CHAPTER 1

1.1 INTRODUCTION TO TAXATION

Tax may be defined as a monetary charge imposed by the government on persons, entities,
transactions or property to yield public revenue. Where payment is not monetary, a more wide
embracing definition has been adopted as: Taxes are the enforced proportional contributions from
persons and property levied by the State by virtue of its sovereignty for the support of government
and for all public needs (Thomas. M. Cooley: The Law of Taxation).
Matthews v Chicory Marketing Board (Vic) (1938) 60 CLR 263, tax was defined as a compulsory
extraction of money by a public authority for public purposes.
Invariably therefore a tax can be said to be a compulsory and definite amount levy on adult

citizenry of a particular country the collection of which is backed by the statutory provision of a

state. A tax is a pecuniary burden laid upon individual or property to support government

expenditure. Therefore, a tax is not levied in return for any specific service or services rendered by

the government. (Lekan et al, (2006). Tax according to the National Tax policy for Nigeria is a

monetary charge on a person’s or entity’s income, property or transaction and is usually collected

by a defined authority in the instant case of Ghana, by the Ghana Revenue Authority on behalf of

the government.

One of the main characteristics of a tax is that the payer does not demand something equivalent in
return from the government for the payment. It is expected that when taxes are collected, they are
used by government for public good and not just for those who make the payment.

1.2 ROLE OF TAXATION

a) Source of Government Revenue: taxation is a mechanism through which financial

resource are raised by the government for public expenditure. It is the government’s main
source of income.
 b) Equitable Redistribution of Income-taxation may be used as a tool for equitable
distribution of income through progressive system of taxation. This is where those who earn
more are made to pay more in tax than those who earn less.
c) For reallocation of resources-this can be achieve through the use of tax incentive to
stimulate the growth of key sectors of the economy.

d) Restrain certain types of consumption, e.g., alcoholic beverages and tobacco. This is achieve by
imposing high tariffs and import duties on imported alcoholic beverages and tobacco products.

e) Fiscal policy describes the mechanism of government expenditure and income through taxes.
As a fiscal tool to control the volume of money in circulation and thereby controlling inflation.
For example, during the period of inflation, personal income taxes as well as corporate income
taxes could be increased to reduce the purchasing power of consumers, hence reducing the
volume of purchases of goods and services. According to the tenets of Keynesian
Macroeconomics, rather than trying to design a neutral tax system, governments should
deliberately use taxes to move the economy in the desired direction. Thus if an economy is
suffering from sluggish growth and high unemployment, the government should reduce taxes
to transfer funds from the public to the private sector. The tax cut should be both stimulate
demand for goods and services and increase the level of private investment. This should result
an expansion of the economy and creation of new jobs. On the other hand, if the economy is
overheated, so that wages and price are in an inflationary spiral, the government could raise
taxes. This would lead to people having less money to spend, causing demand for consumer
and investment goods to fall. Thus the upward pressure of wages and prices would be relieved.

1.3 ATTRIBUTE OF A GOOD TAX SYSTEM

The attributes of a good tax system are concepts that provide guidelines towards a good tax
system. Since many view taxation as a necessary evil, it should be administered in such a way
as to create minimum pain to the payer, just like the honey bee which collects nectar from the
flower without hurting the flower. Economists over time have laid down the principles that
policy makers should take into account in making tax laws; these are referred to as canons of
taxation. The following are the common canons of taxation:

1.3.1 Equity
This is a basic criterion for a tax structure design. A good tax system should be equitable, that
is, each taxpayer should contribute his fair share to the cost of government. This is to say, a
 good tax system should be fair to the people who are required to pay it. However, the notion of
a fair share has not been universally defined.
A variety of approaches may be taken of which two are outstanding. These are:

 the Ability to Pay Principle; and

 the Benefit Principles

In respect of the benefit approach, equity is served if taxes are apportioned according to the
benefit derived from the government by particular individuals or group of individuals. Under
this approached taxes are treated as payments for goods and services.
This principle asserts that individuals and businesses should purchase the goods and services
of government in the same way other commodities are bought. Those who benefit from
government – supplied goods and services should pay the taxes necessary for financing them.
A few public goods are financed on this basis. In this case one should not expect the state to
subsidize certain goods. The current petroleum pricing policy is an approximation of this
principle. Another example is the payment of toll on the use of certain roads by drivers who use
those roads.
Assessing the Practicalities of this principle
 It will be extremely difficult for the government to determine the benefits individuals and
businesses receive from such services as national security, education, police and fire protection
in order to determine how much a person need to pay in terms of tax for the use of those
services.
 Even in tangible case of road finance, it will still be difficult to measure benefits. Car owners
and non – car owners benefit in different degrees from good roads.
 Government policy of redistributing income would be defeated where public goods are financed
on this principle. It would be absurd to as poor families to pay taxes needed to finance their
children education.

The ability to pay principle takes the position that taxes are equitable when they are levied
according to a defined tax capacity. The ability to pay refer to the economic resources under a
person’s control. This principle calls for equal amount of tax to be paid by taxpayers with equal
abilities and different amounts of taxes when such capacities differs. This principle rest on the
idea that the tax burden should be geared directly to a taxpayer’s income and wealth. In Ghana
the ability to pay principle means that individuals with high income should be made to pay
more taxes both absolutely and relatively than those with low incomes.
Assessing the Practicalities of this principle
  The question of how much more ability to pay does the poor person has compared to the rich
person is not easy to determine.
 There is no scientific way of measuring someone’s ability to pay taxes. In practice the answer
hinges on guesswork, the tax view of the government in power, expediency and how urgently
the government needs revenue.

The two concepts that equals pay equally and un-equals pay differently are known as
horizontal and vertical equities.

Horizontal Equity-taxpayers with approximately the same level of income should pay equal
amount of tax. In respect of horizontal equity a tax system is so designed that persons with the
same income level pay the same amount of tax. For example, income tax is horizontally
equitable if the taxable income calculation accurately reflect the ability to pay. Assuming Mr.
Kendrick and Mr. Adu, both unmarried earn GHS 12,000 annual salary, and neither has any
additional inflows of economic resources, then, by the principle of horizontal equity, the two
should pay on equal amount as tax if we consider only their identical marital status and salaries.
Vertical equity-individuals with higher level of income should pay more taxes. The
contribution in tax should increase as the taxable income increases (vertical equity). The
principle behind vertical equity, which is most applicable in income taxes, is that the burden
among taxpayers should be distributed fairly, taking into account individual income and
personal circumstances. Vertical equity is to be taxed proportionate to the income one earns.
The strongest shoulders should carry the heaviest burden.

1.3.2 Certainty of Imposition

Taxpayers should be able to determine their true tax liability with a fair degree of accuracy.
They should be clear in their minds as to how much tax is owing and payable at any point in
time. There should be no ambiguities and tax administrators must have no discretionary
powers as to how much to demand. Additionally, the time of payment, the manner of payments,
the amount to be paid, the place of payment must be certainty and clear stated.

1.3.3 Convenience of Payments

A good tax system should be convenient for the government to administer and for the people
to pay. Perhaps the most important aspect of this canon is that taxpayers must not overly
suffer in order to comply with the tax laws. Every tax ought to be levied at the time or in a
manner in which it is most likely to be convenient for the contributors to pay it. The method
of collecting the tax should be such that the majority of taxpayers would understand and
 routinely comply. The collection method should not overly intrude on taxpayers’ privacy but
should not offer minimal opportunity for non-compliance

1.3.4 Economy
A good tax system should be economical in administration. The cost of collection should be
minimal in relation to the taxes collected. The administrative cost of collecting and enforcing the
payment of tax should be reasonable compared to the total tax revenue generated. A good tax
system should automatically respond to changes in the community/society’s wealth, population
and needs and not too high to damage the source of that revenue

1.4 CLASSIFICATION OF TAXES

There are different kinds of taxes, which are also classified differently based on the economic
standpoints from which they are viewed.

1.4.1 Taxes classified according to tax base:

Taxes have to be levied on one base or another, and a convenient way of classifying a tax is to do so
according to what is being taxed. Three main tax bases are used in the present Ghana tax system,
namely:
 Income
 Capital
 Consumption
Taxes on income, which includes income tax on individuals and corporate or non-corporate bodies,
tax on rents; Taxes on capital such as capital gain tax on individuals and companies, property tax
on land and gift tax.
Taxes on expenditure such as consumption or production as in Value Added Tax (VAT).

1.4.2 Taxes classified according to who bear the burden of tax

Direct and indirect taxes are the more usual ways of classifying taxes in Ghana
Direct tax is intended to be paid by the person on whom it is actually levied, the impact and
incidence of tax are on the person whom the income or gain accrue. Direct tax includes income tax
on individuals and companies, which are administered by the Domestic Tax Revenue Division
(DTRD) of the Ghana Revenue Authority (hereinafter refer to it as GRA).
Advantage of direct tax
  Incidence and yield are easy to determine
 The taxpayer know with certainty what he is expected to pay
 Yield increases automatically as wealth and population increase
 Direct taxes are in general progressive
Disadvantages
 The cost administration is very high
 The effect on incentive, enterprise and savings in the case of those with large income may
be considerable

Indirect taxes are on expenditure through production and consumption. They are levied on the
ownership of goods and services. They are said to be indirect because the impact is on the person
immediately paying the tax whereas the incidence may be on a different person, say the consumer.

1.4.3 Taxes classified according to distribution of tax burden

The way in which the burden of tax is distributed among the taxpaying community is another way
in which taxes may be classified. The rates of tax can be set in such a way that they are:
 Progressive: Progressive taxes take an increasing portion as the value of the tax base rises.
 Proportional: A proportional tax takes a constant portion of the value of the tax base and
depends on the marginal and average rates of tax being equal.
 Regressive: Regressive taxes take a declining portion as the value of the tax base rises and
depends on the average rate of tax being greater than the marginal rate of tax.

1.4 PRINCIPAL TAX RULES IN GHANA

It is important to understand the sources from which tax rules emerge for
application in Ghana. These can be classified into

 Domestic legislation;
 Court cases and rulings;
 Statements of practice by tax authorities; Regulations or directives imposed by a
supranational body; and
 International treaties.
1.5.1 Domestic Legislation
It is worthy of note that tax is the creation of legislation and is imposed by a statute. Therefore,
legislation is the main source of tax law. These provide the reference point for the application of all
tax laws in Ghana. Currently, the following are the statutes that govern each of the main taxes in
Ghana:

 The Income Tax Act, 2015 (Act 896) as amended

 Revenue Administration Act, 2016 ( Act 915)
 Income Tax Regulation, 2016 ( L.I.2244)
 Excise Duty Act 2014 (Act 878)
 Excise Duty Regulations, 2016 (L.I. 2242)
 Customs Act, 2015 (Act 891)
 Transfer Pricing Regulations, 2012 (L.I 2188);
 Value Added Tax Act, 2013 (Act 870);
 Value Added Regulation, 2016 (L.I. 2243)

In the Ghanaian context, the authority to tax emanates from the 1992 Constitution, and all tax
legislations are passed pursuant to the relevant constitutional provision.
It is the Parliament that has the power to enact legislation on taxation since under Article 174 of
the 1992 constitution of Ghana. It has the exclusive power to impose taxes. In addition to the Acts
(legislations), a large body of tax law is contained in regulations that are passed under enabling
legislation. Therefore a reading of the parent Act alone will not give a detailed picture to enable you
have a full understanding of the parent Act. For instance, Internal Tax Act, 2015 (Act 896) as
amended is the parent Act on income tax but the Internal Revenue Regulations, 2016 (L.I. 2244)
as amended detail out the mechanics of assessing and computing the tax liability of a taxpayer. The
Revenue Administration Act, 2016 (Act 915) is to govern the administration and collection of
revenue by the Ghana Revenue Authority.

1.5.2 Court Cases and Ruling

Court cases might be used to settle points of law in a tax dispute with the tax authorities. The courts
are the last resort when it comes to interpretation of laws. The ruling of a judge in a particular case
might set the precedent, which will be binding on all future cases where the same circumstances
apply.

1.5.3 Statements of Practice by the Tax Authorities

 These are issued by tax authorities to give interpretation to aspects of the tax law. These practice
notes are binding on the tax authority (i.e. Commissioner-General) until revoked. It is worthy of
note that notices and ruling issued by the tax authority are not binding persons affect by the law.
1.5.4 Regulations by Supranational Body
Ghana is subject to regulation by supranational authorities like the Africa Union (AU) and the
Economic Community of West African States (ECOWAS). Any Regulations or Directive issued by
bodies are immediately binding on all member states without further legislation. Example, the
customs tariffs are in accordance with the harmonised code which has worldwide applications as
provided under the General Agreement on Tariffs and Trade (GATT).

1.5.5 International Tax Treaties

Ghana has entered into bilateral tax treaties with a number of countries to resolve issues relating
to the taxation of individuals and entities in their respective jurisdictions for income arising in the
contracting states. These bilateral international treaties are in the form of Double Taxation
Agreements (DTAs).

1.6 FISCAL POLICY

Fiscal policy is action by the Government to spend money, or to collect money in taxes, with the
purpose of influencing the condition of the national economy. A government might intervene in
the economy by:
 Spending more money and financing this expenditure by borrowing
 Collecting more in taxes without increasing public spending
 Collecting more in taxes in order to increase public spending, thus diverting income from
one part of the economy to another
Government spending is an 'injection' into the economy, adding to total demand for goods and
services in the economy (known as aggregate demand) and therefore national income, whereas
taxes are a 'withdrawal' from the economy. Fiscal policy can thus be used as an instrument of
demand management i.e. deliberate policies to stimulate and control the level of aggregate demand
in an economy. Too little demand creates unemployment, too much creates inflation. Fiscal policy
appears to offer a method of managing aggregate demand in the economy.
 If the Government spends more – for example, on public works such as hospitals, roads and
sewerages – without raising more money in taxation (i.e. by borrowing more) it will increase
expenditure in the economy, and so raise demand.
 If the Government kept its own spending at the same level but reduced the levels of taxation, it
 would also stimulate demand in the economy because firms and households would have more of
their own money after tax for consumption or saving/investing. This is an expansionary policy. In
the same way, a government can reduce demand in the economy by raising taxes or reducing its
expenditure. This is a contractionary policy.

CHAPTER QUESTIONS AND ANSWERS

QUESTIONS
1. The characteristics of public goods and services make it hard to measure precisely how their
benefits are apportioned among individuals and institutions. The situation is a bit different on
the taxation side of the picture. Studies reveal, with somewhat greater clarity, the way the
overall tax burden is apportioned. The average citizen is concerned with the overall level of
taxes. Chances are that he or she is even more interested in exactly how the tax burden is allocated
among individual taxpayers”.
In line with the above statement and the objective of Government fiscal policy, state
and explain the following principles of taxation:

 Benefits Received
 Ability To Pay
 Comment on the practicalities or otherwise on the application of these principles
by the Government of Ghana.

2. Under Keynesian Macroeconomics, taxation is said to be used as a tool of fiscal

policy.Explain how this is possible in relation to taxation and unemployment.

3. Differentiate with clear examples what you understand by direct and indirect tax system

SUGGESTED ANSWERS
1.
Benefits – Received Principle
This principle asserts that individuals and businesses should purchase the goods and services of
government in the same way other commodities are bought. Those who benefit from government
– supplied goods and services should pay the taxes necessary for financing them. A few public
goods are financed on this basis. In this case one should not expect the state to subsidize certain
goods. The current petroleum pricing policy is an approximation of this principle. Another
example is the payment of toll on the use of certain roads by drivers who use those roads.
Practicalities:
It will be extremely difficult for the government to determine the benefits individuals and
businesses receive from such services as national security, education, police and fire protection
Even in tangible case of road finance it will still be difficult to measure benefits. Car owners and
non– car owners benefit in different degrees from good roads.
Government policy of redistributing income would be defeated where public goods are financed
on this principle. It would be absurd to as poor families to pay taxes needed to finance their
children education.

Ability – to – pay Principle

This principle rest on the idea that the tax burden should be geared directly to a taxpayer’s
income and wealth. In Ghana the ability to pay principle means that individuals with high income
should be made to pay more taxes both absolutely and relatively than those with low incomes.
The proponent of this principle argues that each additional cedi of income received by an
individual will yield smaller and smaller increments of satisfaction or marginal utility. Because
consumers are rational beings, the first cedi income received in any period of time will be spent
on essential goods, which yield the greatest marginal utility. Successive Ghana cedis of income
will go for less essential goods and finally for luxurious goods and services. (This means that a
cedi taken from the rich person who has many Ghana cedis). Therefore to balance the sacrifices
which taxes impose on income receiver, taxes should be apportioned according to the amount of
income a taxpayer receives.
Practicalities:
The question of how much more ability to pay does the poor person has compared to the rich
person is not easy to determine.
There is no scientific way of measuring someone’s ability to pay taxes. In practice the answer
hinges on guesswork, the tax view of the government in power, expediency and how urgently the
government needs revenue.

Suggested Solution 2

Fiscal policy describes the mechanism of government expenditure and income through taxes.
According to the tenets of Keynesian Macroeconomics, rather than trying to design a neutral tax
system, governments should deliberately use taxes to move the economy in the desired direction.
Thus if an economy is suffering from sluggish growth and high unemployment, the government
should reduce taxes to transfer funds from the public to the private sector. The tax cut should be
both stimulate demand for goods and services and increase the level of private investment. This
should result an expansion of the economy and creation of new jobs. On the other hand, if the
economy is overheated, so that wages and price are in an inflationary spiral, the government
could raise taxes. This would lead to people having less money to spend, causing demand for
consumer and investment goods to fall. Thus the upward pressure of wages and prices would be
relieved
 CHAPTER 2

IMPOSITION OF INCOME TAX

2.0 Introduction
Income tax is a tax imposed on a person’s taxable income at specific rates. A person means
individual or entity.
Income tax is charged on every person who has chargeable income for each year of assessment. In
Ghana, Income tax is payable for each year of assessment by a person who has chargeable income
the year, and also by a person who receives a final withholding payment during the year. The total
amount of tax payable by a person for each of assessment is the sum of the tax computed on the
chargeable for the year and the tax withheld on the final withholding tax payment. The income tax
payable is calculate by multiplying the chargeable income for the year by the applicable tax
rate.
2.1 Definition of some terms

Chargeable income:
Section 2 of the ITA, (Act 896) defines the chargeable income of a person for a year of assessment
as the total of the assessable income of that person for the year from each employment, business
or investment less the total amount of deduction allowed that person. Chargeable income is derived
from three main types of income, namely; business, employment and investment. In
determine a chargeable income of a person for a year of assessment, the chargeable income from
each source must be determine separately. From the definition of chargeable income, one need to
be abreast with what constitute the assessable income of a person.

