Transcript TAXATION (UNDERSTANDING THE TAX SYSTEM IN GHANA)

TAXATION
(UNDERSTANDING THE TAX SYSTEM IN GHANA)
PRESENTED BY:
JOSEPH KYEI ANKRAH
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INTRODUCTION
• Tax is a compulsory payment or contribution made by the citizens of
a country to the government for the general benefit of the country.
Tax is the life blood of every economy, without taxation there is no
nation.
• Things that are jointly needed, like roads, hospitals, armed forces for
protection, police; educational institutions etc. all require funds from
taxation.
• A nation cannot be built by one individual. It requires the combined
effort of all members of the society.
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TYPES OF TAX
There two main systems of taxation levied by government.
These are:
1. Direct tax
2. Indirect tax
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TYPES OF TAX cont.
1. Direct tax: is the tax such as income tax that is levied
on income or profit of the person who pays it, rather
than on goods and services.
Examples:
 Personal tax (individual tax and pay as you earn)
 Company tax
 Gift tax
 Capital gain tax
 Stamp duty
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TYPES OF TAX cont.
2. Indirect tax
It is a tax levied on goods and services rather than on persons or
organizations.
Examples are:
 Value Added Tax (VAT)
 Excise duty
 Sales tax
 Custom duty levied on imports
Indirect taxes can also be referred to as consumption tax.
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TYPES OF TAX cont.
 Distinction
should be made between income tax and
consumption tax.
 This distinction is very important because many businessmen
confuse the two terms.
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CAPITAL GAIN TAX
• This is a taxation of the increase in the capital value of an
asset between the date of acquisition of the asset and the
date of its disposal.
• Capital gain is sum of realized less the cost base of the asset.
• Capital gain tax
is payable by a person at the rate of 15% on
capital gains accruing to that person after the sale.
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EXEMPTIONS FROM CHARGEABLE ASSETS
 The
law exempts certain assets from the category of
chargeable assets and by virtue of the exemptions, gains
made from such sales are not subject to capital gain tax.
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GIFT TAX
 Gift with respect to the receipt of a taxable gift means a receipt
without consideration or for inadequate consideration.
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EXEMPTIONS FROM GIFT TAX
Total value of the taxable gift does not include the value of taxable
gifts received by:
 That person under a will or upon intestacy
 That
person from that person’s spouse, child, parent, aunt,
brother, sister, uncle, nephew or niece
 For a charitable or educational purpose.
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EXEMPTIONS FROM GIFT TAX cont.
 A religious body which uses the gift for the benefit of the
public. The onus is on the religious body to prove that the gift
is to the benefit of the public.
A person who receives a taxable gift the value of which exceeds
GH₵ 50 is required to pay tax at the rate of 15%of the excess
over GH₵ 50
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TAX ASSESSMENTS
(TYPES OF TAX ASSESSMENTS)
A. PROVISIONAL ASSESSMENTS
The commissioner may after the commencement of each basis
period of a person who pays tax by instalments proceed to make a
provisional assessment computed according to the commissioner’s
best judgment on that person’s chargeable income.
PROVISIONAL ASSESSMENTS cont.
The provisional assessment should state the following:
 The estimated chargeable income
 The estimated tax payable
 The amount and timing of instalment payments and
 The time, place, and manner of objecting to the assessment.
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PROVISIONAL ASSESSMENTS cont.
•A
person who is dissatisfied with the commissioner’s
provisional assessment may object to the assessment in
writing within nine months of the commencement of the basis
period to which the provisional assessment relates.
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B. SELF ASSESSMENTS
 This
applies to those persons specified in a notice
published in the Gazette or in the print media by the
commissioner as persons to which is to apply for a year of
assessment.
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FINAL ASSESSMENTS
The commissioner shall, based on a person’s returns of income
and on any other information available, make a final assessment
of the chargeable income of that person and other tax payable
on that assessment where:
 The commissioner is not satisfied with a return of income for a
year of assessment furnished by a person.
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FINAL ASSESSMENTS cont.
Where a final assessment is made, the commissioner shall serve a notice of
the assessment on that person stating:
 The amount of chargeable income
 The amount of tax payable
 The amount of tax paid, if any.
 The time, place, and manner of objections to the assessment.
