public lecture · 3/23/2016 3 objectives of income tax act, 2015(act 896) to revise and consolidate...

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23/03/2016 1Presented by Edward A. Gyambrah( DC P&P GRA )

PUBLIC LECTURE

TOPIC: INCOME TAX ACT, 2015 (ACT 896); WHAT HAS CHANGED


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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)


Proposed Revenue Administration Bill underway to deal with common administrative provisions


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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


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


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Some salient changes in Act 896Chargeable Income

The chargeable income shall be determined from each source separately.

business

investment

employment

(The concept of ring fencing of income is clearly stated)


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


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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


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.


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Research and Development Expenses (Section 13)

Research and development expenses may be deducted irrespective of whether or not they are of a capital nature.


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


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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


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


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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.


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


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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.


Business losses may be deducted in calculating income from an investment

Losses from an investment are deducted only in calculating income from an investment.


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Capital Allowance

5 classes instead 6

Assets in mineral and petroleum operations pool together.

1, 2, or 3 depreciable assets use thereducing balance method.

4 and 5 on straight line method.


Capital allowance granted shall not be deferred.

Unused capital allowance may treated as part of business loss


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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”


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


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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


Income from Investment

Include :a gain from the realization of an

investment assetgift received in respect of the investmentNote

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)


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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.


Thin Capitalization rule(S33)

Debt-to-equity ratio is provided as 3:1


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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)


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


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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


Other modification

Act 896 (S. 47) exempts from tax, gains made fromrealization of assets from merger, amalgamation or re-organisation where there is a continuity of at least 50%of the underlying ownership.

A Private Ruling binds on the CG and also binds on theapplicant as far as the transaction in respect of whichthe ruling is given is concerned


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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


Request for information

Under Act 896 (S.137), the Commissioner- General isempowered to request information on clients of banks

Banks are under obligation to provide the informationon the banks records of the clients to the CG onrequest.

Note

Under Act 592, the GRA would have to go to court andget a court order before a bank can disclose/provideinformation of its clients on its records to the GRA.


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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,


In any other case, a quarter of the amount by which the interest at the statutory rate exceed the interest paid.


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Withholding Taxes

THRESHOLD FOR WITHHOLDING TAX

Increase in the threshold for withholding tax fromGHC 500 to GHC 2,000 for supply of goods, works and services.

Withholding Transaction:

Goods

Works

Services


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.


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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.


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.


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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.


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.


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Withholding TaxesWithholding Tax on Service Fee with a source in Ghanapaid to a Resident Individual (S. 116):

Fees or allowances to a resident director,manager, trustee or board member of acompany or trust 20%

Endorsement fee 10%

Fee on any other supply of services 7.5%


the supply of or use of goods 3%

the supply of works 5%

the supply of services7.5%


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Withholding Tax on payment by aresident person to non-resident withrespect to supply of:

Goods 20%

Works 20%

Any services 20%


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 ishowever exempt from the withholding tax.


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TEMPORARY CONCESSIONSIndividuals 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


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


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Thanks

Comments and Questions


public lecture · 3/23/2016 3 objectives of income tax act, 2015(act 896) to revise and consolidate...

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