Assessable Income
Assessable income of a person for each year of assessment is defined by Section 3 of the ITA as
the income of that person from any employment, business or investment. The assessable income a
person for a year of assessment from any employment, business or investment is;
 In the case of a resident person, the income of that person from each employment, business
or investment for the year, whether or not the source from which the income is derived has
ceased; and
 in the case non- resident person, the income of that person from the employment, business
or investment for the year to the extent that the income has a source Ghana; and where the
person has a Permanent establishment, the income for the year that is connected with the
permanent establishment, irrespective of the source of the income. An income is deemed to be
sourced from Ghana if the income is accrues in or derived from the country.
Person: means an individual or entity.
An entity: mean a company, partnership or trust, but does not include an individual
A company mean a company incorporated under the laws of Ghana or elsewhere and includes
a friendly society, building society or similar society, a pension fund, provident fund, retirement
fund, superannuation fund or similar fund; and a government, a political subdivision of a
government, or public international organization but does not include a partnership or a trust.

Trust: means an arrangement under which a trustee holds assets;

Trustee: means an individual or body corporate holding assets in a fiduciary capacity for the
benefit of identifiable persons or for some object permitted by law and whether or not-
the assets are held alone or jointly with other individuals or bodies corporate; or the individual
or body corporate is appointed or constituted trustee by personal acts, by will, by order or
declaration of a court or by other operation of the law; and includes-
 an executor, administrator, tutor or curator;
 a liquidator, receiver, trustee in bankruptcy or judicial manager;
 a person having the administration or control of assets subject to a usufruct, fidei
commissum or other limited interest;
 a person who manages the assets of an incapacitated individual; and
 a person who manages assets under a private foundation or other similar arrangement;

Expenditure" or "expense" means a payment made that reduces the assets of the person
making the payment;

Payment: includes an amount paid or payable in cash or kind, and the conferring of value or
a benefit in any form by one person on another person and includes-

 the transfer by one person of an asset or money to another person or the transfer by
another person of a liability to the one person;
 the creation by one person of an asset that on creation is owned by another person or
the decrease by one person of a liability owed by another person;
 the provision by one person of services to another person; and
 the making available of an asset or money owned by one person for use by another
person or the granting of use of such an asset or money to another person;

Interest includes-

 a payment, including of a discount or premium, made under a debt obligation that is

not a return of capital;
 a swap or other payment functionally equivalent to interest;
 a commitment, guarantee or service fee paid in respect of a debt obligation or swap
agreement;
 a distribution by a building society;

"Investment asset"-

(a) means a capital asset held as part of an investment being shares or securities
in a company, a beneficial interest in a trust or an interest in land or
buildings, but-
(b) excludes the primary private residence of an individual, provided it has been
owned by the individual continuously for the three years before disposal and
lived in for at least two of those three years (calculated on a daily basis);
Capital asset-
a) include an asset to the extent to which it is employed in a business or investment;
but
b) exludes trading stock or a depreciable asset

"lease" means an arrangement providing a person with a temporary right in

respect of an asset of another person, other than money, and includes a
licence, profit-a-prendre, option, rental agreement, royalty agreement or
tenancy;
Service fee"
means a payment to the extent to which, based on market values, it is
reasonably attributable to services rendered by a business of a person, but
excludes interest, rent or a royalty

Residency for tax purposes is defined in relation to individual, partnership and company
as follows:

A resident individual:
 is a person who is a citizen, other than a citizen who has a has a permanent home
outside of the country and lives in that home for the whole year of that year,
 is present in the country during the year for an aggregate period of 183 days or more in
any twelve month period that commences or end during the year. It must be noted that
the person becomes resident from the start of the one hundred and eighty-three day
period. In this circumstance, the person is a resident from the start of the one hundred
and eight-three day period ;or
 is an employee or official of the government of the government of Ghana posted abroad
during the year of assessment or
 a citizen who is temporarily absent from the country for a period of not more than 365
days, where that citizen has permanent home in Ghana.
 A resident company: is one which: Is incorporated in the country under the Companies
Act, 1963 (Act 179); or the management and control of the affairs of that company are
exercised in the country at any time during that year.

RESOLVING ISSUE OF DUAL RESIDENCE (OECD MODEL TAX CONVENTION)

Where an individual is a resident in more than one country (state), then his resident status shall
be determined as follows:
 he shall be deemed to be a resident only of the State in which he has a permanent home
available to him; if he has a permanent home available to him in both States, he shall be
deemed to be a resident only of the State with which his personal and economic relations are
closer (center of vital interests);

 if the State in which he has his centre of vital interests cannot be determined, or if he has not
a permanent home available to him in either State, he shall be deemed to be a resident only of
the State in which he has an habitual abode;

 if he has an habitual abode in both States or in neither of them, he shall be deemed to be a

resident only of the State of which he is a national;

 if he is a national of both States or of neither of them, the competent authorities of the

Contracting States shall settle the question by mutual agreement.

Where a person other than an individual is a resident of both Contracting States, then it shall be
deemed to be a resident only of the State in which its place of effective management is situated.

PLACE OF EFFECTIVE MANAGEMENT OF A COMPANY CONNOTES:

Though there is no general rule or definition of what constitutes a place of effective management
of a company, the below can be used a criteria in determining the place of effective management
of company:
 the place of effective management is the place where key management and commercial
decisions that are necessary for the conduct of the entity’s business as a whole are in
substance made”, will generally correspond to the place where the person or group of persons
who exercises the most senior functions (for example a board of directors or management
board) makes its decisions. It is the place where the organs of direction, management and
control of the entity are, in fact, mainly located.

 Also the place where the chief executive officer and other senior executives usually carry on
their activities as well as the place where the senior day-to-day management of the enterprise
is usually carried on should be taken into account in determining the place of effective
management.
2.3 TAX ACCOUNTING

2.3.1 Year of assessment and basis period

The year of assessment for a person is the calendar year.

The basis period of a person is,
 in the case of an individual or a partnership, the calendar year from 1 st January to 31st
December; and
 in the case of a company or a trust, the accounting year of the company or trust.
A trust or company may apply to the Commissioner-General for a change of its accounting year and
the Commissioner-General may, on such terms and conditions as the Commissioner-General
thinks fit, approve the change. The Commissioner-General may revoke an approval if a trust or
company fails to comply with a condition attached to the approval.
A change in a trust or company's accounting year alters the time at which the trust or company
must pay tax by instalments and on assessment.

Conditions for Approval of Change of Accounting Date

a. The trust or company must first apply to the Commissioner General in writing prior to the
change in the accounting year stating the reasons for the change.
There are a number of reasons why a business may wish to change its accounting date: these
reasons may include:
 the need to synchronize the accounting date of a subsidiary with that of the holding
company.
 the convenience of stock taking at a particular period of the year.
 a business may take over the operation of another and as a result wish to change the
accounting date of the company taken over to that of its own.
 to conform to a regulatory provisions. For example companies listed on the Ghana Stock
Exchange are required to submitted their Annual Financial Statements not later than 31
March each year

b. The trust or company must have filed all returns due.

c. The trust or company must have settled all taxes, interest, or penalties due or made satisfactory
arrangement with the Commissioner-General to settle the outstanding debts.
d. All Directors of the Trust or Company should have filed and paid all relevant taxes.
e. The trust or company should have filed returns up to the old accounting date and to the new
accounting date. This is to avoid any revenue gaps.

The Commissioner-General may revoke an approval granted, if the trust or company fails to
comply with conditions attached to the approval.

2.4 METHOD OF ACCOUNTING

 In determining any amount that would be included or deducted when calculating a person's
income during a basis period must be done in accordance with generally accepted
accounting principles.
 An individual shall account for income tax purposes on a cash basis in calculating the
individual's income from an employment or investment.
 A company other the other hand should account for income tax purposes on an accrual
basis.
 A person other than a company shall account for income tax purposes on either a cash or
accrual basis, whichever most clearly reflects the person's income.
 Subject to the foregoing, the Commissioner-General (CG) may by written notice require a
person to use a particular method of accounting or may approve an application of a person
to change the person's method of accounting. The Commissioner-General must be satisfied
that the new method is necessary to clearly reflect the person's income. If a person's method
of accounting changes, adjustments must be made in the basis period following the change
so that no item is omitted or taken into account more than once.

2.4.1 Cash Basis Accounting

In respect of the cash basis of accounting, a person- derives an amount when payment is
received by, made available to, or made in favour of the person; and incurs an expense or
other amount when it is paid by the person.

2.4.2 Accrual Basis Accounting

Under the accrual basis of accounting, a person derives an amount when it is receivable by
the person; and incurs an expense or other amount when it is payable by the person.
An amount is receivable by a person when the person becomes entitled to receive it, even if
the time for discharge of the entitlement is postponed or the entitlement is payable by
instalments.
 An amount is treated as payable by the person when all the events that determine liability
have occurred and the amount of the liability can be determined with reasonable accuracy,
but not before economic performance occurs with respect to that amount.
Economic performance occurs-
 with respect to the acquisition of services or assets, at the time the services or assets are
provided;
 with respect to the use of an asset, at the time the asset is used; and
 in any other case, at the time the person makes payment in full satisfaction of the
liability.

Where a person is allowed a deduction for an amount or expense incurred on a service or

other benefit which extends beyond twelve months, the deduction is allowed
proportionately over the basis periods to which the service or other benefit relates. This
basically as to do with prepayment of an expense or income received in advance.

QUESTION
The application of tax accounting principles and taxation rules for determining income has been
made flexible by Section 19(1) of the Income Tax Act, 2015 (Act 896) as amended which states that
“Subject to this Act, for the purposes of ascertaining a person's income accruing or derived during
a basis period, the timing of inclusions and deductions shall be made according to generally
accepted accounting principles.”

Required
You are required to explain to a prospective investor the tax provisions regarding cash-basis
accounting and accrual-basis accounting in the light of the above-mentioned provision of Act 896
 CHAPTER 3

DETERMINING THE INCOME OF A PERSON TO TAX

The scope of liability to tax depends on a person’s residence status. Income tax is imposed
on income from employment, business and investment.
For a resident person, income tax is charged on gross income from all over the world. The
tax for a non- resident person is only charged on income derived from sources within
Ghana. The main source of income subject to tax under the Income Tax Act are income
from;
 Employment
 Business; and
 Investment

TAXATION OF INCOME FROM EMPLOYMENT

3.1 Introduction

The income of an individual from an employment shall be “the individual’s gains or profits from
any employment for a Year of Assessment”.
An amount or benefit is derived in respect of employment if it is provided in respect of past,
present or prospective employment. It also includes an amount or benefit provided by a third
party under an arrangement with an employer or an associate of the employer; and it does not
matter whether it is paid to the employee or to his associates.

The Year of Assessment for employment income shall be the calendar year irrespective of the
date in which the employment commences. In instances where the employment commences on
dates other than 1st January, the Year of Assessment for employment purposes will be the
period ending 31st December of the same year. The individual shall account for income tax on
employment income on a cash basis and the tax payable calculated based on a twelve months
period ending on 31st December each year regardless of the period the employment is
exercised.
It important to note that payments for or attributable to employment, service rendered or a
forbearance from exercising employment or rendering a service in the country deemed to
accrued or derived from Ghana, regardless of the place of payment. This is to say an
employment income is deemed to be sourced from Ghana where the employment is exercised
in the country regardless of the place of payment.
4.2 TAX RATE FOR AN INDIVIDUAL
Resident Individual the rate applicable is the graduated rat as provide below:
Cum Tax
Rate Year Cumm Monthly Monthly Tax Cum Monthly

First 0 2,592 2,592 216 0.00 216.00 0.00

Next 5% 1,296 3,888 108 5.40 324.00 5.40
Next 10% 1,812 5,700 151 15.10 475.00 20.50
3,240.0
Next 17.5% 33,180 38,880 2,765 483.88 0 504.38
Exceedin 38,88
g 25.0% 0 3,240

A non-resident individual is taxed at a flat rate of 20%.

Illustrations Basis Period and Year of Assessment for an Employee

ILLUSTRATIONS 1
Ama Atta was employed on 1 February 2012 by Forimex Ltd. Her Consolidate salary was GHS 1,000 X
GHS 50 –GHS 2,000. Required: Compute her basic salary for 2017 year of assessment.

Solution
Consolidated basic salary GHS GHS GHS
1/2/2012-31/1/2013 1,000
1/2/2013-31/1/2014 1,050
1/2/2014-31/1/2015 1,100
1/2/2015-31/1/2016 1,150
1/2/2016-31/1/2017 1,200 x 1/12 100
1/2/2017-31/1/2018 1250 x 11/12 1,145.8
Basic Salary for 2017 1,245.83

ILLUSTRATIONS 2
Nana Adu was employed on 1 March 2012 by BAK Consult. His Consolidate salary was GHS 5,000
X GHS 600 –GHS 8,000. Required: Compute her basic salary for 2016 year of assessment.

Solution
Consolidated basic salary GHS GHS GHS
1/3/2012-31/2/2013 5,000
1/3/2013-31/2/2014 5,600
1/3/2014-31/2/2015 6,200
1/3/2015-31/2/2016 6,800 x 2/12 1,133.33
1/3/2016-31/2/2017 7,400 x 10/12 6,166.67
Basic Salary for 2017 7,300

ILLUSTRATIONS 3

Mr. Martin was seconded to Dammew Ltd on 1 st October, 2013 as Financial Controller. His
Consolidate salary was GHS 10,000 X GHS 2,000- GHS 18,000.
Solution
Consolidated basic GHS GHS GHS
salary
1/10/2013-30/9/2014 10,000
1/10/2014-30/9/2015 12,000
1/10/2015-30/9/2016 14,000 x 9/12 10,500
1/10/2016-30/9/2017 16,000 x 3/12 4,000
Basic Salary for 2017 14,500

Employment is regarded to exist where there is a contractual relationship between master and a
servant for a pay.
Employment refers to:
 Position of an individual in employment of another person.
 A position of an individual as manager of an entity other than as partner of a partnership;
 A position of an individual entitling the individual to a fixed or ascertainable remuneration in
respect of services performed; and a public office held by an individual.

It is important to distinguish between an employee and an independent contractor. As a general

rule, an individual who does not satisfy the definition above automatically becomes an independent
contractor.
Employer means a person who engages or remunerates an employee in employment.
An Employee is an individual engaged in an employment
In ascertaining the profits and gains of an individual from employment, the below payments or
benefits need to be included in the calculation:

 Wages, salary, leave pay, fees, commission and gratuities, overtime pay, fees, commission,
gratuity, bonus, allowances (entertainment, duty, utility, welfare, housing, medical, or any
other allowances).
 The value of any benefits in kind provided by/on behalf of the employer to the employee.
 Amount of private/personal expenditure discharged or reimbursed by the employer.
 Employment terminal and retirement benefits.
 Insurance premiums paid by the employer for the employee and/or his dependents.
 Gift received in respect of an employment
 Perquisite- this is an extra payment or gain beyond one’s regular pay, it is discussed
separately to distinguish it from other benefit in kind which may be receivable regularly by
an employee. E.g. free issue of shares, share options, interest free loan, and discharge of an
obligation to repay a loan.

Explanation to some payment that are taxable:

 Payment in Lieu of Notice

Payments in lieu of notice received from an employer and paid in accordance with the terms of
employment contract is liable to tax. Any salary received by an employee while on leave is part of
the employee’s income and is taxable. If the employee’s employment is terminated and any earned
leave has not been taken, the employer may wish to make cash payment in lieu of leave to eliminate
the accumulated leave balance. Cash in lieu of leave is similar to the salary paid when leave is taken,
and this is taxable.
 Employment Gift
Gifts received in respect of an employment are taxable. Where there is a link between the
payment and the employment and that the payment would never have been made but for the
employment, that gift would be considered as an employment gift.
The under listed are typical examples of employment gift:

 Tips
 Employees in certain trades receive tips which form a substantial part to their income. The
payments of tips received from the employer or a third party as a reward for services rendered in
the course of the employment are taxable.

 Awards
Under an incentive scheme, prizes may be awarded by an employer to his employees, for the
efficient performance of their work, such as for time-keeping, production, sales, etc. Such payments
are taxable on the employees.

 Appreciation
Gift of any kind that is used to show appreciation is taxable.

 Free issue of shares

Where a company issues share free of charge to its employees as a reward for services this may
constitute an income from employment. The amount, which may be assessed on the employees, is
the market value of the shares at the date on which they were given to the employees
 Share options

Where a company grants to its employees option to purchase share at a fixed price it may
constitute an income employment. The tax assessment arises at the time the option is exercised
and the amount assessable is the difference between the open market value at the time and the
cost of exercising the option. Case: Weight v Salmon (19TC174)
The taxpayer was the managing director of a limited company and had a service agreement under
which he was entitled to a fixed salary. In addition, each year the directors of the company passed
a resolution giving him the privilege to buy some of the company’s shares at their par value (that
is, their face value), which was considerably less than their current market value. He duly
purchased and retained the shares. Earlier resolutions had said that this privilege was granted
having regard to the ‘eminent and special services’ that the managing director had performed for
the company, but the resolutions for the years under appeal made no reference to his services.
The managing director appealed against his tax assessment, claiming that as he had not sold the
shares he had received no profit, and thus no earnings on which to be taxed (see generally
EIM00515 onwards). The Courts agreed with the Inland Revenue that the shares themselves were
emoluments, or earnings. The taxpayer was chargeable on the difference between the market
value of the shares and the amount that he had paid for them.
 Discharge of an obligation to repay a loan or a loan waiver
In Clayton v Gothorp the discharge of an obligation to repay a loan was held to give rise to an
assessable emolument.
 Guaranteed tax-free remuneration
Taxable income from an employment includes benefits paid in cash or given in kind. Where under
the terms of a contract of employment an employee receives a tax free remuneration from his
employer, his true income for the tax purposes is the tax-free income received or receivable plus
the tax borne by the employer. Hartland v. Diggings [1926] 10 T.C. 247 (HL). This is also another
 decision of the House of Lords. The facts were that in accordance with the practice of the employer,
an employee was paid the income-tax in respect of his salary and this amount was allowed as a
deduction in computing the employer's profits. It was held that, notwithstanding the absence of
any contract, the tax paid by the employer in respect of the employee's salary was an emolument
which accrued to the employee by virtue of his office and was rightly included in the latter's
assessment. Warrington L.J. observed in his judgment (p. 259)

4.3 FINAL TAX ON OVERTIME

Where an employer makes an overtime payment to a qualifying junior employee, the employer
shall compute taxes on the overtime as follows:
o Where overtime payment does not exceed 50% of the basic salary of the employee for the
month, the overtime payment shall be taxed at the rate of 5%
o Where overtime payment exceeds 50% of the basic salary of the employee for the month,
the excess shall be taxed at the rate of 10%
o Where an employer makes a payment for overtime to an employee who is not a qualifying
junior employee, the payment shall be included in calculating the income of that employee
form the employment and taxed according to the graduated rate.