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ADDITIONAL ASSESSMENTS
 The commissioner may within three years after service of a notice of
assessment, make an additional assessment amending as assessment
previously made.
 Where the need to make an additional assessment arises by reason of
fraud or a gross willful neglect by or on behalf of a person or the
discovery of new information in relation to the tax payable for any
year of assessment, the commissioner may make an additional
assessment for that year at any time.
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WITHHOLDING TAXES
WHAT IT IS
• Withholding
tax is an amount of tax that an agent of the
commissioner is required to deduct and hold from a payment to a
payee for a transaction that is under the law subject to tax at source.
• A withholding tax agent who fails to withhold tax is personally liable
to pay to the commissioner the amount of tax that has not been
withheld.
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TYPES OF WITHHOLDING TAX
The following are the types of withholding tax:
 Withholding taxes on Pay AsYou Earn (PAYE)
 Withholding taxes on account
 Withholding taxes that are final.
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WITHHOLDING TAXES ON P.A.Y.E
• In the case of employees, the withholding agent is the
employer. He is to deduct and withhold tax from the
total income of the employee from the employment.
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WITHHOLDING TAXES ON P.A.Y.E cont.
 The withholding agent shall pay to the commissioner a tax
that has been withheld or that should have been withheld
within 15 days after the end of the month in which the
payment subject to withholding tax is made by the
withholding agent.
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WITHHOLDING TAXES ON ACCOUNT
 This means the withholding tax is not final and hence the actual
gross income will still be taken into account in determining a
person’s assessable income for the year.
 After determining the total tax liability of the person for the year,
a credit is then granted for the amount of tax paid on account
(i.e. withholding tax is deducted from the tax liability)
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WITHHOLDING TAX WHICH ARE FINAL
The taxes are final because:
• That income shall
not be included in ascertaining the
assessable income of the person who receives it.
• No deductions shall be allowed on that income.
• The tax payable by a person shall not be reduced by any
tax credit.
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WITHHOLDING TAX WHICH ARE FINAL
TYPE OF WHT
FINAL (%)
Interest
ON ACCOUNT
8
Dividends
8
Fees to part time teachers,
lectures, exams invigilators,
and supervisors
10
Fees, emoluments paid to
directors, board members,
managers
10
Commission to insurance,
sales or canvassing agents
10
Endorsement fees
10
Commission to lotto
receivers agents
5
Payment for supply of goods
or use of property or supply
of services
5
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BONUS INCOME
• Where an employer pays a bonus to an employee during a year of
assessment and the sum of the payment and other bonuses paid by
the employer during the year:
a. Does not exceed 15% of the annual basic salary of the employee,
the employer shall withhold tax from the gross amount of the
payment at the rate of 5%.
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BONUS PAYMENT cont.
b. exceed
15% of the annual basic salary of the employee, the
employer shall:
i.
Add any excess above 15% payments to the employment income
of the employee for the year, and
ii.
Withhold tax from the payment in accordance with the income
tax rates for resident individuals.
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OVERTIME PAYMENT
• Where an employer makes a payment during a year of assessment
to a qualifying junior employee, and the payment of the overtime
work to that employee:
A. Is up to 50% of the basic salary of the employee for the month , the
employer shall withhold tax at the rate of 5% from the payment.
B. Is more than 50% of the basic salary of the employee for the
month, the employer shall withhold tax at the rate of 10% from the
payment
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FILING OF RETURNS
A person shall furnish a return of income for a year of assessment of
that person not later than four months after the end of a basis period of
that person ending within the year.
The return of the income must be accompanied by:
 Statement of income and expenditure
 Statements of assets and liabilities
The return of the income shall include a declaration that the return is
complete and accurate and signed by the person making the return.
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INTEREST AND PENALTIES
1. A person who deliberately fails to maintain proper records for a
year of assessment is liable to pay a penalty equal to 5% of the
amount of tax payable by that person for the year.
2. Failure to furnish a Return of Income within the time stipulated
attracts a penalty of GH₵ 4 for companies and GH₵ 2 for selfemployed persons in respect of each day during which the default
continues.
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INTEREST AND PENALTIES cont.
