essential updates on taxation for professionals.pdf

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PwC

CPD Seminar

Essential Updates on Taxation for

Professionals25 March 2010


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Seminar Objectives

Update participants of tax environment in Ghana

Create a platform and opportunity for sharing knowledge and experience

Discuss selected tax principles and their impact on businesses and

individuals

Share thoughts on compliance issues that need to be systematicallymanaged tax cash flow consequences


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Contents

Principles of taxation of income in Ghana

Business taxes

Taxation of corporations and owners

Taxation of sole traders

Taxation of partnerships and partners

Personal taxes Tax audits


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SESSION 1


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Contents


Business taxes






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Principles of Taxation of Income in Ghana

Locus of taxation?

Who is required to pay income tax in

Ghana?

What is chargeable income?

Place, position or set of pointers

satisfying particular conditions for

taxation.

A person who has a chargeable

income shall payincome tax ascalculated in accordance with this

Act.

Chargeable income is the total of a

person's assessable income from

business, employment, andinvestment less deductions allowed

and reliefs granted under the tax law.

Slide6March 2010ACCA Ghana CPD Seminar


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Principles of Taxation of Income in Ghana (contd)

Assessable income?

When is income deemed to be

brought into or received in Ghana?

The full amount of a resident

person's income (excluding exempt

income) accruing in, derived from,

brought into, or received in Ghana

The full amount of the a non-

resident person's income (excludingexempt income) accruing in or

derived from Ghana

When remitted to or transmitted into

Ghana;

When applied in satisfaction of anydebt incurred in Ghana; or

When applied to purchase a

movable property which is brought

into Ghana. Slide7March 2010ACCA Ghana CPD Seminar


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Who is tax resident person? Individuals

- A citizen of Ghana, without a

permanent home outside Ghana;

- An individual present in Ghana for

period(s) of 183 days or more in

any 12 month period;- An employee or official of the

Government of Ghana posted

abroad;

- A citizen with a permanent home

in Ghana who is temporary absent

from Ghana for less 365continuous days.



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Who is tax resident person (contd)? Companies

- A company incorporated in

Ghana; or

- A company that has its

management and control

exercised in Ghana at any time;

Body of persons

- A body of persons established in

Ghana;

- A body of persons that has a

resident person as manager atanytime;

- A body of persons that is

controlled directly or indirectly by

resident person(s) at any time.Slide9March 2010ACCA Ghana CPD Seminar


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Who is tax resident person (contd)?

Who is a non-resident person?

Classification of assessable income

Partnership

- A partnership which has at least a

partner who is a resident person

One who/that is not resident

Income from business

Income from employment

Income from investment



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(1)A person's income from a

business is that person's gains or

profits from any business carried

on for whatever period of time by

that person.

(2)Business means any trade,

profession or vocation but does

not include employment

(1)Trade includes every trade,

manufacture, adventure or concern

in the nature of trade.

(2)Trade also refers to normal regular

routine commercial activity as itconnotes the idea of continuity

Indicators of trade

Subject matter/nature of the asset

Period of ownership

Frequency of transactions

Modification of the asset Circumstances of realisation

Profit seeking motive

The way the asset was acquired

The quantity acquired

Business income Trade



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The term is not defined in the

Internal Revenue Act

Oxford English Dictionary sees

professions as involving the

application of specialisedknowledge of a subject, field, or

science to fee-paying clientele.

Examples include Lawyers, tax

advisers, accounting firms, firm of

civil engineers, architects.

Again the term is not defined in the

Internal Revenue Act.

It ordinarily relates to persons

undertaking activities such as

seamstresses, tailors, mechanics,artisans.

Vocation tends to involve more

physical efforts and less brain work

Profession Vocation



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(1) A person's income from an

investment is that person's gains

or profits from any investment.

(2) The gains or profits of a person

from an investment include anydividends from a non-resident

company, interest, charge,

annuity, royalties, rent, natural

resource payment, or other

income accruing to or derived by

that person from investment otherthan the person's income from a

business or employment.

Investment income



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How is chargeable income

calculated?

How do we determine the tax charge?

(Why do we determine chargeable

income?)

Subject to the Act, the chargeable

income of a personshall be

calculated in accordance with the

steps set out in Schedule One to

[the]Regulations.

The income tax payable shall be

calculated by applying the rates of tax

to the chargeable income.