Qualifying Junior Employee means:

A qualifying junior employee” for a year of assessment is defined as a junior staff member whose
qualifying employment income from the employment for the year does not exceed 18,000 currency
points.

3.4 FINAL TAX ON BONUS

Where an employer pays a bonus to an employee during a year of assessment, the employer shall,
If the total of the bonus payment made by that employer to the employee during the year of
assessment does not exceed fifteen percent of the annual basic salary of that employee, withhold
tax from the gross amount of the payment at the rate of five percent: or
If the total bonus payments made by that employer to the employee during the year assessment
exceeds fifteen percent of the annual basic salary of that employee, add the excess payments to the
employment income of that employee for that year and withhold tax from the total amount
obtained in accordance with the graduated rate.
Tax withheld is a final tax on the overtime or bonus payment and the payment shall not be included
in calculating income derived by the employee from that employment, and the tax paid by
withholding satisfies the tax liability of the employee with respect of the payment and may not be
reduced by any tax credits allowed to the employee.
 EXAMPLE 1
AffiaKom works with BBC Company limited and on an annual salary of GHS100, 000. She was
paid a bonus of GHS14, 000.00 in December, 2016. Determine the tax on the bonus
Annual basic salary = GHS100, 000
Annual bonus paid = GHS14, 000
Annual bonus as a percentage of annual basic salary
{14,000.00 X 100} = 14%
{100,000.00}
Annual bonus paid is less than 15% of annual basic salary therefore the bonus of GHS14, 000.00
will be taxed at a concessionary rate of 5%
Bonus tax = (GHS14, 000.00 x 5%) =GHS700.00
It must be noted that the bonus amount will not be included in ascertaining the total cash
emolument of the employee since the tax paid on the bonus is a final withholding tax.

EXAMPLE 2
Kwame Fiavi works with CCD Company limited and on an annual salary of GHS120, 000 He was
paid a bonus of GHS20, 000.00 in December, 2016. Determine the tax on the bonus
Annual basic salary = GHS120, 000.00
Annual bonus paid = GHS20, 000.00
Annual bonus as a percentage of annual basic salary
= {20,000.00 X 100} = 16.67%
{120,000.00}
Annual bonus paid is more than 15% of annual basic salary therefore part of the bonus (15% of
annual basic salary) will be taxed at a concessionary rate of 5%.
The excess bonus will be added to the income and taxed using the graduated rate.
Annual bonus paid = GHS20, 000.00
15% of Annual basic salary (120,000.00 x 15%) = GHS18, 000.00
Excess bonus paid = GHS2, 000.00
TAXATION OF BONUS
i. GHS18, 000.00 will be taxed at a concessionary rate of 5%
Bonus tax = (GHS18, 000.00 x 5%) = GHS900.00
ii. The excess bonus of GHS2, 000.00 will be added in determining Kwame’s total cash emolument
for the year for the year, and taxed using the graduated rate.

4.5 Taxation of benefits in Kind

 A benefit in kind is the facilitation not by way of cash by an employer to an employee as part of
past, present or future employment terms. Such benefits need not have been in the written
employment terms.
Taxable non-cash employment benefits include:

• Private use of an official motor vehicle.

• Provision of domestic servants and utilities.

• Meals, refreshment, entertainment.

• Relief of debt obligations/interest.

• Provision of property by employer to employee (at non-arm’s length terms).

• Provision of residential accommodation.

• Any other benefits as determined by the Commissioner General.

7.6 Valuation of Benefits in Kind

As a general rule, the value of a benefit in kind is the fair market value (i.e. the amount that an
independent person would have to pay in the market to receive the same good or service) of the
benefit on the date it is taken into account for tax purposes less any amount paid by the employee
for the benefit.
 Motor Vehicle – Where a benefit provided by an employer to an employee or an entity to a
member or manager consists of the use or availability for use of a motor vehicle wholly or partly
for the private purposes of the employee or the member or manager, the value of the benefit is
quantified according to the following rates:

NO BENEFIT RATE
1. Drive and vehicle with fuel 12.5% of the total cash emolument of the person up to
a maximum of GHS 600 per month
2. Vehicle with fuel 10% of the total cash emolument of the person up to
a maximum of GHS 500 per month
3. Vehicle only 5% of the total cash emolument of the person up to a
maximum of GHS 250 per month
4. Fuel only 5% of the total cash emolument of the person up to a
maximum of GHS 250 per month

 Accommodation or housing other than by way of reimbursement, discharges or

allowances –Where a benefit provided by an employer to an employee consists of the provision
of accommodation or housing, the value of the benefit is quantified as follows:
 NO BENEFIT RATE
1. Accommodation with furnishing 10% of the total cash emolument of the person
2. Accommodation only 7.5% of the total cash emolument of the
3. Furnishing only 2.5% of the total cash emolument of the person
4. Shared accommodation 2.5% of the total cash emolument of the person

 Domestic Assistants (housekeeper, driver, gardener or other domestic assistant) – The benefit
is the total employment income paid to the domestic assistants, reduced by any payment made by
the employee for the benefit.
Where employees are offered accommodation by the employer

i) Payment by employer to domestic servants providing direct services eg. cook,

maid etc – such sums are to be added to the income of the employee and taxed.

ii) Payment by employer to domestic servants providing indirect service eg.

watchman, garden boy etc – such sums are not taxable in the hands of the employee.

b) Where the employee provides his own accommodation

i) Payment by employer to domestic servants providing direct services – such sums

are added to the income of the employee and taxed.

ii) Payment by employer to domestic servants providing indirect services – such

sums are also added to the income of the employee and taxed.

 Meals, refreshment or entertainment – The benefit is the cost of the meals, etc. to the
employer less any payment by the employee.

 Utilities (Electricity, Water, Telephone, and Internet): the benefit is the cost of the utility to the
employer less any payment by the employee.

 Loan Benefits

Basically an employer is not responsible for provision of loans to its employees. However as an
incentive to the employees, employer may undertake the function of providing softer terms loans
to its employees compared to what a free market may offer.

Where quantification is nil

A benefit consisting of a loan provided for a year of assessment in return for services, by way
of employment is not quantified as under the following conditions:
Where (a)
 the loan is from an employer to an employee,
  the term of the loan does not exceed twelve months, and
 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,
Where all the above conditions apply quantification of loan benefit is nil.

Where quantification is applicable

(b) In any other case,
Where
i. The loan is from an entity to a member or manager of the entity or from an employer
to an employee,
ii. The loan term exceeds twelve months,
iii. the aggregate amount of the loan and any similar loan outstanding at any time
during the previous twelve months exceed three months basic salary;
the loan should be quantified as follows:

The taxable loan benefit for the year of assessment is quantified as a quarter of the difference
between the interest the employee pays (if any) and the interest that would have been paid using
the statutory rate applicable during the year of income.
Statutory rate means the Bank of Ghana rediscount rate.
The Bank of Ghana rediscount rate is currently called Monetary Policy Rate.
In qualifying the loan benefit, the rate to apply shall be the applicable statutory rate at the time the
loan was taken; and the loan benefit shall be determined monthly.

Formula for calculating the loan benefits:

(B-A)/4=C
Where
A= Interest paid by employee (Loan *actual interest rate)
B=Interest payable at statutory rate (Loan * statutory rate)
C=Loan benefits
Illustration
A company had three employees during the 2016 year of assessment and the following were their
annual income.

GHs GHs GHs

Kofi Ama Kojo
Basic Salary 56,520.00 40,000.00 50,000.00
 Housing allowance (10% of basic salary) 5,652.00 4000.00 5000.00
Transport allowance (15% of basic salary) 8,478.00 6,000.00 7,500.00
Clothing allowance (20% of basic salary) 11,304.00 8,000.00 10,000.00
Total Cash emolument 81,854.00 58,000.00 72,500.00

Besides the cash emoluments stated above, the employees received loans from the employer as follows:
a. Kofi received a total loan of GHs 8,000.00 at a rate of 8% payable within 12 months;
b. Ama received a total loan of GHs 16,000.00 at a rate of 8% payable within 24 months
c. Kojo also received a total loan of GHs 10,000.00 payable in 16 months. This loan is in addition to
an outstanding similar loan of GHs 5,000.00 during the previous twelve months.
(Assume that the statutory rate 22% p.a)
Required
Determine the loan benefits applicable to the three employees
Solution
KOFI
Kofi will not suffer tax on loan benefit because:
i) His loan repayment period does not exceed 12 months,
ii) He had no similar loan outstanding at any time during the previous twelve months, and
iii) His current loan amount of GHs8,000.00 does not exceed his three months’ basic salary of GHs
14,130.00;
Workings 1
Kofi’s three month’s basic salary=GHs 56,520.00 p.a*3/12= GHs 14,130.00.
AMA
Ama will suffer tax on loan benefit because:
i) Her loan repayment period exceeds 12 months
ii) Her total loan amount of GHs 16,000.00 exceeds his three month’s basic salary of GHs
10,000.00
Workings 2
Ama’s three month’s basic salary = GHs 40,000.00*3/12 = 10,000.00
Interest payable at statutory rate = GHs 16,000.00*22% = 3,520.00
Actual loan interest paid= GHs 16,000.00*8% = 1,280.00
Total loan interest benefit = 2,240.00
However taxable loan benefit is limited to (2,240*1/4) = 560.00

KOJO
Kojo will suffer tax on loan benefits because:
iii) His loan repayment period exceeds 12 months
 iv) The aggregate of the current loan (GHs 10,000.00) and the similar outstanding loan (GHs
5,000.00) during the previous twelve months is GHs 15,000.00 exceeds his three month’s
basic salary of GHs 12,500.00.
Workings 3
Kojo’s three month’s basic salary = GHs 50,000.00*3/12 = 11,000.00
Interest payable at statutory rate = GHs 15,000.00*22% = 3,300.00
Actual loan interest paid= GHs 15,000.00*8% = 1,200.00
Total loan interest benefit = 2,100.00
However taxable loan benefit is limited to (2,100.00*1/4) = 525.00
Loan benefits applicable to each employee is as follows
GHs
Kofi - Nil
Ama - 560.00
Kojo - 525.00

Kofi Ama Kojo

GHs GHs GHs
Total Cash emolument 56,520.00 58,000.00 72,500.00
Loan benefit (workings 1,2 and 3) - 560.00 525.00
Total Employment income 56,520.00 58,560.00 73,025.00

 Debt waiver – The benefit is the amount of the debt waived.

 Transfer or use of property or provision of services (Furniture and transportation) – The

benefit is the market value of the property or services less any payments by the employee.

4. 6 Income from Employment that are Exempt

1. A discharge or reimbursement of the dental, medical or health insurance expenses
of an individual where the benefit is available to each full-time employee on equal
terms;
Payment for dental, medical services and payment for health insurance provided to the employee
is exempt from tax if such services or payments are available on a non-discriminatory basis to all
employees.
 Such services or payments must be available to all employees and provided without discrimination.
For example the same categories of employees should have access to the same medical facility. For
example
 All junior staff should enjoy the same medical services and payments
 All senior staff should enjoy the same medical services and payments
 All management staff should enjoy the same medical services and payments
 All top-management staff should enjoy the same medical services and payments

2. A discharge or reimbursement of an expense incurred by an individual on behalf

of the employer of that individual that serves the proper business purposes of the
employer;

3. Payment providing passage to an individual in respect of first employment and

termination (Sect 4(2)(b)(v)
Payment providing passage to an individual to or from the country in respect of first employment
and termination is exempt under the law in the hands of the individual.
In the case where the payment is extended to cover the family members of the individual, that
payment will be taxable and treatment shall be as follows:
i. Where cash payment is made to cover the family members of the employee, the amount
shall be treated as part of cash emolument of the employee and taxed accordingly
ii. Where the employer buys a ticket for the employee and family members, the payment
covering the family members shall be treated as a benefit in kind and taxed in the hands of the
employee.
4. Provision of Accommodation on Site.
Generally provision of accommodation by an employer to an employee constitutes benefit in kind
and thus taxable. However, a provision of accommodation by an employer carrying on a timber,
mining, building, construction, farming business or petroleum operations to that person at a place
or site where the field operation of the business is carried out is exempt.
This excludes
i. Administrative head offices
ii. Residential accommodation located in the Metropolitan, Municipal and District capitals
where actual field operation does not take place
NB: Despite The Above, if Cash Payments are made to Employees for Rent /
Accommodation, The Payment Should be added to the Employee’s Income and Taxed
5. Payment made to Employee on a Non Discriminatory Basis (Sect 4(2)(b) (vii)
A payment made to employees on a non- discriminatory basis and which by reason of the size, type
and frequency of the payments, are unreasonable or administratively impracticable for the employer
to account for or to allocate to an individual is exempt from tax.
Examples include the underlisted payment.
 free or subsidised meals provided in a staff canteen by the employer, so long as the meals are
available to staff generally and are not provided as part of a salary sacrifice
 mobile phones usage where there is no landline phones and its available to all employees
 Bus services provided by the employer
 annual staff parties and functions
 recreational and sports facilities available to all employee’s, e.g. gym
 counseling services to redundant employees and welfare counseling services available to employees
generally
 health screening and medical check-ups
 provision of eye care tests and corrective glasses
 provision of parking facilities for all employees
This refers to gains or income that is not included in the chargeable income of the employee and
therefore not taxable on the employee:

6. Redundancy pay.

Generally, payments on termination of employment or redundancy are not taxable because they
are not in return for the services rendered.
Lump sum payment and other payment made to employees on the termination of their contract of
employment as a result of management decision but not through their own volition is exempt

However a lump sum payment may have the attributes of a taxable remuneration and tax free
compensation.
 A payment that relates to the employee’s entitlements under his contract of service is taxable.
 Lump sum paid as a genuine compensation for loss of office will not be taxable

NB: Lump Sum Payment Made To Employees Who Resign Out Of Their Own Volition Is Taxable.
4.7 Personal Relief
As provided for in section 51 of the Income Tax Act, 2015 (Act 896), in arriving at the chargeable
income of a resident individual from employment for a year of assessment, some relief are deducted
from the assessable income of the employee.
Upfront Reliefs
Employees who apply for upfront reliefs and satisfy all the necessary conditions may be granted
the reliefs upfront on monthly basis.
Upfront Reliefs Include:
 Dependant Spouse or Dependent Children, Relief
 Child education relief in respect of 3 children only
 Disability Relief
 Aged Relief

In any other case, an application must be made by the employee in writing to the CG to be granted
a tax relief card. The Commissioner-General may issue the employee with a tax relief’s card
certifying the personal reliefs to which the employee is entitled to for one or more years of
assessment. The tax reliefs of an employee for a year of assessment is equal to the amount certified
on any tax reliefs card issued to the employee by the Commissioner-General that covers the year
but only where the employee has provided the card to the employer.

1 Dependant Spouse or Dependent Children, Relief

In the case of an individual who has a dependent spouse or at least two dependent children, that
individual is entitled to a personal relief of two hundred currency points (GHS 200); This is granted
to:
 A married person who provides the necessities of life of the dependent spouse.
 A single person who provides the necessities of life of his dependent children (two or more
dependent children).
This means that if both couples are gainfully employed (that is they do not depend on each other
for necessities of life – food, clothing and shelter), none of them will qualify for this relief.
2 Disability Relief
In the case of an individual who has a disability, that individual is entitled to a personal relief
of twenty-five percent of the assessable income of that individual from a business or employment;
This is granted to an individual who is disabled.
To qualify for this relief:
 The individual must be certified by the Department of Social Welfare as a disabled person
 The relief is granted in respect of income from employment or business.
 This means that if the individual has only investment income that individual will not qualify for
the disability relief.
4. Old age relief
In the case of an individual who is sixty years of age and above, that individual is entitled to a
personal relief of two hundred currency points. This is granted to an individual who is sixty years
or more.

5. Child education relief

In the case of an individual who is sponsoring the education of the child or ward of that individual
in a recognised registered educational institution in the country, that individual is entitled to a
personal relief of two hundred currency points per child or ward up to a maximum of three
children or wards;
To qualify for this relief:
The individual must sponsor the education of the child or ward in a recognised registered
educational institution approved by the Ministry of Education. The relief is granted in respect of
a maximum of three children.
Only one person can claim the child education relief in respect of a child, (in other words only one
parent can claim the relief in respect of a child)
The other spouse may claim the child education relief in respect of other children but not in
respect of the same child
This means that an individual who sponsors the education of his or her ward in any recognized
registered educational institution (from kindergarten up to the tertiary level) qualifies for the
relief

EXAMPLE 1
Kofi Mensah and Ama Mensah are married for 20 years and have 5 children who are all in
recognised registered educational institutions approved by the Ministry of Education. Ama is the
HR managress of ABC Limited whilst Kofi Mensah works with XYZ Limited as the Chief
Accountant.
Determine the reliefs available to each of them
KOFI RELIEFS DUE AMA RELIEFS DUE
MARRIAGE NIL MARRIAGE NIL
CHILD EDUCATION 3 OR 2 CHILDREN CHILD EDUCATION 2 OR 3 CHILDREN

EXAMPLE 2
 Kojo Bio is 59 years and single but caters for four of his sisters children. Two of the children are in
Junior High Schools while the rest are in senior High Schools approved by the Ministry of
Education.
Determine the reliefs available to him
SOLUTION
The reliefs available to him are:
 Dependent Children Relief
 Child education relief in respect of 3 children only

6. Aged dependent relative relief

In the case of an individual who has a dependent relative, other than a child or spouse, who is sixty
years of age or more, that individual is entitled to a personal relief of one hundred currency points but
that individual may only claim relief in respect of two dependent relative.
To qualify for this relief:
 The individual must provide for the necessities of life – food, clothing and shelter to the
dependent relative.
 The relief is granted in respect of a maximum of two dependent relatives.
 Only one person can claim the aged dependent relative relief in respect an aged dependent
relative, (in other words only one person can claim the relief in respect of the same aged
dependent relative)
 Other relatives may claim the aged dependent relative relief in respect of other relatives but not
the same aged relative for whom another relative has already made a claim

7. Cost of Training Relief

In the case of an individual who has undergone training to update the professional, technical
or vocational skills or knowledge of the individual, that individual is entitled to a personal
relief which is equivalent to the cost of the training of not more than four hundred currency
points.
This is granted to:
i. An individual who undergoes training to update the professional, technical or vocational
skills or knowledge.
Mortgage Interest

An individual may deduct mortgage interest in respect of only one residential premises during
the lifetime of that individual.
It is important to note that unless otherwise provided for under a double taxation arrangement,
a non-resident person is not entitled to the above personal relief and mortgage interest relief.
 4.7.0 Employer required to withhold tax

An employer shall withhold appropriate tax from qualifying cash payments made to an employee
during a year of assessment to meet the employment tax liability of that employee for that year. An
employer shall withhold tax from the payment of the amount to be included in ascertaining the
income of an employee from the employment, if the employer is a resident in the country; or a non-
resident employer who has a Ghanaian permanent establishment. A non-resident public
entertainer who renders a service in the country shall, for tax purposes, be treated as an employee
of the promoter of the event in respect of which that public entertainer renders the service. A person
who make payment to a public entertainer for a service rendered by that public entertainer shall,
for the payment made by that employer to the public entertainer shall be treated as income derived
by that public entertainer from employment; and shall be subject to withholding tax at the rate of
20%. A public entertainer includes a stage artist, a motion picture artist, a radio artist, a musician,
a sportsman or sportswoman including any athlete, footballer or boxer

4.7.1 Tax to be withheld from payment to casual workers

Where a person makes a payment to a casual worker, that payment shall be treated as income to
the casual worker, and the person shall withhold tax at the rate of 5% on the gross income paid to
the casual worker. The tax withheld shall be treated as a final tax

A causal worker means a worker engaged on a work which is seasonal or intermittent and not for a
continuous period of more than six months and whose remuneration is calculated on a daily basis.