3. A
person who fails to pay tax including an amount which is
treated as if it were tax, on or before the due date for payment is
liable:
a. In a case where the failure is for a period of not more than three
months to pay a sum equal of 10% of the tax payable in addition
to the tax unpaid.
b. In a case where the failure is for a period exceeding three months
to pay a penalty equal to 20% of the tax payable in addition to
the tax unpaid.
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INTEREST AND PENALTIES cont.
4. When person fails to pay any tax which that person is required to
withhold and pay to the Commissioner on the due date, that
person is liable:
a. In a case where the failure is for a period of not more than three
months to pay a penalty equal to 20% of the tax payable in
addition to the tax unpaid.
b. In a case where the failure is for a period exceeding three months
to pay a penalty equal to 30% of the tax payable in addition to
the tax unpaid.
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INTEREST AND PENALTIES cont.
5. A
person who is on self-assessment and whose estimate or
revised estimate of chargeable income for the year of
assessment is less than 90% of the person’s actual chargeable
income assessed for the year is liable to pay a penalty equal to
30% of the difference between the tax calculated in respect of
90% of that person's actual chargeable income for the year.
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TAX PLANNING
 It
is the process of structuring an entity’s transactions to
increase tax savings (i.e. by increasing cost) or reduce its tax
cost (i.e. by reducing revenue) so as to maximize the NPV of
the transaction.
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PLANNING YOUR INCOME TAX
 The main focus of tax planning has been identified as aiming
to minimize one’s tax liability. It is however necessary to
sound a word of caution that this fundamental principle
assumes that the option chosen makes “SOUND
COMMERCIAL SENSE”
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PLANNING YOUR INCOME TAX cont.
In order to be able to take advantage of the provisions of the
tax laws one therefore needs:
 A firm grasp of the relevant tax laws
 A great deal of imagination, and
 A sound commercial judgment
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PLANNING YOUR INCOME TAX cont.
We have dwelt so much on the end result of tax planning, that
is, to minimize the quantum and incidence of tax. Let us now
consider the actual decisions which lead to minimal tax…
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PLANNING YOUR INCOME TAX cont.
All profit oriented businesses have objectives which include
among others obtaining target return from certain defined
project(s) and investment(s).
After identifying the project/investment, management must go
through the following steps:
1. Prepare an operating budget to determine profitability.
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PLANNING YOUR INCOME TAX cont.
2. Choose a method of finance
i. Debt or equity
ii. Lease or buy
3. Select the type of business form:
i. Sole proprietorship
ii. Partnership
iii. Limited liability company
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PLANNING YOUR INCOME TAX cont.
Hint: each of the above options has some tax implications or considerations.
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Using the operating budget to determine
profitability
The
budget
will
help
determine
whether
the
venture/investment is commercially viable (we are assuming
technical feasibility a precondition) after considering:
i. Level/sales/income
ii. Expenses, and
iii. Rate of tax.
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TAX EVASION AND TAX AVOIDANCE
 TAX EVASION:
The illegal avoiding of tax by under-declaring income and/or over
claiming expenses.
It is any act that results in the concealment of ALL or PART of a person’s
legitimate or illegitimate economic activities from tax authorities in
order to dodge payment of direct and/or indirect taxes.
It is the fraudulent denial, concealment, or shirking of a person’s tax
liabilities either partly or wholly, covertly or overtly.
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TAX EVASION AND TAX AVOIDANCE
 TAX AVOIDANCE:
It is used to describe tax reductions achieved through artificial but
permissible arrangements of personal or business affairs. It refers to
the legitimate use of loopholes in the tax laws in order to minimize
one’s tax burden.
It is achieved through careful tax planning.
Tax authorities have over the years endeavored to tighten loopholes
in the Tax Laws so as to minimize opportunities for Tax Avoidance.
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GENERAL APPROACH OF THE COURTS TO
TAX AVOIDANCE
 In Duke of Westminster V CIR, Lord Tomlin stated that:
“…every man is entitled if he can to order his affairs so that the tax
attaching…is less than it otherwise would be…”
There is therefore nothing illegal about arranging your affairs so that
the tax you pay is less than it otherwise would be.
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GENERAL APPROACH OF THE COURTS TO TAX
AVOIDANCE cont.
