TAXES

The income tax laws of Ghana have been revised and consolidated into one tax code, the Income Tax Act, 2015 (Act 896) as amended (the ITA).

The ITA came into force on 1 January 2016. It has widened the tax base by making Ghana’s income tax rules applicable to the world-wide income of tax-resident companies, and restricting the utilization of capital allowance with respect to depreciating assets to the year to which the allowance relates. Any part of that capital allowance that is not utilized within the year is written off. Previously, the scope of application of income tax rules was limited to income accruing from a source in Ghana, and any part of capital allowance that was not utilised could be carried over for up to five years.

 

Further, the ITA has removed the flat rate tax of 15% applicable to capital gains. Capital gains must now be included in the category to which they relate (e.g. investment income, employment income or business income). The gain is then taxed at the rate of the relevant category. Capital gains incurred upon realization of an asset will be taxed as business income, and any losses incurred upon realization of an asset will be offset against business income.

Gifts received by a company must be included in the company’s business income and taxed accordingly. Pursuant to the Income Tax (Amendment) (No.2) Act, 2016 (Act 924) , where an individual receives a gift in respect of business or employment, the individual may elect to pay tax at the rate of 15%.

On thin capitalisation rules, the debt-to-equity ratio above which interest payments on all forms of debt shall not be tax deductible: has been increased from 2:1 to 3:1.

The ITA also specifies different tax rates for various industries. These include:

No.IndustryTax Rates
1. Hotel industry 22%
2. Food and beverages 25%
3. Education a. Private educational institution - 25%
b. State-owned or state sponsored educational institution - 0%
4. Pharmaceuticals 25%
5. Cocoa farming 0%
6. General agribusiness 25%
7. Export of non-traditional goods 8%
8. Manufacturing companies located outside Accra and Tema This is based on the location of the manufacturing company:
a. Regional capitals – 75% of rate of income tax applicable to other income
b. Elsewhere in the country other than in Accra-Tema– 50% of the rate of income tax applicable to other income.
The ITA also grants certain tax concessions or holidays to specified industries. Under the ITA, industries entitled to the tax concessions are subject to tax at the rate of 1% during the period of tax concession.
Tax Concessions:
9.
a. Tree crop farmers - 10 years tax concession 1% during period of tax concession
b. Livestock farming - 5 years tax concession
c. Cattle rearing – 10 years tax concession
d. Agro-processing company – 5 years tax concession
e. Cocoa-by-product company – 5 years
f. Waste processing company – 7 years tax concession
10. Free zones - 10 years tax concession 0% during the 10 years tax concession.

Customs Act, 2015 (Act 891) (the Customs Act)

The Customs Act is a new legislation which consolidates all laws on the imposition of customs duties and provisions on customs operations into a single legislation and provides for other related matters. The Customs Act empowers the Customs Division of the Ghana Revenue Authority to conduct customs controls which will include random checks based on risk management with the objective of identifying and evaluating risks and to develop counter-measures. The Customs Act now gives the Commissioner-General of the Ghana Revenue Authority the power to select an area or a person based on the risk profile of that area or person and conduct a post-clearance audit to ascertain compliance with the customs laws. Under the Customs Act, the Commissioner -General is required to appoint authorized economic operators and register such persons in accordance with Regulations to the Customs Act and set up a customs laboratory, the functions of which however, are yet to be prescribed by the Regulations to the Customs Act. The Customs (Amendment) Act, 2015 (Act 905) amends section 1 of the Customs Act by replacing the Harmonised Commodity System Code with the Harmonized System - Common External Tariff and Other Schedules, also known as the ECOWAS Common External Tariff (the “ ECOWAS CET”). The ECOWAS CET is a 5-band tariff system which was adopted by the Authority of Heads of State and Government, 29th session, adopted per Decision A/DEC.17/01/06, the ECOWAS CET for ECOWAS Member States.

The 5-band tariff structure of the ECOWAS CET is as follows:

CategoryDescriptionRate
0 Essential commodities 0%
1 Essential commodities, raw materials, capital goods 5%
2 Intermediate products 10%
3 Consumer goods 20%
4 Specific goods for economic development 35%

The Excise Duty (Amendment) (No.2) Act, 2015 (the “Amendment No.2”) has amended the list of goods liable to excise duty and has increased the rate of duty payable on excisable goods.For example, in the production of malt drinks where the quantity of local material that is used in the production is less than 50% of the total raw materials, an excise duty of 17.5% of the ex-factory price will be paid. Where the quantum of local raw materials used is between 50% and 70%, an excise duty of 10% of the ex-factory price will be paid. When the quantum of local raw materials is above 70% of the local materials used, an excise duty of 7.5% of the ex-factory price will be paid. In the production of beer stout other than indigenous beer, where the local materials used in the production is less than 50%, an excise duty at the rate of 47.5% of the ex-factory price will be paid. Where the local material used is between 50-70%, an excise duty at the rate of 32.5% of the ex-factory price will be paid. Where the local material used is above 70%, an excise duty at the rate of 10% of the ex-factory price will be paid.

Under the Amendment No.2, Cider beer has been included and the rate of duty payable is 17.5% of the ex-factory price.
In summary, the taxation regime in Ghana maintains a balance between the entitlements required by the government to foster development and certain liberties ascribed to a taxable person.

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