4.7.2 Payment to Temporary Workers

Where a person makes a payment to a temporary the person shall withhold tax at the graduated
rate or at a rate of 20% depending on the residence of the person.

A temporary worker mean a worker who is employed for continuous period of not less than one
month and is not permanent worker or employed for a work that is seasonal in character.

Some definitions;

A qualifying cash payment is a payment made by an employer to an employee or on behalf of an

employee that is required to be included in the employee's qualifying employment income for a
year of assessment, and that is made (in whatever currency) in cash, by cheque or other bill of
 exchange drawn on a financial institution or that otherwise involves a debit to an account of the
employer held with a financial institution.

Qualifying Employment Income” from an employment for a year of assessment is equal to the
total of all amounts that are required to be included in ascertaining the income of the employee
from the employment for the year.

Total cash emoluments means the total of all income derived by the person during the year of
assessment from any and all employment and the total of any amount required to be included in
that person’s income under Section 27 of the Act 896 (Indirect payment) but excluding payment
subject to final withholding tax.

4.8 Collection of Tax from Employment Income -Employer’s Obligation

Employers have statutory obligations in respect of their employees, which are governed by the
Income Tax Act, 2015, (Act 896) as amended and the National Pensions Act, 2008, (Act 766).
Under the Income Tax Act, employers are required to perform the following obligations:
 To withhold sufficient taxes at the prescribed rates from all employment income payable to
employees;
 To remit taxes withheld to the GRA, accompanied by the appropriate PAYE return, by the 15th day
of the month following the month to which the payment relates; and
 An employer shall submit to the Commissioner-General at the end of the year, an Employer’s
Annual Tax Deduction Schedule which shall specify tax withheld in respect of each employee.
 The return shall be filed not later than the four months after the end of the year of assessment.
The return filed shall be deemed to be a return of assessment filed by the employee if that employee
derived an income exclusively from employment.
 To maintain records and keep those for inspection by GRA on demand for at least six years.

4.9 National Pensions Act 2008, (Act 766)

Employers are obliged under the National Pensions Act to withhold 5.5% from the salary of each
employee and to contribute 13% of each employee’s salary towards the mandatory first and second
tiers.
The total contribution of 18.5% is to be split as follows:
 13.5% is remitted to the first tier mandatory social security scheme within fourteen days after the
end of each month to the SSNIT; and
 5% is remitted to the for second tier mandatory privately managed pension funds approved by
the National Pension Authority.
 The minimum contribution to the mandatory retirement or pension fund is 18.5% of the
minimum monthly wage in force for the time being.
It must be noted that an employer or employee shall not pay income tax om respect of
contribution towards retirement or pension schemes as provided above. Section of 89(1) and
section 104 (1) of the Act 766 refers.

Voluntary contributions
An employer may arrange for a worker to join and pay contributions to a provident fund or
personal pension scheme where the worker
is more than fifteen years of age,
(b) is more than the statutory retirement age, or
(c) is exempted under sections 31 and 60 of this Act.
(2) The employer is not obliged to pay contributions of a worker under subsection (1) to the
scheme.
(3) Contributions made and returns earned from investment of the contribution shall, be credited
to the account of the contributor subject to any deduction of fees.
(4) Where an employer contributes on behalf of a worker the contribution does not vest in the
worker until at the end of the vesting period.
(5) Subject to subsection (4), an employer’s contributions to a provident fund on behalf of
a worker is for that worker.
(6) Despite subsection (4) in the event of severance by the employer of the employment
relationship with the worker, or in the event of liquidation of the employer, an employer’s
contributions for its worker shall vest in the worker even if the vesting period has not expired.
(7) A worker may forfeit part or the total amount of the employer’s contributions if the
worker leaves the employment of the employer before the end of the vesting period.
(8) On the death of a worker before or after the expiry of the vesting period, any accrued
benefit of the worker shall devolve on the worker’s nominated beneficiary and in the absence of a
nominated beneficiary in accordance with any applicable law.
Tax reliefs
112. (1) Subject to this Act, contributions made by an employer to a provident fund
scheme on behalf of a contributor shall be treated as part of the deductible income for that
employer for a tax year for the purpose of income tax.
(2) Contributions not exceeding sixteen and one half per centum of a contributor’s monthly
income, made by either a contributor or the contributor’s employer or both shall, be treated as
deductible income, for the purpose of income tax for the contributor and the contributor’s employer
to the extent of their respective contributions.

7.10 Pension Contribution by Expatriates

SSNIT issued a public notice in the Daily Graphic on 18 February 2013 to enforce the provisions of
the National Pensions Act (Act 766). Section 58 of the National Pensions Act (Act 766) provides
that the First Tier Basic Social Security Scheme applies to every employer and worker of an
 establishment in Ghana except expressly exempted by the Constitution or any other law.
Exemption from the payment of social security contributions by the expatriates may be granted by
the SSNIT Authorities provided that an application is made to them and approval is obtained.
Usually, an application for exemption may be granted where the company is able to prove that the
expatriates will not be working in Ghana for a period exceeding three years. Further, it must be
proven to the satisfaction of SSNIT that the expatriates are members of or contribute towards a
pension scheme in their home country.

7.11 Employee’s Obligation

Employees deriving income from more than one source are required to complete an end of year
return to declare:
 Total income from all sources, including business income.
 Total taxes paid at source such as PAYE and withholding tax or provisional tax. This
excludes presumptive tax
 Tax payable

EMPLOYMENT INCOME ASSESSMENT FORMAT

Name: NANA ADU
Year of Assessment: 2016
Basis Period: 1/01/2016-12/31/2016

GHS GHS
Basic Salary xxxx
Add: All Cash Allowance, Other cash benefits; Indirect cash payment xxxx
Risk Allowance xxxx
Child Education Allowance xxxx
Entertainment Allowance xxxx
Excess Bonus xxxx
A reimbursement of an expense incurred by an Individual or associate of the individual xxxx
Cost of living allowance xxxx
Subsistence allowance xxxx
Other Personal Liabilities paid by an employer: utility bill, income tax, etc. xxxx
A retirement contribution made to a retirement fund on behalf of an employee xxxx
TOTAL CASH EMOLUMENTS (TCE) XXXX
NON-CASH BENEFITS
Add: Car Element (% of TCE) xxxx
Rent Element (% of TCE) xxxx
Loan benefit xxxx xxxx
QUALIFYING EMPLOYMENT INCOME XXXX
Add : NON-CASH BENEFITS xxxx
ASSESSABLE INCOME FROM EMPLOYMENT XXXX
 Less: RELIEFS
Marriage/ Responsibility xxxx
Disabled Individual xxxx
Old age xxxx
Child Education xxxx
Aged Dependant Relative xxxx
Cost training xxxx
Other Allowable Deductions xxxx
Social Security Contribution xxxx
Voluntary (Provident Fund) contributed to approved fund manager xxxx
Mortgage Interest xxxx
Contribution and Donation to a worthwhile cause xxxx (xxxx)
CHARGEABLE INCOME FROM EMPLOYMENT XXXX
Add:
Chargeable Income from business xxxx
Chargeable Income from Investment xxxx XXXX
TOTAL CHARGEABLE INCOME OF AN INDIVIDUAL XXXX
TAX THEREON @ GRADUATED RATE
Less: Foreign Tax Credit Allowable (Section 112) xxxx
Tax Paid on Account xxxx
Tax Credit ( WHT) xxxx (XXXX)
TAX OUTSTANDING/ ( REFUND) XXXX
ILLUSTRATION QUESTIONS WITH SUGGESTED ANSWERS

Illustration 1
Tom brown is the Chief accountant of Groceries Ltd. His contract of employment entities him to basic
salary of GHS 48,000 per annum, free furnished accommodation; a car with driver and fuel
unaccountable entertainment allowances, payment of his utility bills and annual bonus. During 2016 year
of assessment his employer made the following payment to him or on his behalf in addition to his salary
GHS
Unaccountable entertainment allowances 4,000
Electricity 3,000
Water Bill 9,00
Telephone bill 1,140
Bonus 11,180

He is married and has three children. His eldest son is in Marywood University in Pennsylvania, the
United Stated of America. His other son is in St. Augustine’s College, Cape Coast and the daughter is in
Christ the Kind Junior High School in Accra. He maintain all the children in addition to a 50 old mother.
SOLUTION
ILLUSTRATION 2

Mr. Nor Amid, the Human Capital Resource Person of Amanda Inc, an entity registered in France sends
a brief note to you in respect of a duty tour of an employee as follows: “Amanda is sending an
employee to Ghana and I am hoping that you could provide guidance for Amanda. Our
understanding is as that:

 The employee is French and may kept on the French payroll

 The employee’s remuneration will be cross charge to Amanda in France and Ghana
 The employee, according to French Tax Law, will be French for tax purposes
 The employee will spend 40% or less of his time in France
 The employee will spend between 40 to 60% of his time in Ghana and whilst in Ghana the employee
will be accommodated in hotels, will have free use of car with fuel and free meal.
 The employee will spend his time in Ghana from 7 to 25 days at a time depending on need.

Would you kindly provide us with a brief outline of the Ghanaian tax and social security implications
for Amanda and the employee? Kindly note that Ghana has an operating ‘Double Tax Treaty’ with
France.

Required
Please submit a memo to respond to the concerns raised by Mr. Nor Amid (8 Marks)

SOLUTION 2
To: The Human Capital Resource Person, Amanda Inc.
From: WW
Date: 7/2/2017

Subject: Employee Taxation in Ghana.

We refer to your memo dated 7 February 2017 and respond as follows:

The Ghana Tax act requires that any person who makes income in Ghana should pay tax on such
income in Ghana. In this respect, Amanda’s employee who expects to perform assigned duties in
Ghana is expected to pay tax as follow:

a) Where the employee stays in Ghana for a period equal in total to less than 183 days in the
years, he pays tax at 20% on the entire income earned as an employee of Amanda. This
income will be increased by the hotel bills paid for by his employer and the free use of vehicles
extended to him.

b) Where the employee stays in Ghana for period which in total equal more than 183 days in the
year, he pays tax at the regular employee tax rate scaled between 5% and 25%. The taxable
income will be increased by the hotel bill paid for his employer and the free use of vehicles, if
any, extended to him.
 c) both a ) and b) above indicates that the employee will be subject to tax on one part of his
income in Ghana and the other part in France. In both cases however, the full income earned
in the relevant period will be taxed in the respective jurisdictions.

d) the DTA between France and Ghana stipulates that where an employee exercises employment
in the other contracting state, the employee exercises the employment. The employee
therefore will pay tax on the income earned in Ghana whilst exercising employment in Ghana.

Illustration 3
Dr. Ababio discuss an engagement she recently accepted with an investment banker with you for advice.
She indicates that one of the recruiting inducements that convicted her to accept the position is a ¢300M
loan from her employer. She will receive the loan proceeds on her first day of work and must sign a note
to repay the loan plus accrued interest in five equal annual installments. The employer will give any amount
of the unpaid debt if Dr. Ababio dies, becomes disabled, or is terminated from employment through no fault of
her own. Dr. Ababio’s contract provides that the employer will pay an annual bonus equal to each loan
repayment. The contract stipulates that the bonus must be applied to the repayment of her loan.

Required

i) Advise Dr. Ababio on the implications, if any this engagement provisions.

i) Discuss any three provisions in the Tax Act which will support the position the Commissioner-
General will take in respect of the taxability or otherwise of this engagement provision.

SUGGESTED ANSWER
Dr Ababio receives a loan of ¢300M of which the principal and interest is payable each year.
The payment of the loan and interest has not tax implications for Dr, Ababio. The bonus
payment of ¢60M made to Dr. Ababio each year attracts a bonus tax of 5% 15% of his annual
basic salary and the exceed will have to be added to her income and taxed every yearly period.
Alternatively, the GRA may decide to tax the entire ¢300M bonus in the first year of receipt
since the entire payment was received in the first year of employment.

Sec. 4 (3) of the Income Tax Act, 2015 ( Act 896) indicates that, for purposes of the ascertaining
income from employment, any amount, allowance, or benefit is a gain or profit from
employment if it
a) Is provided by the employer, an associate of the employer or a third party under an
arrangement with the employer or an associate of the employer
b) Is provided to an employee or an associate of an employee; and
c) Is provided in respect of past, present or prospective employment.
This provision enables the Ghana Revenue Authority to tax the loan extended to Dr. Ababio since this
loan could be seen as an upfront payment of a five year bonus. The Ghana Revenue will then be right
in assessing the bonus payment to tax on day of receipt or as and when earned.

ILLUSTRATION 4
Starkest Limited is a United Kingdom company. The company sent Mr. Billy Fry to work in its branch
office in Accra, Ghana for five months, from 1st June, 2014 to 31st October, 2014. During that time,
Starkest Limited paid 20% of his salary to his Swiss bank accounts, and the other 80% is paid to him in
Ghana. He is provided with an apartment in Accra arranged by Starkest Limited. His salary was invoiced
and charged to the branch in Accra. On completion of his assignment on 31st October, 2014 in Ghana, Mr.
Billy Fry took his annual leave during which he stayed on in Accra to spend all his holidays. He left Accra
on the 18th December, 2014 to London to resume his duties.

SOLUTION TO ILLUSTRATION 4
Foremost, Mr. Billy Fry would not be liable to tax in Ghana assuming he left Ghana immediately he finished
his assignment on 31st October, 2014 because his remuneration would have fallen within the exception to
the general rule that remuneration income is “sourced” and taxed in the country where the services are
performed and he is paid by a non-resident of Ghana and not by the branch in Accra.

However, Mr. Billy Fry will be liable to tax in Ghana even if he left Accra on the 31 st October, 2014 because
his salary was invoiced and charged to the branch in Ghana. The exception to the general rule will not
apply when the salary was on charged to the branch in Accra. The branch will be allowed to deduct the
amount from corporate income if the expense is wholly, necessary and exclusively incurred as in section
13 of Act 592, Internal Revenue Act 2000 as amended.
Finally, Mr. Billy Fry is liable to Ghana tax because Paragraph 5 of the commentary to Article 15 of Double
Tax Agreements states that number of days of physical presence is the test for determining an individual’s
residence for tax purposes and therefore days spend on holiday’s are included. As he has stayed in Ghana
for longer than the 183 days, the exception of Article 15 (2) no longer applies.

TRIAL QUESTIONS

Q1. Mr Kendrick is employed as the Chief Accountant of Eureka B.A Consult on a basic salary of GHS
2,000 a month. He is paid the following allowances as well:
Professional allowance GHS 100
Responsibility allowance GHS 150
Child education allowance GHS 50
He is provided with furnished accommodation and a Volvo S70 saloon car which is provided with fuel.
He contributes 5.5% of his income to the social security fund.
Determine his chargeable income for the month

Q2. Mr Seth is employed as an Accountant with Asempa Brewery Ltd on a basic salary of GHS 541.9 per
month. He is also entitled to a professional allowance of GHS 102.96 per month. Mr. Seth is provided
with furnished accommodation by his employers and fuel for his own vehicle. He contributes to the Social
Security Fund. Determine Mr. Seth’s Monthly Taxable Pay.
Q3. Mr. Adu has been appointed the Adminstrative Manager of Cool Running Limited. His appointment
took effect from 1st June, 2014 on a consolidated Salary of GHS 18,250 x GHS 25-GHS 18,7500.
Mr. Adu is provided with soft furnished accommodation by his employer as well as Audi A6 Saloon car,
which is fuelled by the company. He contributes 5.5% of his salary to the Social Security Fund. Mr. Adu
received dividend of GHS 120 (net) form compee Limited, a company in which he holds GHS 50,000
shares.
a) Compute Mr. Adu tax liability for the 2016 year of assessment
b) Determine Mr. Adu’s take-home pay.