 The main principle behind Tax Avoidance is simple. Tax authorities are
only entitled to collect tax when they have clear parliamentary
approval to authorize them to collect taxes. Therefore if what you do
is not covered by the words of the law, it cannot be taxed.
 If there are two methods of doing something, one of which incurs less
tax than the other, the choice of the method to use is left with the tax
payer.
 If the government feels that it is losing too much revenue because of
the loopholes being capitalized on by tax payers, it can amend the
Law to stop such escape routes.
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GENERAL APPROACH OF THE COURTS TO TAX
AVOIDANCE cont.
 If Tax Avoidance is legal, then the question is “IS IT ETHICAL?”
In 1947, THE us Federal Judge Learned Hand stated:
“over and over again the courts have said that there is nothing sinister in so
arranging one’s affairs as to keep taxes as low as possible. Everybody does so,
rich or poor; and to do right, for nobody owes any public duty to pay more
than the law demands.
Taxes are enforced exactions not voluntary contributions.
To demand more in the name of morals is a mere cant”.
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GENERAL APPROACH OF THE COURTS TO TAX
AVOIDANCE cont.
 Globally,
Tax Practitioners have specialized in ensuring that
taxpayers pay as little as possible.
 Tax
Authorities have sought to seal loopholes (minimize
opportunities) for ta voidance and hence the ANTI_AVOIDANCE
SCHEMES in various Tax Laws.
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THE VALUE ADDED TAX ACT, 2013 (ACT 870) &
FINANCIAL SERVICES
INTRODUCTION:
The Value Added Tax Act 2013, (act 870) imposes VAT on all supplies of
goods or services made in Ghana and on all imports of goods and
services other than supplies or imports goods and services that are
EXEMPT under Act.
Act 870 received Presidential accent on 3oth December, 2013 and was
gazette on 31st December, 2013.
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EXEMPT SUPPLIES
These are supplies that do not attract VAT under Act 870. financial
services in this category include the following:
 A supply of financial excluding financial services rendered for a fee,
commission, or a similar charge.
 A supply of life insurance and reinsurance whether or not rendered
for a fee, commission, or a similar charge.
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FINANCIAL SERVICES
 “Financial Services” is defined under the First Schedule of Act
870 to mean “the provision of insurance: issue, transfer, receipt
of , or dealing with money whether in domestic or foreign
currency or any note or order of payment of money: provision of
credit, or operation of a bank account or account of similar
institution”
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TAXABLE SUPPLIES
In effect, apart from the supply of life insurance and reinsurance, VAT is chargeable on
all supplies of financial services that are rendered for fee, commission, or a similar
charge.
Such fee-based financial services include the following transactions:
a. Safe custody for cash, documents, and other items.
b. Non-life insurance services (e.g. motor or fire insurance).
c. Bank account, transfers, remittances, or payroll services.
d. Lending services (provision of credit), international banking
or
debt collection or factoring services.
e. Automated Teller Machines (ATMs) and Credit Card or Debit Card
Services.
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TAXABLE SUPPLIES cont.
Specific fees, commissions, or similar charges for financial services on which
VAT is chargeable include:
a. Fees charged for the provision of credit (lending fees) such as
Commitment Fee, Processing Fee, Property Valuation Fee,
Guarantee Commission, Mobilization Guarantee Fee.
b. Fees relating to savings or Current Accounts (local or foreign) such
as Maintenance Fee, Transaction Fee, COT.
c. Fees for Stopped or Returned Cheques (e.g. “Refer to Drawer” or
“Returned Uncleared Effect”)
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TAXABLE SUPPLIES cont.
e. Overdraft processing or renewal fee, Revolving Acceptance Credit Fee or
Arrangement Fee for facilities.
f.
ATM usage fee such as Issuing Fee, Cash Machine Withdrawal Fees,
Replacement of PIN, and Non Collection Fee.
g. Fees for letters of credit such as Drawings or Negotiation commission,
Cancellation fee, Confirmation Commission, Payment commission,
Advising commission, and Handling charges.
h. Fees charged for “Remote Banking” services such as Online Banking fees
and Fees for phone Banking and SMS Banking.
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RATE OF TAX
VAT/NHIL is chargeable on all supplies of taxable financial
services at a combined rate of 17.5% of the fee,
commission, or other similar charge imposed by the
financial service provider in rendering the service.
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