The Income Tax Act 2015, Act 896 (the Act) came into force on 1st January 2016.
This Act was passed in order to simplify the income tax law and to consolidate all the laws on income tax in Ghana. As expected there has been a lot of public outcry due to the fact that the Act came into force after utility and fuel prices had been increased and soon after the Christmas holidays.
The Act has introduced taxes on goods and services which were hitherto non-taxable. For example investments are now taxable. It has been argued that tax on investment will discourage Ghanaians and investors from saving.
The highlights of the Income Tax Act 2015, Act 896 are as follows:
- Gifts received in respect of a business are to be considered as business income and taxable. Gifts received in respect of employment are to be included in employment income and therefore taxable.
- Thin capitalization ratio has been increased to 3:1 as compared to the previous law of 2:1.
- Generally a resident person will be taxed on his global earnings whether or not the foreign income is brought into Ghana. However, there are exceptions to this rule.
- Loans given to employees or by any entity to a member or manager of the entity are taxable except where the loan is less than three months’ basic salary of the employee and the duration of the loan does not exceed 12 months.
- Interest income received by an individual from an investment attracts withholding tax at a rate of 1%. Following the reaction of the public, the Government has submitted proposals to Parliament for an amendment to be made to some sections of the Act. Pending an amendment to the Act, the Ghana Revenue Authority has since 14th January 2016 issued notices instructing financial institutions to suspend the imposition of the 1% withholding tax on interest earned by individuals.
- Interest income received (excluding individuals and financial institutions) attracts withholding tax at a rate of 8%.
- Dividends attract withholding tax of 8% as final tax.
- Lottery winnings are taxable at a withholding tax rate of 5%.
- Rent paid to an individual for residential property is taxable at a withholding tax rate of 8%.
- Rent paid to an individual for non-residential property is taxable at a withholding tax rate of 15%.
- Companies excluding hotel industry and goods and services provided to the domestic market by a free zone enterprise after its ten year concessionary period pay income tax of 25%.
- After their concessionary period Free zone enterprises pay tax of 15% for export of goods (8% previously).
- Companies engaged principally in hotel industry pay corporate tax of 22% (20% previously).
- Payment for Supply of services to a resident attracts a withholding tax at a rate of 15% (5% previously). The public has also called for a revision of this new tax rate.
- Payment for the supply of goods to a resident attracts a withholding tax rate of 3% (5% previously).
- Payment for works attracts a withholding tax of 5%.
- Payment for Management and technical services attracts a withholding tax of 20%.
- A person engaged in petroleum operations pays income tax of 35%.
- Payments made to a petroleum subcontractor attracts a withholding tax of 15%.
- A person engaged in mineral operation pays income tax at the rate of 35%.
- The income of a certified company from a low cost housing business attracts a tax of 1% for a period of five years.
- Financial institutions with income from loans granted to farming enterprises or leasing companies pay tax of 20%.
- Manufacturing business located in the regional capitals of Ghana (except Accra & Tema) pay income tax at the rate of 75% of the corporate tax rate.
- Manufacturing business located elsewhere within Ghana pay income tax at the rate of 50% of the corporate tax rate.
- Gains on the realization of investment asset (including securities) by a person attracts a tax of 15%.
- A distinction has been made between a Ghanaian permanent establishment and a foreign permanent establishment.
- The Act has expanded the definition of a Ghanaian permanent establishment to include:
- The provision of services in the country;
- A place in the country where an agent performs any function on behalf of the business of a non-resident person;
- Including, in the case of an insurance business, the collection of premiums or the insurance of risk situated in the country but
- Excluding a case involving a general agent of independent status with its own legal personality acting in the ordinary course of business.
- A foreign permanent establishment is a fixed place of business of a resident person situated in a foreign country where the business is conducted continuously for at least six months, but excludes any place at which only activities of a preparatory or auxiliary nature are conducted.
- Banks are now required to provide information on the bank records of a client of that Bank to the Ghana Revenue Authority.
- Failure to pay tax when due, attracts an interest of 125% of the statutory fee and this is compounded on a monthly basis. Previously, different rates applied.