Q3. Mrs. Akyeanfo was appointed Managing director for Compassion International on a salary of GHS
42,000 a year with effect from 1/1/2016. In addition, he was entitled to the following allowances:
Responsibility allowance GHS 600
Medical Allowance GHS 540
Non-Accountable Entertainment allowance GHS 400

The company provided her with a furnished accommodation at Golden Gate, on the Spintex road in accra,
and also a car with free supply of fuel. The market value of these benefit in kind is GHS 12,000 per year.
She is married and has three children. His eldest son is in Marywood University in Pennsylvania, the
United Stated of America. His other son is in St. Augustine’s College, Cape Coast and the daughter is in
Christ the Kind Junior High School in Accra. He maintain all the children in addition to a 50 old mother.
He contributes 5.5% of his Salry to Social Security. He also contribute addition 3.5% to in house managed
provident fund. She received any annual bonus of GHS 12,500. She also was paid any overtime amount
of GHS 7,000 for the year. The medical allowance are made available to all employees and provided
without discrimination. Besides the cash emoluments stated above, she employees received loans of GHS
34,500 from the employer at a rate of 8% payable within 24 months. (Assume the Bank of Ghana
Rediscounted rate of 23.5%)

Q4. Explain the treatment of payments made by Employers on behalf of their employees to domestic
servants.
 CHAPTER 5
BUSINESS, INVESTMENT AND EXEMPT INCOME

5.1 Business Income

A person’s income from a business is that person’s gains or profits from any business carried on for
whatever period of time by that person. This includes any investment income earned by a person that
is attributable to the business. In ascertaining a person income from business for a year of assessment,
the person shall include in the calculation an amount specified in respect of;
 service fees;
 consideration received in respect of trading stock; , i.e. sales
 a gain from the realization of capital assets and liabilities of the business
 an amount required by the Third Schedule ( i.e.the excess of consideration received from the
disposal of a depreciable asset over the WDV) to be included on the realization of the depreciable
assets of the person which are used in the business ;
 an amount derived as consideration for accepting a restriction on the capacity of the person to
conduct the business ; For example if Mama Rhoda gives Nana Adu GHS100,000 to relocate his
shop to another area, the GHS100,000 becomes business income to Nana Adu
 a gift received by the person in respect of the business ;
 an amount derived that is effectively connected with the business and that would otherwise be
included in calculating the income of the person from an investment; and

It is must be noted that the term business has not been exhaustive defined in the tax law, however the ITA
defines business to include any trade, profession or vocation but excludes employment. From the foregoing
it will be important to understanding what kind of activity(ies) constitute trade, profession or vocation.

5.1.2 The Concept of Trade, Profession and Vocation

5.1.2.1 Trade
Trade refers to normal regular routine commercial activity, because it connotes the idea of
continuity. Whether or not an activity is a trade in its extended sense is a mixed question of law
and fact. A person does not trade if he simply procures other to trade; he must be involved in the
buying and selling or rendering of services. Thus if there is regular buying and selling or rendering
of services, this is clearing trading and the annual profits or gains thereof are assessable to tax. On
the other hand, an isolated or casual transaction may be an adventure or concern in the nature of
trade if it is of a commercial nature. Trade is supported with numerous tax cases which include
isolated transactions. These cases have resulted in what is termed the “Characteristics of
Trade” or the “Badges of Trade.
These are;
1. Profit Seeking Motive
2. The way in which the asset was acquired
3. The nature of the asset
4. The quantity acquired
5. Modification of the asset
6. Interval between purchase and sale
7. The way in which the sale is effected
8. Repetition
9. Other interest in the same field
10. The method of financing
Question
In order to be able to recognise those isolated transactions which give rise to a taxable profit, it is
important to have a clear idea which characteristics case law has shown to be indications of the
existence of a trade.” With the aid of decided cases, enumerate and discuss six isolated transactions
which are indications of the existence of a trade.
Suggested Answer:
Trade refers to normal regular routine commercial activity, because it connotes the idea of
continuity. Whether or not an activity is a trade in its extended sense is a mixed question of law
and fact. A person does not trade if he simply procures other to trade; he must be involved in the
buying and selling or rendering of services. Thus if there is regular buying and selling or rendering
of services, this is clearing trading and the annual profits or gains thereof are assessable to tax. On
the other hand, an isolated or casual transaction may be an adventure or concern in the nature of
trade if it is of a commercial nature
Trade is supported with numerous tax cases which include isolated transactions. These cases have
resulted in what is termed the Characteristics of Trade” or the “Badges of Trade
Profit Seeking Motive
This is an essential ingredient in trading. If this desire is the compelling factor behind the
transaction then trading can be said to have taken place. There should be some motivation for profit
making though profit may not actually materialise.
Case: C.I.R v Fraser 24 TC 49 C
An isolated transaction in the purchase and re-sale of whisky in bond was held to be an adventure
in the nature of trade. The nature of the commodity and quantity purchased was such that it could
not reasonably be considered to be for own consumption, and there was insufficient evidence to
indicate an investment motive
Case: Wisdom v Chamberlain(1968)
Facts
The purchase of silver bullion on a short-term basis as a hedge against the devaluation of sterling
was considered to possess the characteristics of an adventure in the nature of trade, rather than an
investment.
The way in which the asset was acquired
Was the asset purchased or acquired through inheritance? Where money is borrowed to finance
the undertaking then there is a strong case to establish that there is trading. For instance, where
money is borrowed to finance the acquisition of an asset, there is activity is more likely to be
deemed in the nature of trade than when the asset is acquired as a result of inheritance.

Tax Case: Wisdom V Chamberlain

Mr. Wisdom took a loan from the bank ( upon the advice of his accountant) and bought large
quantities of silver bullions (not for decoration, not for aesthetic pleasure), but kept them until the
prices appreciated and sold them at profit.
3. The nature of the asset
Is it something of aesthetic value or easily marketable? If easily marketable then a strong case of
trading can be made
Tax Case: Wisdom v Chamberlain 45 TC 92
Norman Wisdom, an actor purchased a quantity silver ingots as a hedge against anticipated
devaluation. He sold it at considerable profit. The ruling was that the bullion was purchased with
the sole intention of making profit
Rutledge v CIR 14 TC 490
The Court held that one million rolls of toilet paper purchased was for no other purpose than for
resale at a profit , and was in the nature of trade
4) The quantity acquired
If the quantity acquired is more than what can reasonable be used by one person and his family
then, there is a strong case for trading
Tax Case : Rutledge v C.I.R 14 TC 490
The court held that one million rolls of toilet paper, purchased for no other purpose than for resale
at a profit, was an adventure in the nature of trade (but not necessarily a trade itself) because of the
nature of asset involved.
Was the transaction carried through in a manner typical of the trade in a commodity of that nature?
5. Modification of the asset
Is the asset in a state that some repairs, improvement or alteration had to be made in order to make
it marketable? If so then a case of trading can be established
Tax Case: C.I.R v Livingstone & Others 11 TC 53
 Three men (only one of whom was in the shipping business ) purchased as a joint venture a cargo
vessel with a view to converting it into a steam drifter and selling it. They had never previously
done this. They sold the converted ship at a profit.
It was held that the resultant profit was assessable as the profit of an adventure in the nature of
trade.
6. Interval between purchase and sale
If a person purchases an asset or property and uses it for some period before disposing of it, it is
not easy to establish the business motive. However where a person looks for a buyer even before
purchasing the asset, it can be said that there is a business motive.
The shorter the time interval between purchase and sale, the greater the conclusion that the
commodity was purchased for trade.
Tax Case: Turner v Last
A Farmer was held to have traded on his sale of two plots of land he had purchased a few months
previously.
7. The way in which the sale is effected
Where the sale is planned and organised on normal commercial lines, then there is a strong case
for trading.
Tax Case: Martin v Lowry 11 TC 297
An agricultural machinery merchant who had had no previous connection with the linen trade
purchased from the government its entire surplus stock of aeroplane linen.
It was held that profits from the purchase and re-sale of the Government's entire surplus stock of
aeroplane linen (some 44 million yards!) through a separate operation set up for that purpose, had
arisen from a trading activity.
Was the item purchased was resold in one lot, or was broken down into several lots?
8. Repetition
If the action is repetitive, there is a stronger case of trading than if it is only one transaction.
Tax Case: Pickford v Quirke 12 TC 251
The taxpayer was part of a syndicate which purchased the shares of a milling company, liquidated
the company and sold its assets at a profit to another company formed for the same purpose.
It was held that the taxpayer's participation on four separate occasions in similar transactions for
the purchase of a mill-owning company and sale of assets was collectively held to constitute a trade.

5.1.2.2. Professional
Profession involve the idea of an occupation requiring either purely intellectual skill, or manual
skill controlled by the intellectual skill of the operator. Profession thus normally refers to
intellectual or specialised skill, eg. doctor, lawyers, accountants, engineers, etc.
5.1.2.3. Vocation
 Vocation means the way a person pass his life. The way a person earns his living thus passes for
a vocation, for example, the occupation of carpenters, mechanics, etc.

5.2 INCOME FROM INVESTMENT

The income of a person from an investment for a year of assessment is the gains and profits of that
person from conducting the investment for the year or a part of the year. A person who is
ascertaining the profits and gains of that person or of another person from an investment for a year
of assessment or for a part of the year shall include in the calculation, an amount specified in
respect of
 dividends, interest, annuity, natural resource payment, rent, and royalty;
 a gain from the realisation of an investment asset
 an amount derived as consideration for accepting a restriction on the capacity of the individual
to conduct the investment;
 winnings from lottery;
 a gift received by the person in respect of the investment; and exclude from the calculation, any
exempt income, payments receive by a person that is subject to a final withholding tax and an
amount that is included in calculating the income of the person from business

In calculating the income of a person from an investment which is jointly owned with another
person, the amounts to be included in the income and deducted from the income shall be
apportioned among the joint owners in proportion to their interests in the investment. Where the
interests of joint owners cannot be ascertained, the interests of the joint owners shall be treated as
equal.

5.3 EXEMPT INCOME

The following are exempt from tax:
a) the salary, allowances, facilities, pension and gratuity of the President in accordance with Article
68 (5) of the Constitution;
b) the income of the Government of Ghana or a local authority, other than income from activities
which are only indirectly connected with the Government or status of the local authority;
c) the income of a public corporation, where that public corporation is not set up as a commercial
venture; and the income is from an activity that is directly connected with the status of that public
corporation;
d) pension;
e) a capital sum paid to a person as compensation or a gratuity in relation to
 a personal injury suffered by that person; or
 the death of another person;
f) the income of a non-resident person from a business of operating ships or aircrafts, where the
Commissioner-General is satisfied that an equivalent exemption is granted by the country of
residence of that person to persons resident in this country
g) the income from cocoa of a cocoa farmer;
h) the income of a person receiving instruction at an educational institution from a scholarship,
exhibition, bursary or similar educational endowment;
i) the income of an individual entitled to privileges to the extent provided for by the
I. Diplomatic Immunities Act, 1962 (Act 148) or a similar enactment;
II. an Act giving effect to the Convention on the Privileges and Immunities of the United
Nations and the Convention on the Privileges and Immunities of the Specialised Agencies
of the United Nations;
III. an Act giving effect to a Convention, treaty or proto-col conferring privileges and
immunities on an officer of an African Union or Economic Community of West African
States office or secretariat or an agency of the two institutions; or
IV. Regulations made under an Act referred to in subparagraph (i), (ii) or (iii);

j) the income of an individual to the extent provided for in an agreement between the Government
of Ghana and a foreign government or a public international organisation for the provision of
technical services to Ghana where
i. the individual is a non-resident person or an individual who is resident in the country
solely by reason of performing that service; and
ii. the agreement has been ratified by Parliament in accordance with article 75 of the
Constitution;
k) a cost of living allowance, other than training allowance paid in place of salary for services
rendered abroad by members of the Ministry of Foreign Affairs, and officers attached to official
Ghanaian diplomatic or consular missions abroad
l) income from a temporary employment of an individual with the Government of Ghana, where
i. that individual is not a citizen of the country;
ii. the income is expressly exempt under the employment contract; and
iii. the income is paid out of the Consolidated Fund

m) the income of an individual from employment in the public service of the government of a foreign
country,
i. where the individual is either a non-resident, or is resident in the country solely by reason
of performing that employment;
ii. the individual does not exercise any other employment or carry on a business in the
country;
iii. the income is payable from the public funds of the foreign country; and
iv. the income is subject to tax in the foreign country;

n) a state-owned or state-sponsored educational institution;

o) an institution or trust of a public character established by an enactment solely for the purpose of
scientific research; and
p) Interest paid to an interest
i. by a resident financial institution; or
ii. on bonds issued by the Government of Ghana; and
q) Interest or dividend paid or credited to a holder or member on an investment in an approved unit
trust scheme or mutual fund is exempt
r) Interest paid to a non-resident person on bonds issued by the government of Ghana;
s) Gains from the realisation of bonds issued by the government of Ghana to a non-resident person;
and
t) Gain from the realisation of securities traded on the Ghana Stock Exchanges up to December, 2021
 (2) The Minister may, by legislative instrument, make Regulations to exempt a person, class of
persons or income from tax.
(3) Subject to article 174 (2) of the Constitution, the Minister may grant a waiver or variation of tax
imposed by this Act in favour of a person.
(4) Subsection (3) shall apply only where the tax liability of the person has already been
ascertained.
(5) Despite any law to the contrary, an exemption shall not be provided from tax imposed by this Act
and an agreement shall not be entered into that affects or purports to affect the application of this Act,
except as provided for by this Act.

5.3 DETERMINATION OF THE CHARGEABLE INCOME OF A PERSON FROM BUSINESS

A taxpayer is required to disclose his income from trade, business, profession or vocation by
preparing accounts in accordance with Generally Accepted Accounting Principle. The accounts
would have to be adjusted in order to arrive at the chargeable profit. This is due to the fact that not
all items (expense) that the
Deductions Allowed for Tax purposes
It must be noted that not all expenses incurred in the course of trading are deductible in computing
profits or gains for tax purposes. For the purposes of ascertaining the income of a person for a
basis period from any business or investment for a year of assessment, deduction shall be allowed
to the extent that the expense is wholly, exclusively and necessarily incurred by that person in the
production of the income from the investment or business during the year.
For example, any accountant will deduct depreciation and provisions for bad from income when
preparing financial statements. However, in the eye of the tax man, these expense will not be
treated as expenses that should reduce the income of the person for the year.
An expense of capital nature is not deductible in determining the chargeable income of a person
from investment or business.
An expense is deemed to be of a capital nature if that expense secures a benefit that lasts for more
than twelve months.

Allowable Deductions as provided by the Income Tax Act, 2015 (ACT 896)
Section 10: Interest
For an interest expense to be allowed as a deductible expense, the interest must be incurred on a
debt obligation that is incurred in the generating of the income for that year.
This is to say, where the debt obligation was incurred in borrowing money, and the money is used
during the year or was used to acquire an asset that is used during the year in the production of the
income; and the debt obligation was incurred in the production of income in any other case.
 Section 12: Repairs and improvements
A deduction shall be allowed for expenses incurred for repair and improvement of a depreciable
asset incurred wholly, exclusively and necessarily in the production of the income from business
and investment irrespective of whether the expense is of capital nature.
The deduction allowed in respect of repair and improvement of a particular asset shall not exceed
five percent of the written down value of the applicable pool of that depreciable asset held at the
end of the year and is allowed in the order in which the expense was incurred.
The excess of the expense for which deduction is not allowed as a result of the limited shall be added
to the depreciable basis of the pool to which it relates.

Section 12 of the Act provides specific rules for deduction of expenditure relating to repairs and
improvements, which stipulate that:

 the expense should have been incurred for the repair or improvement of a depreciable asset
 the repair or improvement expense is incurred wholly, exclusively and necessarily in the
production of income from an investment or business in satisfaction of the requirements of
subsection (1) of section 9;
 the repair or improvement expense may be of a capital nature.
 the deduction allowed in respect of an expense for repair or improvement of a particular asset
shall not exceed five percent (5%) of the written down value of the applicable pool of that
depreciable asset held at the end of the year.

This should be approached as follows:

The written down value of the applicable pool shall be the written down value before considering the
addition of the excess computed repairs and improvement disallowed;
Since the deduction or capitalisation will be made at the end of the year, a taxpayer should:
 Identify the pool in which each asset which is the subject of repairs or improvement belongs;
 Determine 5% of the written down value of the pool;
 The amount of the expenditure for repair and improvement of each asset should be matched
against the 5% of the written down value of the pool; and
 the excess amount should be capitalised (above is added to the depreciation basis of the
applicable pool for calculation of capital allowance expenditure in the current year.
 Deduct the expense or capitalise the excess amount in the order in which the expense is
incurred.
 ILLUSTRATIONS

Illustration 1
Mawuko Limited incurred expenses of GHS2, 500.00 on repairs and improvement of Plant and
Machinery and declared a profit of GHS100, 000.00 for the 2016 year of assessment.

NB: The Written down value of the applicable pool before capitalising any excess is GHS60,
000.00.

Determine the following:

(a) Deductible amount for repairs and improvement.
(b) Excess amount of repairs and improvement to be added to the depreciation basis of the
applicable pool.

Solution for Illustration 1

Profit as per account 100,000.00
Add back Repairs and improvement 2,500.00
Assessable Income 102,500.00
Less
Allowable Repair and improvement { 5% of 60,000=3,000} 2,500.00
Adjusted profit 100,000.00

NB: Mawuko Limited is allowed to deduct the entire amount of GHS2, 500.00 on repair and
improvement because the expense is less than 5% of the written down value of the applicable pool.

Illustration 2
Mawuko Ltd incurred expenses on repairs and improvement of GHS6, 500.00 on a Plant and
Machinery and also declared a profit of GHS100, 000.00 for the 2016 year of assessment.

NB: The Written down value of the applicable pool before capitalising any excess is GHS60, 000.00.

Determine the following:

(a) Deductible amount for repairs and improvement
(b) Excess amount of repairs and improvement to be added to the depreciation basis of the
appropriate pool.

Solution for Illustration 2

GHS
Profit as per account 100,000.00
Add back Repairs and improvement 6,000.00
Assessable Income 106,000.00
Less
Allowable Repairs or improvement {5% of 60,000=3,000} 3,000.00
Adjusted profit 103,000.00
 5% of the WDV of GHS60, 000.00 is GHS3, 000.00 which is allowed as a deduction. The excess
amount of the repairs and improvement expenditure of GHS3,500.00 (i.e. 6,500.00 -
3,000.00) for which a deduction is not allowed shall be added to the depreciation basis of the
applicable pool for purposes of computing capital allowance expenditure for the 2016 year of
assessment

Section 13: Research and Development expenses

A research and development expense that is wholly, exclusively and necessarily incurred in
generating income from business or investment for a year of assessment irrespective of whether
the expense is of a capital nature is deductible in determining the chargeable income for that year.
A research and development expense defined in this section to includes an expense incurred by a
person in the process of developing the business of that person and improving business products
or processes; and excludes an expense incurred that is otherwise included in the cost of an asset
used in the process referred to in paragraph

15. Losses on Realisation of Assets and Liabilities

A person who is ascertaining the income of that person or of another person from an investment
or business for a year of assessment shall, deduct a loss of the person from the realisation of assets;
and liabilities during the year. The losses required to be deducted are losses from the realisation of
a capital asset of a business to the extent to which the asset is used in the production of income
from the business; a liability of a business to the extent to which in the case of a liability that is a
debt obligation incurred in borrowing money, the money is used or an asset purchased with the
money is used in the production of income from the business; and (ii) the liability is wholly,
exclusively and necessarily incurred in the production of income from the business in the case of
any other liability; and a capital asset of an investment to the extent to which the asset is used
wholly, exclusively and necessarily in the production of income from the investment.