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Using a 5 step approach based on the

provisions of Schedule 1 of Internal

Revenue Regulations

Subject to the Internal Revenue Act,

the chargeable income of a person fora year of assessment shall be

calculated in accordance with the

steps set out in Schedule One to the

Internal Revenue Regulations.

Determining chargeable income

Step 1

Step 2

Step 3

Step 4

Step 5



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Step 1

Identify each of the persons

businesses, employments, and

investments activity conducted during

the year.


Step 1

Step 2

Step 3

Step 4

Step 5



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Step 2

Calculate separately for each

business, employment, and

investment identified, the income of

the person from that business,

employment, or investment within theyear.

Work this out according to ordinary

accounting rules as each case

requires.


Step 1

Step 2

Step 3

Step 4

Step 5



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Step 3

Adjust the accounting gains or profits

worked out to ensure that:

all incomes required to be

included or excluded reflect;

only allowable deductions arededucted.

This becomes the persons income

from business, employment, or

investment, as the case requires.


Step 1

Step 2

Step 3

Step 4

Step 5



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Step 4

Ascertain the assessable income of

the person by determining whether

the respective income:

has the necessary connection with

Ghana (i.e. accrues in, is derivedfrom, is brought into or received in

Ghana);

excludes exempt income.

Aggregate all assessable incomes.


Step 1

Step 2

Step 3

Step 4

Step 5



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Step 5

Reduce the aggregate assessable

income with reliefs available under the

tax law to arrive at chargeable

income.


Step 1

Step 2

Step 3

Step 4

Step 5



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Contents


Business taxes

Taxation of companies


Taxation of partnerships



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Business taxes

Personal income tax(Rate depends on tax residency)

Sole proprietors

Partnerships

Corporate tax(usually 25%)

Companies

Branches/PEs

These are simply taxes paid on incomes earned by an enterprise; or taxes

paid on profits made by a business/corporate enterprise.

These are the taxes paid on business income and investment income.



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Contents


Business taxes






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A company is liable to tax separately

from its shareholders.

Taxation of companies and

shareholders


A branch is also taxed on its

repatriated profit

Tax on dividend8% WHT

Shareholders

Corporate tax25%

Companies

Tax onrepatriated profit

10% WHT

Head office

Corporate tax25%

Branches

Taxation of branches and their

head offices



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A dividend paid to a resident

company by another resident

company is exempt from tax where

the company receiving the dividend

controls, directly or indirectly, 25% or

more of the voting power in thecompany paying the dividend.

This exception does not apply to

dividend paid on redeemable

shares; or

dividend that forms part of a profit

or dividend stripping arrangement.

Taxation of companies and shareholders - exceptions


Dividend is defined to include

a capitalisation of profits (bonus

issues or increase in the amount

paid-up on shares) where stated

capital is credited; or

an amount derived by a

shareholder from a company in

the course of liquidation or

reconstruction, or with respect to a

reduction of stated capital or

redeemable preference shares tothe extent that the amount is not

debited to the company's stated

capital.



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Contents


Business taxes






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The business income of a sole

proprietor is taxed as part of the

individuals total chargeable income.

The tax rates applicable to

individuals depends on the residency

of the individual.

Residents are taxed using the

graduated scale which has a top

marginal rate of 25%

Non-residents are taxed at a flat rate

of 15%

Taxation of individuals

Taxation of sole proprietors



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SESSION 2


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Contents


Business taxes






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Except as provided, a partnership is

not liable to pay tax on the income of

the partnership.

The income of a partnership is taxed

to the partners in the partnership.

Partnership income of a resident or

non-resident partnership is

calculated as if the partnership were

resident.

Losses are not allocated to partners,

they are carried forward if the

partnership qualifies to carry forward

losses.

In ascertaining partnership income,

account shall only be taken of

amounts which are accrued,

derived, or incurred on behalf of

the partners in common; and

property held on behalf of the

partners in common is treated as

if the partnership and not the

partners owned it.

Inclusions and deductions are

treated as if they were accrued,

derived, or incurred by the

partnership and not the partners.

Principles of taxation for partnerships




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Let us use a 5-step approach to

summarise the requirement of

accounting for taxes on partnership

income.

Accounting for taxes on partnership income

Step 1

Step 2

Step 3

Step 4

Step 5




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Step 1

Calculate the income of the

partnership as if it were a resident

person.

Account shall only be taken ofamounts which are accrued, derived,

or incurred on behalf of the partners in

common; and

Property held on behalf of the

partners in common should be treated

as if the partnership, and not thepartners, owned it.

