3/23/ /03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) PUBLIC LECTURE TOPIC: INCOME TAX ACT, 2015 (ACT 896); WHAT HAS CHANGED

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1 1 PUBLIC LECTURE TOPIC: INCOME TAX ACT, 2015 (ACT 896); WHAT HAS CHANGED 2 1

2 INTRODUCTION Income Tax Act,2015 (Act 896) is part of the process of the reorganization of the tax laws after the Integration of revenue agencies Is the last of the tax laws which deal with the charging provisions. The others are: Value Added Tax Act, 2013 (Act 870) Excise Duty Act, 2014 (Act 878) Customs Act, 2015 (Act 891) 3 Proposed Revenue Administration Bill underway to deal with common administrative provisions 4 2

3 Objectives of Income Tax Act, 2015(Act 896) To revise and consolidate the law relating to income tax Simplify the provisions Make tax more user friendly Retain provisions that are peculiar to income tax administration Enhance efficiency and facilitate compliance 5 Broadening the tax base Remove the narrow and distorted tax base of the Internal Revenue Act, (Act 592) Rationalize, streamline and restrict tax concessions Tackle erosion of the tax base Align domestic tax rules with current international tax rules 6 3

4 Some salient changes in Act 896 Chargeable Income The chargeable income shall be determined from each source separately. business investment employment (The concept of ring fencing of income is clearly stated) 7 BASIS OF ASSESSMENT Resident Person Income of residents taxed on worldwide basis Non- Resident Person Income of non-residents remains that of source. Non- Resident Person having Ghanaian Permanent Establishment Income is taxed on worldwide basis 8 4

5 Deductions (Sections 8-17) General deductibility principle applied Exceptions: Repairs and Improvements (Section 12) 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. Deductions rule: (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 9 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. Need to keep separate accounts for each capital assets on repairs and improvements. 10 5

6 Research and Development Expenses (Section 13) Research and development expenses may be deducted irrespective of whether or not they are of a capital nature. 11 Losses on Realisation of Assets and Liabilities ( Sections 15) 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 12 6

7 Interest and Financial Cost The Act separate Interest from Financial Cost Financial cost are cost incurred with respect to: A debt claim or debt obligation A derivative instrument A foreign currency instrument and Any other instrument prescribed by Regulations 13 Limit on Deduction of Financial Costs (section 15) The amount of financial costs other than interest shall not exceed the sum of- financial gains plus 50 percent of income of the person excluding financial gain or loss 14 7

8 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. Draft PN is underway to explain. 15 Losses from a Business or Investment(Section 17) Losses carry forward apply to all person. a. Those in specified priority area for five years b. In any other area for three years 16 8

9 Rules of losses carry forward Ring fence the losses Example losses from exempt income shall be applied to that income only Losses from reduced rate will only be deducted at the same rate. 17 Business losses may be deducted in calculating income from an investment Losses from an investment are deducted only in calculating income from an investment. 18 9

10 Capital Allowance 5 classes instead 6 Assets in mineral and petroleum operations pool together. 1, 2, or 3 depreciable assets use the reducing balance method. 4 and 5 on straight line method. 19 Capital allowance granted shall not be deferred. Unused capital allowance may treated as part of business loss 20 10

11 Capital Gain/Gifts Capital Gains and Gifts no longer separate chapters in the ITA Modified and subsumed under employment, business or investment income and taxed accordingly. Individuals may however elect to pay 15% tax on capital gains (now called gain on realisation of an asset 21 Compensation and Recovery Payments(Section 29) Compensation and recovery payments to be included in calculating income of a person taxability of judgment debts and other recoveries are now made clear in the income tax act 22 11

12 Income from Business Include: a gain from the realization of capital assets and liabilities of the business a gift received in respect of the business 23 Income from Investment Include : a gain from the realization of an investment asset gift received in respect of the investment Note winnings from lottery in now treated as an investment activity. (winning in excess of GHc 2,592 p.a is taxed at rate of 5% final WHT) 24 12

13 Arm s length standard and arrangements between associates (Section 31) Apply to all related party transactions 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. 25 Thin Capitalization rule(s33) Debt-to-equity ratio is provided as 3:

14 Special Industries The Act has certain specific provisions for the following Industries: Petroleum operations (S63 S76) Minerals and Mining Operations (S77-S86) Financial Institutions (S87- S92) 27 SELF ASSESSMENT Due date of Self Assessment Returns is by the date for payment of the first tax instalment. Understating estimated tax payable by instalment Liable to pay interest at 125% of BOG discount rate of the tax unpaid for the period for which the tax is outstanding compounded monthly 28 14

15 MODIFIED TAXATION Modified taxation is introduced 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 29 Other modification Act 896 (S. 47) exempts from tax, gains made from realization of assets from merger, amalgamation or reorganisation where there is a continuity of atleast 50% of the underlying ownership. A Private Ruling binds on the CG and also binds on the applicant as far as the transaction in respect of which the ruling isgiven isconcerned 30 15

16 Act 896 makes provisions for amendment and revocation of Practice Notes and Private Rulings. Despite the binding nature of the ruling by the CG, a taxpayer can challenge same in court 31 Request for information Under Act 896 (S.137), the Commissioner- General is empowered to request information on clients of banks Banks are under obligation to provide the information on the banks records of the clients to the CG on request. Note Under Act 592, the GRA would have to go to court and get a court order before a bank can disclose/provide information of its clients on its records to the GRA

17 Quantification of loan benefits Basis of quantifying interest on loans provided to employees by the employer is provided. No quantification is needed if; (ii) the term of the loan does not exceed twelve months, and (iii) the aggregate amount of the loan and any similar loan outstanding at any time during the previous twelve months does not exceed three months basic salary, 33 In any other case, a quarter of the amount by which the interest at the statutory rate exceed the interest paid

18 Withholding Taxes 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. Withholding Transaction: Goods Works Services 35 Definition of Goods Goods means objects of every kind and description including raw materials, products and equipment and objects in solid, liquid or gaseous form, and electricity, as well as services incidental to the supply of the goods if the value of those incidental services does not exceed that of the goods themselves. It also includes movable tangible property, thermal and electrical energy, heating, gas refrigeration, air conditioning, and water but does not include money

19 Definition of works Works is defined to include work associated with the construction, reconstruction, demolition, repair or renovation of a building or structure or surface and includes site preparation, excavation, erection, assembly, installation of plant, fixing of equipment and laying out of materials, decoration and finishing and any incidental activity under a procurement contract. 37 Definition of Services Service means the furnishing of labour, time, or effort not involving the delivery of specific end product other than reports, which are merely incidental to the required performance, and included consulting, professional and technical services but does not include, employment agreements or collective agreements, They include scientific,literary, artistic, training activities as well as activities of Physicians, Surgeons, lawyers, engineers, architects, surveyors, dentists, accountants, auditors and other such professional activities

20 Technical Service Means services which are tendered and contracted on the basis of performance of a measureable physical output such as drilling, mapping, aerial photography, surveys, seismic investigations, maintenance of facilities or plant and similar operations. 39 Consultancy Service Means services which are of intellectual and advisory nature provided by firms or individuals using their professional skills to study, design and organize specific projects, advise clients, conducting training or transfer knowledge

21 Withholding Taxes Withholding Tax on Service Fee with a source in Ghana paid to a Resident Individual (S. 116): Fees or allowances to a resident director, manager, trustee or board member of a company or trust 20% Endorsement fee 10% Fee on any other supply of services 7.5% 41 the supply of or use of goods 3% the supply of works 5% the supply of services 7.5% 42 21

22 Withholding Tax on payment by a resident person to non-resident with respect to supply of: Goods 20% Works 20% Any services 20% 43 Withholding Tax from Investment Returns: Dividend paid to any person 8% Interest paid to an individual Exempt Interest paid to all others 8% Interest paid to a resident financial institution is however exempt from the withholding tax

23 TEMPORARY CONCESSIONS Individuals and companies granted temporary concessions from tax in specified sectors are now required to pay 1% tax on their chargeable income during the period of concession 45 Repeals and Savings LI 1675 as amended is saved under this Act. The provisions in the LI shall be considered to have been made or done under this Act and shall continue to have effect until reviewed, cancelled or terminated 46 23

24 Thanks Comments and Questions 47 24