16. Limit on Deduction of Financial Costs

The amount of financial costs other than interest deducted in calculating a person's income from
conducting a business or investment for a year of assessment shall not exceed the sum of- financial
gains derived by the person that are to be included in calculating the person's income from the
business or investment for the year of assessment; plus 50 percent of the person's chargeable
income for the year from the business or investment calculated without including financial gains
derived or deducting financial costs incurred by the person. The excess financial costs which is
disallowed may be carried forward and treated as incurred during any of the following five years of
 assessment, but only to the extent of any unused limitation for the year. The financial cost which is
carried forward shall be used in the order in which the financial cost is incurred.
(i) The quantum of financial cost that can be deducted is limited to -

 the sum of financial gain derived in the year of assessment; and

 50% of the “adjusted chargeable income” from business or investment.

‘Adjusted Chargeable Income’ is the Chargeable Income from the business or investment without
including a financial gain derived by the person or deducting a financial cost incurred by the
person.

(ii) Financial cost that has not been allowed as a deduction in a year of assessment as a result of
the limitation in (i) above may be carried forward and treated as incurred for any of the next
five years of assessment
(iii) Financial costs that are carried forward shall be applied in the order in which they are incurred;
(iv) Financial cost in this instance does not include interest;

FORMAT FOR THE DETERMINATION OF 50% OF ADJUSTED CHARGEABLE

INCOME FROM BUSINESS OR INVESTMENT

GHS GHS
Net Profit before tax xxxxx
Add back:
Disallowable deductions xx
xxxxx
Less:
Allowable deductions xx
A Adjusted profit Xxxx
Less
Capital allowance xx
B Chargeable Income xxx
Add financial cost xx
zzz
Less financial gain yy
C Adjusted Chargeable Income (after adjusting zzzz
for financial gain and financial cost)
Computation of 50% of Adjusted Chargeable Income (C) = zzzz *50%
= zz
Allowable Financial cost = Financial gain + zz

DETERMINATION OF ALLOWABLE FINANCIAL COST

1.1 Illustration 1
Where the financial cost is more than the financial gain plus 50% of the chargeable income
GHS
Profit before tax 22,000.00
The following were included in arriving at the net profit before tax:
Depreciation 7,000.00
General bad debt written off 1,500.00
Unrelieved loss 2,000.00
Total Financial Gain 7,000.00
Total Financial Cost 50,000.00
Capital allowance 12,000.00

Required:
Determine the chargeable income after adjusting for financial gain and financial cost.
Compute the allowable financial cost.
Compute the tax payable.

1.1.1 Solution
a) Determination of adjusted chargeable income and computation of allowable
financial cost

GHS

Net Profit before tax 22,000.00

Add back:

Depreciation 7,000.00

General bad debt written off 1,500.00

30,500.00

Less:

Unrelieved loss 2,000.00

A Adjusted profit 28,500.00

Less

Capital allowance 12,000.00

B Chargeable Income 16,500.00

Add financial cost 50,000.00

66,500.00

Less financial gain 7,000.00

C Chargeable Income after adjusting for financial gain 59,500.00

and financial cost

b) Allowable financial cost:

= Financial gain +50% of the adjusted chargeable income

= 7,000.00 + {(50% x (59,500)}
=7,000.00+ 29,750 = 36,750.00
The amount of GHS 36,750.00 represents the allowable financial cost for the year of assessment.
The excess financial cost of 13,250.00 (50,000.00 – 36,750.00) that is not allowed as a deduction may
be carried forward for the next 5 years of assessment.

Computation of chargeable income and tax payable by the company

GHS GHS

Net Profit before tax 22,000.00

Add back:

Depreciation 7,000.00

General bad debt written off 1,500.00

Financial cost 50,000.00

80,500.00

Less:

Unrelieved loss 2,000.00

Allowable financial cost 36,750.00 38,750.00

A Adjusted profit 41,750.00

Less:

Capital allowance 12,000.00

 B Chargeable Income 29,750.00

Tax thereon @ 25% 7,437.50

1.2 Illustration 2
Where the financial cost is less than the financial gain plus 50% of the adjusted chargeable income.

GHS

Profit before tax 22,000.00

The following were included in arriving at the net profit before tax:
Depreciation 7,000.00
General bad debt written off 1,500.00
Unrelieved loss 2,000.00
Total Financial Gain 10,000.00
Total Financial Cost 5,000.00
Capital allowance 12,000.00
Required:
a) Determine the chargeable income after adjusting for financial gain and financial cost.
b) Compute the allowable financial cost.
c) Compute the tax payable.

1.2.1 Solution.
a) Determination of adjusted chargeable income and computation of allowable
financial cost
GHS GHS
Net Profit before tax 22,000.00
Add back:
Depreciation 7,000.00
General bad debt written off 1,500.00
30,500.00
Less:
Unrelieved loss 2,000.00
A Adjusted profit 28,500.00
Less
Capital allowance 12,000.00
B Chargeable Income 16,500.00
Add financial cost 5,000.00
21,500.00
Less financial gain 10,000.00
C Chargeable Income after adjusting for 11,500.00
financial gain and financial cost

b) Allowable financial cost = Financial gain +50% of Adjusted Chargeable Income

= 10,000.00 + {50 %*11,500}
=10,000.00+ 5,750.00
= 15,750.00
Since the financial cost (GHS5, 000.00) is less than the financial gain plus the 50% of the adjusted
chargeable income (GHS15, 750), the entire financial cost (GHS 5,000.00) is deductible. Hence no
adjustment is made to the reported profit in respect of the financial cost.

c) Computation of chargeable income and tax payable by the company

 GHS GHS
Net Profit before tax 22,000.00
Add back:
Depreciation 7,000.00
General bad debt written off 1,500.00
30,500.00
Less:
Unrelieved loss 2,000.00
A Adjusted profit 28,500.00
Less:
Capital allowance 12,000.00
B Chargeable Income 16,500.00
Tax thereon @ 25% (16,500.00 x 25%) 4,125.00

1.3 Illustration 3
Where the company recorded financial cost without financial gain.

GHS
Profit before tax 22,000.00
The following were included in arriving at the net profit before tax:
Depreciation 7,000.00
General bad debt written off 1,500.00
Unrelieved loss 2,000.00
Total Financial Gain -
Total Financial Cost 50,000.00
Capital allowance 12,000.00
Required:
a) Determine the chargeable income after adjusting for financial gain and financial cost.
b) Compute the allowable financial cost.
c) Compute the tax payable.

1.3.1 Solution
a) Determination of adjusted chargeable income and computation of allowable
financial cost

GHS GHS

Net Profit before tax 22,000.00

Add back:
Depreciation 7,000.00
General bad debt written off 1,500.00
30,500.00
Less:
Unrelieved loss 2,000.00
A Adjusted profit 28,500.00
Less
Capital allowance 12,000.00
 B Chargeable Income 16,500.00
Add financial cost 50,000.00
66,500.00
Less financial gain -
C Chargeable Income after adjusting for financial gain and financial 66,500.00
cost

b) Allowable financial cost

Financial gain +50% of chargeable income
= Nil + {(50 %*( 66,500)}
= 33,250
Only GHS33, 250 representing 50% of the adjusted chargeable income of GHS 66,500 is deductible as
financial cost. The remaining amount of GHS16, 750.00 of the financial cost that is not allowed as a
deduction may be carried forward for the next five years of assessment.
Computation of chargeable income and tax payable by the company
GHS GHS
Net Profit before tax 22,000.00
Add back:
Depreciation 7,000.00
General bad debt written off 1,500.00
Financial cost 50,000.00
80,500.00
Less:
Unrelieved loss 2,000.00
Allowable financial cost 33,250.00 35,250.00
A Adjusted profit 45,250.00
Less:
Capital allowance 12,000.00
B Chargeable Income 33,250.00
Tax thereon @25% (33,250.00 x 25%) 8,312.50

Illustration 4
Where financial gain is nil and there is no positive chargeable income (excluding financial cost), then
there should be no deduction for financial cost.
GHS
Profit before tax 5,000.00
The following were included in arriving at the net profit before tax:
Depreciation 7,000.00
General bad debt written off 1,500.00
Unrelieved loss 2,000.00
Total Financial Gain Nil
Total Financial Cost 50,000.00
Capital allowance 12,000.00
Required:
a) Determine the chargeable income after adjusting for financial gain and financial cost.
b) Compute the allowable financial cost.
c) Compute the tax payable.
 1.3.2 Solution
a) Determination of adjusted chargeable income and computation of allowable
financial cost
GHS GHS
Net Profit before tax 5,000.00
Add back:
Depreciation 7,000.00
General bad debt written off 1,500.00
13,500.00
Less:
Unrelieved loss 2,000.00
A Adjusted profit 11,500.00
Less
Capital allowance 12,000.00
B Chargeable Income (500.00)

b) Allowable financial cost

From the solution, the financial gain is nil and there is a negative chargeable income of (GHS500). In view
of this there would be no deduction for financial cost.
The entire financial cost (GHS50, 000) may be carried forward for the next 5 years of assessment.

Computation of chargeable income and tax payable by the company.

GHS GHS
Net Profit before tax 5,000.00
Add back:
Depreciation 7,000.00
General bad debt written off 1,500.00
Financial cost 50,000.00
63,500.00
Less:
Unrelieved loss 2,000.00
A Adjusted profit 61,500.00
Less:
Capital allowance 12,000.00
B Chargeable Income 49,500.00
Tax thereon (49,500.00 x 25%) 12,375.00

Section 17: Losses from a Business or Investment

Definition – The definitions of a “Loss” and an “Unrelieved Loss” are as

stated under section 17(5) of the Act.
A Business may suffer losses whereby its revenues from the sale of goods and services and
financial income are insufficient to cover wages and salary costs, materials, interest on
borrowed money, other allowable expenses and appropriate depreciation of capital.

Again, losses for tax purposes may arise when some forms of income are not subject to tax
or when costs are written off more generously for tax purposes compared to economic cost.

Losses arising from trade, profession or vocation constitutes business loss, whiles
investment loss arises from losses other than from business and employment. Loss from
holding of assets is an example of investment loss.

Periods for carrying forward losses

A person is allowed under Section 17 of Act 896 amended to carry forward a loss from
business or investment incurred in a year of assessment to a subsequent year of assessment.

In ascertaining income from business or investment for a year of assessment, a person

operating in a priority sector is allowed to deduct an unrelieved loss of the person for
any of the five (5) previous years of assessment.

A person operating in a sector other than a priority sector is allowed to deduct an

unrelieved loss for any of the three (3) previous years of assessment in ascertaining the
person’s income from business or from investment for a year of assessment.

ILLUSTRATION 1:
(a) ABC Mining Company Limited started operations in 2016. In its first year of operation
it declared a loss of GHS500, 000.00.

Determine the number of years ABC Mining Company may carry forward its losses.

SOLUTION
ABC Mining Company Limited is in the priority sector and may deduct the unrelieved
loss that occurred in 2016 from the income of any of the subsequent five (5) years of
assessment (2017, 2018, 2019, 2012 and 2021 years of assessment).

(b) XYZ Company is in the business of retailing ladies dresses. In its first year of operation
ending in 2016, the company declared a loss of GHS140, 000.00.
 Determine the number of years XYZ Company may carry forward its losses.

SOLUTION
XYZ Company Limited is not in a priority sector hence may deduct the unrelieved loss
that was incurred in 2016 from the income of any of the subsequent three (3) years of
assessment (2017, 2018 and 2019 years of assessment).

1.3.3 ILLUSTRATION 2
A&B Limited started operation on 1st January, 2016 and declared tax losses as follows:

Year of Tax Loss

Assessment GHS

2016 200,000.00
2017 100,000.00
2018 300,000.00
2019 50,000.00
2020 150,000.00
2021 1,000.00
2022 500.00

In 2023 year of assessment the company declared a profit of GHS800, 000.00

Required
Determine the tax payable by A & B Limited in 2023 year of assessment if:
(i) The company operates in one of the specified priority sectors.
(ii) The company operates in a non-priority sector.

SOLUTION
(i) – COMPANY IN SPECIFIED PRIORITY SECTOR

2023 Year of Assessment

(a) Assessable Income 800,000.00
Less unrelieved loss for the previous five years
2018 300,000.00
2019 50,000.00
2020 150,000.00
 2021 1,000.00
2022 500.00
501,500.00
Chargeable Income 298,500.00
Tax thereon @ 25% 74,625.00
[Note that the tax losses for 2016 and 2017 years of assessment were not taken
into account in the calculation because they were incurred earlier than the
previous five years of assessment.

(ii) – COMPANY IN A NON- PRIORITY SECTOR

(b) Chargeable Income 800,000.00

Less unrelieved loss for the previous three years

2020 150,000.00
2021 1,000.00
2022 500.00
151,500.00
Chargeable Income 648,500.00
Tax thereon @ 25% 162,125.00
[Note that the tax losses for 2016, 2017, 2018 and 2019 years of assessment were
not taken into account in the calculation because they were incurred earlier
than the previous three (3) years of assessment.]

Segmented business with different tax rates.

Where a person makes a loss and if the loss were a profit would have paid tax at a lower or reduced
tax rate, the loss may only be deducted in calculating income that is taxed at the same reduced rate,
a lower rate or exempt amount.

Where business operations are segmented with different tax rates, losses attributable to a segment
with a particular tax rate can be deducted only from incomes that will be taxed at the same rate.

Where the business is segmented but the incomes are not segmented, there may the need for
apportionment of the income of the business. The basis for apportionment of income is the
contribution of each business line to the total turnover of the business.

ILLUSTRATION
XYZ Company Ltd deals in non-traditional exports as well as local sales.
The company’s operations for 2016 year of assessment is stated below
Turnover GHS
 Export Sales 1,000,000.00

Local Sales 500,000.00

Losses on operations

Loss from Non-Traditional Exports 200,000.00

Loss from local sales 80,000.00

Assessable Income declared by the company in 2017 year of assessment is as follows:

Non-Traditional Exports 600,000.00

Local Sales 100,000.00

Required: Determine how the unrelieved losses in 2016 will be dealt with in 2017 year of assessment.

Income from Non

Year of Assessment Traditional Exports Income from Local Sales
2016 GHS GHS
Unrelieved Losses c/f 200,000.00 80,000.00

2017
Income 600,000.00 100,000.00
Less unrelieved loss b/f 200,000.00 80,000.00

Chargeable Income 400,000.00 20,000.00

Tax Rate 8% 25%

Tax Thereon 32,000.00 5,000.00

1.4 Deduction of losses from Business and Investment

An unrelieved loss from business may be deducted in calculating income from
investment. However an unrelieved loss from investment shall be deducted only in
calculating income from investment.

ILLUSTRATION
XYZ LTD declared profit (loss) as provided for in the table below:
 Year of Business Income/ Investment
Assessment (Loss) Income /(Loss)
2017 100,000.00 (50,000.00)
2018 (40,000.00) 120,000.00

Required:
Determine how the unrelieved losses will be treated.
Solution:
For the 2017 year of assessment, the investment loss of GHS50, 000.00 cannot be set off against the
business income of GHS100, 000.00.
However, in 2018 year of assessment the investment loss of GHS50, 000.00 for 2017 year of
assessment and the business loss of GHS40, 000.00 for the 2018 year of assessment may be deducted
from the investment income of GHS120, 000 for that year.
The deductions will be as follows:
2017 Year of Assessment
GHS
Business Income 100,000.00
Net Income 100,000.00

2018 Year of Assessment GHS

Investment Income 120,000.00
Less Investment Loss (2017) (50,000.00)
Business Loss (2018) (40,000.00)
(90,000.00)
Net Income 30,000.00

1.5 Losses relating to Incomes taxed at reduced rate or Exempt Income.

Losses from activities that are exempt from tax or from incomes that are taxed at
reduced rates cannot be deducted from the profits of other businesses.

ILLUSTRATION
Yawaduse Company Limited declared a total loss of GHS430,000 in the 2016 year of assessment. The
loss was made up of:
(i) Transport operations of GHS250,000.00
(ii) Hotel operations of GHS180, 000.00.
 The company declared profits from its operations for the 2017 year of assessment as follows:
Transport operations GHS100, 000.00

Hotel operations GHS750, 000.00

Required
Determine how the losses of the two business operations will be treated in the 2017 year
of assessment.

SOLUTION

Income
From Income from
Transport Hotel
Year of Assessment Operations Operation
GHS GHS GHS GHS
2017 – Assessable Income 100,000.00 750,000
Less 250,000.00 180,000.00
Unrelieved Loss – 2016
Loss Utilized 100,000.00 180,000.00
Unrelieved Loss c/f 150,000.00
Chargeable Income Nil 570,000.00
Tax Rate 25% 22%
Tax Thereon Nil 125,400.00

Unrelieved loss from transport business carried forward to 2018 - GHS150, 000.00
The unrelieved loss of GHS150, 000.00 from the Transport business at the end of 2017 year of assessment
cannot be deducted from the chargeable income of GHS570,000.00 of the Hotel operations. (Please refer
section 17(2)(a), (2)(b))
NB:
(i) Paragraph 3(1) of the first Schedule of the Act state that the chargeable income of a company other
than a company principally engaged in hotel industry would be taxed at the rate of 25%.
(ii) Paragraph 3 of the first Schedule of the Act state that the chargeable income of a company
principally engaged in hotel industry would be taxed at the rate of 22%.

.
Section 14: Capital Allowance
This is a standardised deductible allowance in place of accounting depreciation. It is granted in respect of
depreciable asset owned and used in the production of the income of that person from business. It is
calculated in accordance with the provisions specified in the third schedule of the Income Tax Act 2015
(Act 896). Capital allowance is grant to a person for a year of assessment for each pool of depreciable assets
with respect to each basis period of that person ending in the year of assessment.
Depreciable asset means an asset to the extent to which it is used in the production of income from a
business and which is likely to lose value because of wear and tear, obsolescence or the effluxion of time
(passage of time) ; and does not include goodwill, an interest in land, a membership interest in an entity
and trading stock This means that Capital Allowance shall not be granted on cost incurred in acquiring
goodwill and interest in land.

Base Rule for granting of Capital Allowance

 Capital Allowance is granted for Depreciable Assets
 The Depreciable Asset must be owned by the business
 The Depreciable Asset must be used in carrying on the business during the relevant basis period.
 The Depreciable Asset must be owned at the end of a basis period of the person ending within the
year of assessment
 Capital Allowance in respect of a particular year shall not be deferred by a person entitled to
the grant of that Capital Allowance.
This means that capital allowance granted should be treated as any expenses deductible against Income
by actually deducting such capital allowance amount from the assessable income in arriving at the
chargeable income of that person for that year of assessment.