Step 1

Step 2

Step 3

Step 4

Step 5


Accounting for taxes from partnerships



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Step 2

Allocate partnership income to

partners in proportion to their interest

in the partnership.

Where losses are incurred, these arenot allocated but carried forward if

partnership qualifies to so do.


Step 1

Step 2

Step 3

Step 4

Step 5




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Step 3

The allocated profit is assessed on

each individual partner as part of their

chargeable income


Step 1

Step 2

Step 3

Step 4

Step 5




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Step 4

Taxes are calculated on the aggregate

income and each partner is entitled

take credit for credits available to the

partnership in proportion to their

interest in the partnership.


Step 1

Step 2

Step 3

Step 4

Step 5




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Step 5

A partnership is required to file a

return of partnership income if that

partnership is resident or has a PE in

Ghana.

Individual partners will also file

individual income tax returns

indicating chargeable income that

includes their partnership income.


Step 1

Step 2

Step 3

Step 4

Step 5




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Contents


Business taxes






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These are taxes paid by individuals

who earn chargeable income in

Ghana. The individuals could be

residents or non-residents. This will

usually be made up of business,

employment and investment incomes.

Resident individuals are taxed on

income accruing in, derived from,

brought into, or received in Ghana

Non-resident individuals are taxedonly on income accruing in or derived

from Ghana.

Personal taxes

Personal taxes

Investment income

Employment income

Business income

Personaltax



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Personal taxes

Personal taxes

Investment income

Employment income

Business income

Personaltax



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Income from employment is that persons gains and profits from that

employment

Gains and profits from employment include any allowances, or benefits paid

in cash or given in kind paid to or on behalf of, that person from that

employment

Except such employment incomes are specifically exempt from the law,

gains or profits from employment are treated as accruing in or derived from

Ghana to the extend they are attributable to employment exercised in

Ghana regardless of place of payment.

To exercise employment means to be seen to have taken a position in the

employment or hold an office

Employment income

Personal taxes



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These exclusions are subject to

specified conditions

Reimbursement of business

expenses

Reimbursement of dental, medical ,or health insurance

Passage to or from Ghana

Provision of onsite accommodation

Severance pay

Night duty allowance

Employment income - exclusions

Personal taxes



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Employment income - benefits

Personal taxes

Facility provided 2010

Accommodation Value to be added for tax purposes

Accommodation + furnishing 10% of the persons total cash emoluments

Accommodation only 7.5% of the persons total cash emoluments

Furnishings only 2.5% of the persons total cash emoluments

Shared accommodation 2.5% of the persons total cash emoluments

Means of Transport Value to be added for tax purposes

Driver and Vehicle with fuel 12.5% of TCE up to a maximum of GH350 per month

Vehicle with fuel 10% of TCE up to a maximum of GH300 per month

Vehicle only 5% of TCE up to a maximum of GH150 per month

Fuel only 5% of TCE up to a maximum of GH150 per month

In any other case not referred to in the above schedule , the value shall be

the value of the allowance or benefit to a reasonable person in the position of

that person.



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A benefit conferred by an entity

directly or indirectly on an eligible

person, in any capacity, in respect of

the use or transfer of property,

money or rights of the entity,

the creation or destruction of

property,

the creation or release of rights or

obligations, or

the provision of services,

is treated as income of the personfrom an investment

The value of a benefit is determined

in accordance with the benefit table.

The amount to be assessed is the

value of the benefit conferred less

consideration paid;

portion included in assessable

income;

amount attributable to return of

capital; and

amount attributable to distribution

of realised profits.

Eligible person includes a partner, a

director or shareholder, a manager orbeneficiary and their associates.

Employment income collateral benefits

Personal taxes



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Contents


Business taxes






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Section 122 (1 to 4) - Accounts and Records

A person liable to tax under this Act (other than an employee) shall maintain

in Ghana the necessary records.

Such person is required to explain the information to be provided in a return or

any other document to be furnished to the Commissioner under this Act toenable an accurate determination of the tax payable by that person

The Commissioner may adjust a persons liability to tax in a manner

consistent with the intention of the IRA where a person does not maintain

records

A record shall be retained for a period ofnot less than six years unless the

Commissioner otherwise specifies in writing

Tax Audits Examination of records

Tax Audits

Provisions of the Internal Revenue Act (IRA) Record keeping



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Section 122 (4) stipulates the records to be maintained by a business:

Record of all receipts and payments, all revenue and expenditure,

All assets and liabilities of the business

Section 124 discusses access to books, records and computers

For the purpose of administering the IRA, the Commissioner or an officer

authorised in writing by the Commissioner shall

Have at all times and without prior notice full and free access to any

premises, book, record, or computers..

