%
8% a) Act shall applyb) The Lower of DTA and
France Rate shall apply
3. ROYALTIES Article 12 Section 3 a) Beneficial owner Resident in France – 12.5%
b) Beneficial Owner Resident in Ghana – 10%
10% a) The Act shall applyb) The Lower of DTA and
France Rate shall apply
4. MANAGEMENT & TECHNICAL SERVICES FEES
Article 13 Section 3 a) Beneficial Owner Resident in France – not exceeding 10%
b) Beneficial owner in Ghana - not exceeding 10%
15% a) The DTA shall applyb) The Lower of DTA and
France shall apply
NOTE: Under dividends in the DTA, the rates of 5% or 7.5% Are applicable where the beneficial owner has at least 10% Interest in the company paying the Dividend.
CONCLUSIONCONCLUSION
Double Taxation Treaties provide some tax incentives and exemptions that pave the way for the free flow of trade and investment activities.
It is important for residents of the contracting states to acquaint themselves with the provisions of the relevant conventions so as to take full advantage of the opportunities therein.