The Pool System of classifying depreciable assets

 This is where depreciable assets of same class are put together for the purpose of capital
allowance.
 In the pool system the identity of the assets is lost.
 Assets are placed in their respective pool(s).
 Class 1-3 depreciable assets follow the pool system
 Class 4 and 5 depreciable assets are placed in a pool of its own separately from other assets
of that class or any other class
 Only that part of the assets which is used in the production of the income shall be placed in
the pool.

Classification and pooling of depreciable assets and the applicable tax rates
CLASSIFICATION OF DEPRECIABLE ASSETS
Depreciable assets are classified as follows:
CLASS DEPRECIABLE ASSETS RATE
1 Computers and data handling equipment together with peripheral devices. 40%
2 (i) Automobiles, buses and minibuses, goods vehicles; construction 30%
and earth-moving equipment, heavy general purpose or specialised
trucks, trailers and trailer-mounted containers; plant and
machinery used in manufacturing.
(ii) Assets resulting from expenses in respect of planting vegetation from which
timber, rubber, oil palm or other crops (long term crop planting costs) are
derived; and
(b) where the business is a timber concern or a large scale rubber, oil palm or
other long term crop plantation.
( shall be treated as if the expense was incurred in securing the acquisition of
a depreciable asset that is used by the person in the production of income).

3 Railroad cars, locomotives and equipment; vessels, barges, tugs and similar 20 percent
water transportation equipment; aircraft; specialised public utility plant,
equipment and machinery; office furniture, fixtures and equipment; any
depreciable asset not included in another class.
4 Buildings, structures and similar works of a permanent nature 10 percent
5 Intangible assets 1 divided by the
useful life of
the asset in the
pool

Depreciation basis of a pool of depreciable assets

 The depreciation basis of a pool of depreciable assets at the end of a basis period in respect of a
Class 1, 2 or 3 asset is the total of the depreciation basis of the pool at the end of the previous basis
period, if any, after deducting depreciation for that pool for that previous period; and amounts
added to the depreciation basis of that pool during the basis period in respect of additions to the
cost of assets in or added to that pool; and reduced, but not below zero, by consideration received
for the assets in that pool or that has been in the pool during the basis period.

 The depreciation basis of a pool of depreciable assets at the end of a basis period in respect of a
Class 4 or 5 assets is the total of the depreciation basis of that pool at the end of the previous basis
period; and amounts added to the depreciation basis of that pool during the basis period in respect
 of additions to the cost of assets in or added to the pool; and reduced, but not below zero, by the
consideration received for the assets in that pool during the basis period.
 Where only part of an asset is placed in a pool of depreciable assets because the asset is not entirely
used in business, the person is still subject to the powers of the Commissioner General shall
apportion the cost of that asset and the consideration received for that asset according to the
market value of the part of the asset which has been included in the pool and the part which is not
placed in the pool.
 In granting the Capital Allowance of depreciable asset with respect to a road vehicle other than a
commercial vehicle, the cost to be placed in the pool of depreciable asset shall not exceed seventy-
five thousand cedis in respect of a single road vehicle.
Commercial vehicle” means a road vehicle designed to carry a load of more than half a ton or more
than thirteen passengers; or a vehicle used in a transportation or a vehicle rental business.

Method of Calculating Depreciation Allowance

Depreciation for the year of assessment for each pool of depreciable asset is computed as follows;
 Classes 1-3 pool is calculated in accordance with the Reducing Balance method.
 Classes 4 & 5 pool is calculated using straight line method.

Depreciation Allowance is calculated using the formula

=AxBxC/365 where
A - is the depreciation basis of the pool of depreciable asset at the end of the
basis period.
B - is the depreciation rate applicable to the pool of depreciable assets; and
C - is the number of days in the basis period of the person.

ILLUSTRATION 1
Assuming we are in 2018
Robert Limited started business on 1st January 2016 and preparing Accounts to 31st December each
year. The company acquired the following assets:
5 computers on 1st January, 2016 valued at GH¢20,000.00.
Compute Capital Allowance for ABC Limited for 2016 year of assessment.
SOLUTION
Year of Assessment -2016
Basis Period- 01/01/2016 to 31/12/2016
Depreciation Allowance = Ax B x C
365days
Where A= GH 20,000.00 B= 40% C= 365 days
Depreciation Allowance = GH¢ 20,000.00 x 40% x 365days
365days
= GH¢20,000.00 x 0.40

= GH¢8,000.00
Year of Assessment (Y/A) Basis Period (B/P) Class 1
40%
2016 01/01/16-31/12/16 GH¢
Cost Base 20,000.00
Less: Depreciation Allowance 8,000.00
Written Down Value to be carried forward (WDVc/f) 12,000.00

Additions and Disposals of Depreciable Asset:

CLASS 1-3
When a newly acquired depreciable asset is purchased and put into use in the production of the
income with respect to Class 1-3 depreciable asset, the asset is placed in the pool and the
Depreciation Allowance granted on its Value

ILLUSTRATION 2 (Refer to illustration 1)

Assuming we are in 2018
Robert Limited started business on 1st January 2016 and preparing Accounts to 31st December each
year.
Assuming company bought 5 computers on 1st January, 2016 valued at GH¢20,000.00
The company purchased an additional computer on 20th November, 2017 Y/A valued at
GH¢4,000.00
Required: Compute Capital Allowance for ABC Limited for 2017 year of assessment.

SOLUTION

Year of Assessment -2016

Basis Period- 01/01/2016 to 31/12/2016
Depreciation Allowance = Ax BxC
365days
Where A= GH 20,000.00 B= 40% C= 365days
Depreciation Allowance = GH¢ 20,000.00 x 40% x 365days
365days
 = GH¢20,000.00 x 0.40

= GH¢8,000.00

Year of Assessment (Y/A) Basis Period (B/P Class 1- 40%

2016 01/01/16-31/12/16 GH¢
Cost Base 20,000.00
Less: Depreciation Allowance 8,000.00
Written Down Value to be carried forward (WDVc/f) 12,000.00

2017 01/01/17-31/12/17

Written Down Value brought forward (WDVb/f) 12,000.00

Additions 4,000.00
Cost Base 16,000.00
Depreciation Allowance (40%) 6,400.00
Written Down Value to be carried forward (WDVc/f) 9,600.00

CLASS 4&5
A new depreciable asset acquired and put into use in respect of Classes 4 and 5 Depreciable Assets, the
assets shall be placed in a pool of its own separately from other assets of that class or any other class.
Disposal of Assets:
When an asset is realized for a consideration, the consideration received is deducted from the sum of the
written down value brought forward and the additions if any before depreciation allowance is computed
and granted.

ILLUSTRATION 3
Assuming we are in 2018
Robert Limited started business on 1st January 2016 and preparing Accounts to 31st December each year.
Assuming company bought 5 computers on 1st January, 2016 valued at GH¢20,000.00
The company purchased an additional computer on 20th November, 2017 Y/A valued at GH¢4,000 and
sold 2 computers same year for GH¢3,000.00
Required: Compute Capital Allowance for ABC Limited for 2017 year of assessment.

SOLUTION

Year of Assessment -2016

Basis Period -01/01/2016 to 31/12/2016
Depreciation Allowance = Ax BxC
365days
Where A= GH 20,000 B= 40% C= 365 days

Depreciation Allowance = GH¢ 20,000.00 x 40% x 365days

365days
= GH¢20,000.00 x 0.40

= GH¢8,000.00

Year of Assessment (Y/A) Basis Period (B/P Class 1 - 40%

2016 01/01/16-31/12/16 GH¢
Cost Base 20,000.00
Less: Depreciation Allowance 8,000.00
Written Down Value to be carried forward (WDVc/f) 12,000.00

2017 01/01/17-31/12/17
Written Down Value brought forward (WDVb/f) 12,000.00
Additions 4,000.00
Cost Base 16,000.00
Less: Consideration received 3,000.00
13,000.00
Depreciation Allowance (40%) 5,200.00
Written Down Value to be carried forward (WDVc/f) 7,800.00

Thus depreciation basis of a pool of depreciable assets;

• Cumulative WDV of the assets in a pool form the basis for calculation of depreciation allowance
• Disposals are deducted from the WDV of the respective pools
• Additional assets bought are added to the respective depreciable pools
• Consideration received (on disposal of assets) in excess of the WDV is treated as income for the
person.
• Additional “CA” is granted (to bring down the value of the pool to zero if all the assets in the pool
are realised.
“Where there is a private element in the usage of a depreciable asset (assets used partly
to generate the income and partly for private purposes)”.
 The cost base of the assets should be apportioned according to market value of the part of assets which
have been included in the pool and part which has not been placed in the pool.
Upon disposal of the Assets so apportioned, the consideration received should be apportioned
according to the market value of the part.
The cost base of the road vehicle other than commercial vehicle should not exceed GH¢75,000.00

ILLUSTRATION
(NON COMMERCIAL VEHICLE)
XY Limited purchased Nissan Patrol Car valued at GH¢250,000.00 on 1 st June 2017 for use in its
business. Compute the depreciation allowance for 2017 year of assessment for XY Limited.

SOLUTION
Year of Assessment (Y/A) Basis Period (B/P) Class 1 - 30%
2017 01/01/17-31/12/17 GH¢
Cost Base 250,000.00
Restricted to 75,000.00
Less: Depreciation Allowance (W1) 22,500.00
Written Down Value to be carried forward (WDVc/f) 52,500.00

WORKINGS 1
Year of Assessment -2017
Basis Period- 01/01/2017 to 31/12/2017
Depreciation Allowance = Ax BxC
365days
Where A= GH 75,000.00 B= 30% C= 365 days

Depreciation Allowance = GH¢ 75,000.00 x 30% x 368days

365days
= GH¢75,000.00 x 0.30

= GH¢22,500.00
If at the end of the basis period (after granting depreciation allowance) the WDV of the pool is less than
GH¢ 500.00 an additional depreciation allowance is granted to reduce the value of the pool to zero or same
amount.
WHERE THE WDV IS LESS THAN GH¢500.00
ILLUSTRATION 4
XY Limited has a written down value of GH 600.00 brought forward from 2015 year of assessment in
respect of furniture. Compute the depreciation allowance for 2016year of assessment.

SOLUTION
Year of Assessment (Y/A) Basis Period (B/P Class 3 - 20%
2016 01/01/16-31/12/16 GH¢
Written Down Value brought forward (WDVb/f) 600.00
Depreciation Allowance 120.00
480.00
Additional Allowance 480.00
Written Down Value to be carried forward (WDVc/f) NIL

Realisation of Depreciable Assets

Brief Description: - Realisation refers to consideration received for disposal of depreciable
assets. The outcomes of realisation are;
A Gain on Realisation:
Consideration received from realization of depreciable asset must not be more than the written
down value of the pool. (Exceeding value must be added to income).

EXAMPLE 1
Realization in excess of the WDV:
Assuming we are in 2018
Robert Limited started business on 1st January 2016 and preparing Accounts to 31 st
December each year.
Assuming company bought 5 computers on 1st January, 2016 valued at GH¢20,000.00
The company purchased an additional computer on 20th November, 2017 Y/A valued at
GH¢4,000.00 and sold 2 computers same year for GH¢3,000.00
Company then sold three (3) out of the four (4) remaining computers for GH¢20,000.00
in 2018Y/A. Compute the D/A for 2018 Y/A
Required: Compute Capital Allowance for ABC Limited for 2017 year of assessment.

SOLUTION

Year of Assessment -2016

Basis Period -01/01/2016 to 31/12/2016
Depreciation Allowance = Ax BxC
365days
Where A= GH 20,000 B= 40% C= 365 days
Depreciation Allowance = GH¢ 20,000.00 x 40% x 365days
365days
= GH¢20,000.00 x 0.40

= GH¢8,000.00

Year of Assessment (Y/A) Basis Period (B/P Class 1- 40%

2016 01/01/16-31/12/16 GH¢
Cost Base 20,000.00
Less: Depreciation Allowance 8,000.00
Written Down Value to be carried forward (WDVc/f) 12,000.00

2017 01/01/17-31/12/17
Written Down Value brought forward (WDVb/f) 12,000.00
Additions 4,000.00
Cost Base 16,000.00
Less: Consideration received 3,000.00
13,000.00
Depreciation Allowance (40%) 5,200.00
Written Down Value to be carried forward (WDVc/f) 7,800.00

2018 01/01/18-31/12/18
Written Down Value brought forward (WDVb/f) 7,800.00

Less: Consideration received 20,000.00

( 12,200.00)

Excess of consideration over WDV (20,000.00-7,800.00) of GH¢12,200.00 should be added to Income

and taxed.

Loss on Realisation:
If all assets in the pool are realized at a loss, then Capital Allowance should be granted to any residual
written down value
EXAMPLE 2
EXAMPLE 1
Realization in excess of the WDV:
Assuming we are in 2018
Robert Limited started business on 1st January 2016 and preparing Accounts to 31st December each year.
Assuming company bought 5 computers on 1st January, 2016 valued at GH¢20,000.00
The company purchased an additional computer on 20th November, 2017 Y/A valued at GH¢4,000.00 and
sold 2 computers same year for GH¢3,000.00
Company then sold the remaining computers for GH¢5,000.00 in 2018Y/A. Compute the C/A for 2018
Y/A. Assuming a company realized the entire asset in the pool at a loss (for a consideration less than the
WDV). Assuming in 2018 Y/A, the company sold all the remaining computers for a consideration equal to
GH¢15,000.00 Compute the D/A if any for 2018 Y/A
Required: Compute Capital Allowance for ABC Limited for 2018 year of assessment.

SOLUTION

Year of Assessment -2016

Basis Period -01/01/2016 to 31/12/2016
Depreciation Allowance = Ax BxC
365days
Where A= GH 20,000.00 B= 40% C= 365 days
Depreciation Allowance = GH¢ 20,000.00 x 40% x 365days
365days
= GH¢20,000.00 x 0.40
= GH¢8,000.00
Year of Assessment (Y/A) Basis Period (B/P Class 1- 40%
2016 01/01/16-31/12/16 GH¢
Cost Base 20,000.00
Less: Depreciation Allowance 8,000.00
Written Down Value to be carried forward (WDVc/f) 12,000.00

2017 01/01/17-31/12/17
Written Down Value brought forward (WDVb/f) 12,000.00
Additions 4,000.00
Cost Base 16,000.00
Less: Consideration received 3,000.00
13,000.00
Depreciation Allowance (40%) 5,200.00
Written Down Value to be carried forward (WDVc/f) 7,800.00

2018 01/01/18-31/12/18
Written Down Value brought forward (WDVb/f) 7,800.00
Less: Consideration received 5,000.00
2,800.00
Additional Depreciation Allowance 2,800.00
Written Down Value to be carried forward (WDVc/f) NIL

NOTE: The Pool will be dissolved

Isolated Cases under Capital Allowance; the following isolated cases exist
• Where an asset is destroyed by natural disaster or accident and theft or burglary
Treatment: - If the person is able to show proof, the asset would be considered to be realized at a Zero
consideration. The person may be granted additional capital allowance. However when the asset is
insured and compensation paid, the compensation received will be considered as a consideration and
deducted from the WDV before depreciation allowance is granted.
Where depreciable assets are used in the production of exempt income or incomes of
Firms on Tax Holiday:- Capital allowance shall be computed and deducted in calculating the
exempt income.
Where Exemption/Tax Holiday Expires :-Capital allowances may only be claimed with respect
to the w.d.v. of the assets or pools of assets at the time of expiration.

Capital Allowance Under Lease (Reg 16, LI 2244)

Finance lease:
Where an asset has been leased by a lessor to a lessee under a finance lease:
The lessee shall deduct the interest portion payable for each year of assessment as an expense from
income and treat the repayment of the capital as a repayment under loan agreement and shall not
deduct that repayment from income when ascertaining the income of the lessee.
The lessee shall be entitled to capital allowance in respect of the capital portion; and in respect of
a lease of a road vehicle other than commercial vehicle, the capital portion shall not exceed GHS
75,000.
The lessor shall, in ascertaining the income of the lessor for a year of assessment, include the whole
amount of the interest and repayment of the capital for that year as income in respect of the leased
asset; and not entitled to capital allowance in respect of the asset leased, but may reduce the
amount the repayment of capital included in calculating the income of the lessor by capital amount
determined in accordance with guidelines issued by the CG.
Under ooperating lease:- Capital Allowance is granted to the lessor and the lease rent payment by
lessee is deductible expenses in ascertaining the profit of the lessee

Treatment of capital allowance- Petroleum Operations

(1) Capital allowance expenditure to be placed in a separate pool

(2) Rate of depreciation is 20% using the straight line method
(3) Consideration received in respect of disposal of an asset shall be included in
assessable income
(4) Where an asset is partly used in separate petroleum operation, capital allowance shall be
apportioned by the Commissioner – General.
(5) Where a person assigns a petroleum right to another person, the written down value (WDV)
of any capital allowance expenditure is transferred to the assignee at the beginning of that year.
(6) Where a person assigns part of the petroleum right to another person, the WDV of the
capital allowance expenditure shall be apportioned by the Commissioner – General in proportion
to the percentage of the interest retained and the percentage of the interest assigned.
(7) Capital allowance expenditure that enjoys capital allowance shall not be granted capital
allowance in respect of other activities of the person eg. a Petroleum contractor that has an Oil
Marketing Company (OMC) as its other activities, the capital allowance granted for the petroleum
operation shall not be used by OMC.

EXAMPLE I
Songe Enterprise Limited commenced operation in the year 2016. In 2017 it produced oil in
commercial quantity for sale.
The following data is relevant:
Its total exploration and development expenditure stand at $80,000,000.00 as of December 2012.
It acquired an asset (a drilling machine amounting to $200,000.00 in 2013 January which it put
into use.
Compute the capital allowance.

SOLUTION
POOL POOL TOTAL
20% SLM 20% SLM
Y/A 2013 PRE-PROD. COST OIL ASSETS
$ $ $
 COST INC 80,000,000.00 200,000.00
CAPITAL ALL’CE 16,000,000.00 40,000.00 16,040,000.00
WDV % 64,000,000.00 160,000.00

In 2014, it sold the asset it bought in 2013 for a cash price of $220,000.00. What is the Capital
Allowance for 2014?.
POOL POOL TOTAL
20% SLM 20% SLM
Y/A 2013 PRE-PROD. COST OIL ASSET
WDV B/F 64,000,000.00 160,000.00
CAPITAL ALL’CE 16,000,000.00 40,000.00 16,040,000.00
WDV C/F 48,000,000.00 120,000.00

The proceeds from the disposal amounting to $220,000.00 shall be added to Income. By implication the
capital allowance shall continue to be granted even though the asset is sold.