Make an extract or copy from any book, record, or computer-stored

information to which access is obtained

May retain a book or record for as long as it may be required for determining

a persons tax liability or any proceeding under the IRA


Tax Audits



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May seize and retain computer as long as necessary to copy the information

required if a hard copy or computer disk of information stored on the

computer is not provided

The Commissioner has other powers including searching persons,

premises or place

The Commissioner may request the IGP for the requisite assistance for a

specific assignment

An officer shall not exercise the powers without authorisation in writing from

the Commissioner and the officer shall produce the authorisation to the

occupier


Tax Audits



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Section 29 of VATA and Regulations 37-Accounts and Records

Every taxable person shall keep records and books of account as the

Minister may by regulations prescribe

A taxable person shall not destroy any book, document, account or record

which is less than six years old without the written permission of theCommissioner

Records to keep include:

Relevant business and accounting records including sales and purchase

journals, cash books, ledger and other subsidiary books of account

Account to show total output tax, total input tax and the amount due orrefundable for each month

Copies of all tax invoices issued and tax invoices received


Tax Audits

Provisions of the VAT Act and regulations



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Section 216 Books and Records to be kept

Every manufacturer and warehouse keeper shall keep in an approved form

and manner such books, records and forms relating to manufacturer

The books and records shall be open at all times for the inspection of the

proper officer In addition to keeping books, taxpayer would be required to produce records

for inspection

There are several other requirements with regards to records in the CEPS

Law


Tax Audits

Provisions of the CEPS (Management) Act 330



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To enable revenue authorities confirm if tax paid to them correctly reflects

the underlying records of the entities taxable records/transactions

What is tax audit

Tax Audit involves independent examination of an entitys business records

to confirm tax liability and tax payments of a taxpayer Traditionally, conducted by tax auditors from the revenue agencies but has

sometime been outsourced to external auditors

Tax audit processes are very similar in many respect to normal external

audits

Tax audit process has three approaches namely: Planning

execution and

reporting


Tax Audits

Implications of keeping records



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Planning includes tax risk assessment, control environment, internal

controls, understanding clients business etc

Execution involves actual examination of underlying records, tax

correspondence file, substantive procedures (trend, variance analysis,

vouching etc) to obtain audit evidence

Reporting Preparation of draft reports by tax auditors, discussion of reports

and finalisation

Current structure of revenue agencies lend itself to multiplicity of tax audits

Various tax audits include LTU tax audits, IRS tax audits, NTAB audits,

CEPS post clearance audits

Several tax audit groups impact on tax clients in terms of cost and man-

hours of clients staff


Tax Audits

The Tax Audits Process



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In real terms details of some relevant documents examined during tax audits

include:

Tax returns, management accounts/and or budgets, financial statements,

trial balance, Ledgers, subsidiary books/books of prime entry, bank

statements and reconciliations, payment vouchers, stock records, gate

keepers movement books, import and export documentations

For income tax audits, typical areas of tax audit consideration will be:

Corporate income tax, withholding tax, Pay As You Earn,

VAT issues will consider areas such as:

Import services, deductibility of input VAT, input/output relationships, VATrefunds, utilisation of VRPOs,


Tax Audits

Execution of tax audits



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For CEPS post clearance audits and warehousing audits, some records to

consider include:

Customs entries and related documents such as bill of lading, FCVR,

parking lists, attested invoices etc , stock movement books etc


Tax Audits

The Tax Audits Process



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Contents


Business taxes




Personal taxes

Tax audits


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A person is required to pay tax if he has chargeable income;

A persons chargeable income is made up of income from business,

employment and investment less deductions and reliefs under the tax act;

Individuals pay tax based on the graduated scale if they are resident,

otherwise they pay taxes at a flat rate of 15%; Partnerships are assessed on their partnership income but the tax is paid by

the individual partners;

A company or branch of a non-resident company pays tax on profits and are

required to withhold on remissions to their owners or parent;

The Internal Revenue Regulations have clearly specified how chargeableincome should be calculated;

The aim of tax audits is to confirm the tax position of the tax payer. The tax

authority is given the power to inspect the records of taxpayers.

Summary



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PwC

Questions?


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PwC

Thank you

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legal entity.

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