EXAMPLE II
Otu Limited assigned its Petroleum rights to Ocansey Limited in December 2014. The written down value
of the assets to Otu Limited was $1,200,000.00 after granting Capital allowance for 2 years.
Calculate the Capital allowance to be included in the accounts of Otu Limited assuming Ocansey Limited
does not intend to acquire any assets.

SOLUTION
The Capital allowance of Ocansey Limited
PROPOSED CAPITAL ALLOWANCE
Y/A PETROLEUM RIGHTS
20% SLM
$
WDV FROM OTU LTD 1,200,000.00
CAPITAL ALL’CE 1,200,000/3 400,000.00
WDV C/D 800,000.00

(II) Assuming it assigned 50% of the Petroleum right to Ocansey Limited

Share of Petroleum Right
50% to Ocansey Limited
50% × 1,200,000.00 = 600,000.00

PROPOSED CAPITAL ALLOWANCE

OTU LIMITED
20% SLM
$
WDV B/F 600,000.00
(50% SHARE)
CAPITAL ALL’CE
600,000 /3 200,000.00
WDV C/D 400,000.00

OCANSEY LIMITED
20% SLM
$
WDV TRANSFERRED 600,000.00
CAPITAL ALL’CE 600,000/3 200,000.00
WDV C/D 400,000.00

Treatment of capital allowance- Mining Operations

 Capital allowance expenditure to be placed in a separate pool

 Rate of depreciation is 20% using the straight line method
 Excess of consideration received over written down value of the asset is added to assessable
income
 Additional capital allowance shall be granted if the written down value of the asset exceeds the
consideration received for the disposal
 Where an asset is partly used in separate mineral operation, capital allowance shall be apportioned
by the Commissioner – General.
 Where a person assigns a mineral right to another person, the written down value (WDV) of
any capital allowance expenditure is transferred to the assignee at the beginning of that year.
 Where a person assigns part of the mineral right to another person, the WDV of the capital
allowance expenditure shall be apportioned by the Commissioner – General in proportion
to the percentage of the interest retained and the percentage of the interest assigned.
 Capital allowance expenditure that enjoys capital allowance shall not be granted capital allowance
in respect of other activities of the person

ILLUSTRATION

Gane-Songe Ltd is Mining Company at Nangodi in the Upper East Region.

It commenced operations in 2012 and incurred the following cost from inception of
operation
GH¢

Reconnaissance cost 120,000,000.00

Prospecting cost 140,000,000.00

 It started commercial production in January 2015. The following assets were acquired also in
December 2014

Computers 400,000.00

Plant and Machinery for Mining 500,000.00

Furniture and Fittings 600,000.00

Building 400,000.00

Compute the proposed capital allowance for 2015.

SOLUTION

GANE-SONGE LTD

PROPOSED COMPUTATION OF CAPITAL ALLOWANCE

POOL POOL

PRE-PRODUCTION OTHER ASSET CAP. ALL

COST COST

GH¢ GH¢ GH¢

BP-1/1/2015-31/12/2015

Cost 260,000,000.00 1,900,000.00

Capital Allowance 52,000,000.00 380,000.00

Written Down Value C/d 208,000,000.00 1,520,000.00

NOTES:

i. The reconnaissance and prospecting costs (pre-production costs) are pooled separately

ii. The other assets are put together and capital allowance granted as they relate to the same
period.

OTHER DEDUCTIBLE EXPENSES

Where the income for a year of assessment in respect of a person who has made a donation or
contributed to a worthwhile cause is to be ascertained, the person may claim a deduction that is equal to
the contribution and donation made by that person during that year for a worthwhile cause approved by
Government as provided below:
The following causes are worthwhile causes approved by Government:
 a charitable organisation which meet the requirements as provided for in Act 896;
 a scheme of scholarship for an academic, technical, professional or other course of study;
 development of any rural area or urban area;
 sports development or sports promotion; and
 any other wo worthwhile cause approved by the Commissioner General

1. CONTRIBUTION TO CHARITABLE ORGANISATION

Any contribution made by a person during a year of assessment to a charitable institution or fund
approved by the government may be deducted in calculating the person’s chargeable income for
the year.

It is significant to note that the below condition must be met before an entity can be satisfied a
charitable entity for the tax purpose.

The Commissioner-General may approve an entity as a charitable organisation. A written

application in a prescribed form and format must be made by the applicant to the CG for the
exemption from tax together with the constitution of the entity with prohibitions clearly spelt out.
The written constitution spelt out that the entity is prohibited from:
 engaging in a party political activity, supporting a political party or using its platform to
engage in party politics;
 any function other than those that are of public nature; and
 conferring a private benefit

The Commissioner-General shall, before approving an entity as a charitable organisation, ensure

that the entity is established to operate as;
 charitable institution which is of a public nature;
 a religious institution which is of a public nature;
 a body of persons formed for the purpose of promoting social activities or sporting
activities; or
 a registered sporting club.

Activity can be considered to be of a public nature when it is opened or directed to the public or
section of the public and not conferring a private benefit, other than in pursuit of a function of the
object of the entity.

Example of Public Nature:

 Provision of bore-hole water supply to rural communities in Ghana by an entity.
  Section of a public:
An entity providing training in vocational skills (e.g. basket weaving) for windows in a
district in Ghana.

 Example of not conferring a private benefit other than in pursuit of a function

of the object of the entity
The activities of the entity should not directly or indirectly benefit the owner(s) or its
associates. However, employees of the entity who earn employment income cannot be
classified as conferring (receiving) private benefit.

The Commissioner-General may for good cause or for the contravention of a requirement
specified in (B) revoke an approval granted.

The income accruing to or derived by a charitable organisation is exempt from tax. However, this
does not apply to the business income of the charitable organisation.

In respect of charitable organization it must:

o Be registered appropriately (e. g. Registrar Generals Department, Department of Social
Welfare etc.)
o have as objects to include but not limited to;
o Provision of service to an identifiable public (community) or sections thereof with equal
access to all intended beneficiaries.
o Conferring of benefits to an identifiable public (community) or a section thereof with equal
access to all intended beneficiaries;

The income accruing to or derived by a charitable organisation is exempt from tax. However, this
does not apply to the business income of the charitable organisation.

Same requirements and conditions are applicable to Religious Institutions/Organization Body of

Persons formed for Promoting Social Activities or Sporting Activities and Registered Sporting
Club

Revocation
For the purposes of the income Tax Act, 2015 (Act 896) the approval of an entity as a charitable
organization may be revoked for reasons including but not limited to the following;

 Engaging in party political activities including offering of platforms activities for such
activities.
  Engagement in functions outside the agreed scope after approval except engagement in
other business activities.
 Abusing the system by conferring private benefits to owners and their associates other than
working to achieve the objects
 Improper and (or) inappropriate behaviour including fraud, deceit, non - compliance with the
provisions of the tax laws.

2. SCHOLARSHIPS
Any amount expended by any company or body of persons during a year of assessment under a
scheme of scholarship approved by the Government for a technical, professional and other course
of study may be deducted in calculating the chargeable income of that company or body of persons
for the year.

3. DONATIONS FOR RURAL AND URBAN DEVELOPMENT

Any donation made by a person during a year of assessment for the purpose of development of
any rural or urban area and approved by the government may be deducted in calculating the
person’s chargeable income the year.

4. DONATIONS FOR SPORTS DEVELOPMENT AND PROMOTION

Any donation made by a person during a year of assessment for the purpose of development of
sports development or sports promotion and approved by the government may be deducted in
calculating the person’s chargeable income the year.

5. DONATION TO GOVERNMENT FOR WORTHWHILE CAUSES

Any donation made by a person during a year of assessment to the government for worthwhile
causes approved by the Commissioner-General may be deducted in calculating the person’s
chargeable income the year.

DEDUCTION NOT ALLOWED

Domestic and excluded expenditure (Section 130)

Where an individual incurs expenditure in respect of that individual, the expenditure is domestic
expenditure to the extent that it is incurred;
 in maintaining the individual, including the provision of shelter, meals, refreshment,
entertainment or other leisure activities;
 by the individual in commuting from home;
  in acquiring clothing for the individual, other than clothing that is not suitable for wearing
outside of work; or in educating the individual, other than education that is directly relevant
to a business conducted by the individual and that does not lead to a degree or diploma.

Where another person incurs expenditure in making a payment to or providing any other benefit
for an individual, the expenditure is domestic expenditure except to the extent that
 the payment or benefit is included in the calculation of the income of the individual;
 the individual provides consideration of an equal market value for the payment or benefit; or the
amount of the expenditure is so small as to make it unreasonable or administratively impracticable
to account for.
(3) Interest incurred on the amount borrowed that is used in a manner referred to in above is also
deemed to be excluded or domestic expenditure

excluded expenditure" means

 tax payable under Act 896 as amended
 bribes and expenditure incurred in corrupt practices;
 interest, penalties and fines paid or payable to a government or a political subdivision of a
government of any country for breach of any legislation;
 expenditure to the extent incurred by a person in deriving exempt amounts or final withholding
payments;
 retirement contributions, unless they are included in calculating the income of an employee; and
 Dividends of a company.

Reversal of Amounts Including Bad Debts

 Where a person deducts an expense in calculating the person's income and the person later
recovers the expense, the person must, at the time of recovery, include the amount recovered in
calculating the person's income.
 Where a person includes an amount in calculating the person's income and, because of a legal
obligation to do so, the person later refunds the amount, the person may, at the time of refund,
deduct the amount refunded in calculating the person's income.
 Where, in calculating income on an accrual basis, a person deducts an expense that the person is
obliged to make and the person later disclaims an obligation to incur the expense, the person must,
at the time of disclaimer, include the amount disclaimed in calculating the person's income. This
 applies where, in calculating income on an accrual basis, a person includes an amount to which the
person is entitled and the person later-
 disclaims an entitlement to receive the amount; or
 in the case where the amount constitutes a debt claim of the person, the person writes off the
debt as bad.

The person may, at the time of disclaimer or write off, deduct the amount disclaimed or written off
in calculating the person's income. Where a person has incurred a liability and the person includes
the amount in calculating the person’s income as such and the liability ceases to exist in part or
wholly because of its disclaimer on the part of the person to whom the liability is owed, the person
who incurred the liability must bring to account at the time of the disclaimer an amount equivalent
to such disclaimer in calculating the person’s income For banking business, a person cannot
disclaim the entitlement to receive an amount or write off a debt claim as bad unless the
Commissioner-General is satisfied that the person has taken all reasonable steps in pursuing
payment and that the Commissioner -General reasonably believes that the entitlement or debt
claim will not be satisfied.

Foreign Tax Credit

A resident person (other than a partnership) may claim a foreign tax credit for a year of assessment
for any foreign income tax paid by the person and to the extent to which the foreign income tax is
paid with respect to the person's assessable foreign income for the year.

Foreign tax credits claimed

 are calculated separately for each year of assessment and separately for assessable foreign
income from each employment, business or investment; and
 with respect to each calculation, may not exceed the average rate of Ghanaian income tax
of the person for the year applied to the person’s assessable foreign income.

A person may elect to relinquish a foreign tax credit available for a year of assessment and claim a
deduction for the amount of the foreign income tax, but otherwise no deduction is available for
foreign income tax. For the purposes of this section-

"average rate of Ghanaian income tax" of a resident person for a year of assessment means the

percentage that tax payable by the person without subtraction for any foreign tax credit) is of the

chargeable income of the person for the year; and

"assessable foreign income" means foreign source income included in the assessable income of a

resident person for a year of assessment from an employment, business or investment, as the case

requires.

PROCEDURE FOR ADJUSTING PROFITS FOR TAX PURPOSES

When Profits are declared

 Start with Net Profit as per Accounts

 Deduct all revenue items which are not taxable
 Add all disallowable expense

FORMAT:

PROFIT AND LOSS ACCOUNT OF KENDRIK BUSINESS CONSULTANCY LIMITED

FOR THE YEAR ENDED 31/12/2016

Revenue: GHS GHS

Management & Professional Service Income 470,000.00
Training income 35,000.00
Total Income 505,000.00

Direct Expense:
Training cost 230,000.00
Staff cost 235,000.00
Total Direct expense 465,000.00

Gross Profit 40,000.00

Selling, General and Admin Expense

Donations 3,000.00
Dues and subscriptions 4,438.50
Meals and entertainment 6,000.00
Office Supplies 880.00
Postage & Courier Expenses 5,400.00
Rent Expenses 12,500.00
Stationery and printing 200.00
Electricity Bills 1,977.00
Interest on loan 12,000.00
Commissions and fees 26,400.00
Bank charges 3,432.00
Depreciation & Amortisation 9,000.00
Total SGA 85,227.50

Net Profit/(Loss) (45,227.50)

Notes:

1. Capital allowance for the year amount to GHS 6,000

2. Meals and entertainment was canteen service to staff which was not taxed in the hand of the
employees
3. Donation is made to staff members who were bereaved during the year

Rates of Income Tax

 The chargeable income of a company(other than a company principally engaged in the hotel
industry) and income from goods and services provided to the domestic market by a Free Zone
Enterprise after it's concessionary period for a year of assessment is taxed at the rate of 25%.
 The chargeable income of a company principally engaged in the hotel industry for a year of
assessment is taxed at the rate of 22%.
 The chargeable income of a company from the export of non-traditional goods for a year of
assessment is taxed at the rate of 8%. Non-traditional goods includes horticultural products,
processed and raw agricultural products grown in Ghana other than cocoa beans, wood
products, other than lumber and logs, handicrafts; and locally manufactured goods.
 The chargeable income derived by a financial institution from a loan granted to a farming
enterprise for use by that enterprise in the production of its income is taxed at the rate of 20%.
 The chargeable income derived by a financial institution from a loan granted to a leasing
company for the use by that company for the funding of acquisition of assets for lease is taxed
at the rate of 20%
 The chargeable income of a free zone enterprise from the export of goods and services outside
the national customs territory for a year of assessment is taxed at the rate of 15%.
 A person's chargeable income from petroleum operations for a year of assessment is taxed at
the rate of 35%.
 A person's chargeable income from mineral operations for a year of assessment is taxed at the
rate of 35%.
 The income of a person entitled to a concession as provided below is subject to tax at the rate
of 1% of chargeable income.
 The chargeable income of a manufacturing business other than those located in Accra or Tema,
are subject to tax at the rates of.
Manufacturing business located in the 75% of the rate of income tax applicable to
regional capital of the country other income
Manufacturing business located elsewhere in 50% of the rate of income tax applicable to
the country other income

 The income tax rate applicable to the chargeable income of farming, agro processing and cocoa
by-product businesses for the next five year period after the temporary concession period is:

Location Rate of Income Tax

Accra and Tema 20%
Other regional capitals outside the Northern 15%
Savannah Ecological Zone
Outside other regional capital 10%
The Northern Savannah Ecological Zone 5%
Northern Savannah Ecological Zone means upper East, Upper West and Norther regions
and the areas contiguous to these regions as determined the Savannah Accelerated
Development Authority. Businesses that benefit from these concessions do not qualify for
any other location incentives available to manufacturing businesses.

CHAPTER 6
TEMPORARY CONCESSION/INCENTIVES AND TAX PLANNING STRATEGIES

Tax incentives are fiscal provisions offered to investors. They include reduced corporate tax rates or full
‘holidays’, whereby companies pay no taxes for certain time periods. These incentives permit companies
to pay less tax on their profits than normal, or to benefit from reduced or no tax on services such as
water, electricity or land. Corporate tax incentives are used by governments in the belief that they will
help attract foreign direct investment (FDI) into their countries.

The below is a detailed of the tax incentive that the Income Tax Act offers. It must be noted that the
below sectors a subject to a reduce tax rate of one percent for a certain period of time.

Agriculture

Where a person conducts a farming business wholly within Ghana, the following are subject to tax at the
rate of 1% during the concession period.

 in the case of farming tree crops, income from the business for a period of ten years of assessment
commencing from and including the year during which the first harvest of crops occurs;
 in the case of farming livestock (other than cattle), fish or cash crops, income from the business for
a period of five years of assessment commencing from the year during which the business
commences; and
 in the case of farming cattle, income from the business for the period of ten years of assessment
commencing from and including the year during which the business commences.

Agro Processing

The income of a person from an agro processing business conducted wholly in Ghana is subject to tax
at the rate of 1% for a period of five years of assessment commencing from and including the year in
which commercial production commences.

Cocoa By-Product Business

The income of a person from a cocoa by-product business conducted wholly in Ghana is subject to tax
at the rate 1% for a period of five years of assessment commencing from and including the year in which
commercial production commences.

Note the below:

 "cash crops" includes cassava, maize, pineapple, rice, and yam;

  "cocoa by-product business" means a business that produces on a commercial basis cocoa by-
products using as its main raw material substandard cocoa beans, cocoa husks and other cocoa
waste;
 "farming business" means the business of producing, crops, fish or livestock;
 "agro processing business" means the business of processing crops, fish or livestock produced,
caught or raised in Ghana from their raw state into an edible canned or packaged product; and
 "tree crops" includes coconut, coffee, oil palm, rubber, and shear nut.

Rural Banking

The income of a person from a rural banking business is subject to tax at a rate of 1% for the period of ten
years of assessment commencing from and including the year in which the business is established.

Waste Processing

The income of a company from a waste processing business is subject to tax at the rate of 1% for a period
of seven years of assessment commencing from and including the year in which the business commences.

"waste processing business" means a business where the principal activity is the processing of
waste, including recycling of plastic and polythene material for agricultural or commercial
purposes.

Residential Premises

The income of a certified company from a low cost housing business is subject to tax at the rate 1%
for the period of five years of assessment commencing from and including the year in which
operations commence.

“certified company" means a company issued with a certificate from the Minister responsible
for Works and Housing stating that it is engaged in a low cost housing business;

"low cost housing business" means the business of construction for sale or letting of low cost
affordable residential premises; and

Venture Capital Financing Companies

 The income of a qualifying venture capital financing company is subject to tax at the rate 1% for the
period of ten years of assessment commencing from and including the year in which the company
first qualifies.
  A loss incurred by a venture capital financing company on the disposal of an investment in a
venture capital subsidiary company under the Venture Capital Trust Fund Act, 2004 (Act 680)
during the exemption period may be carried forward for five years of assessment following the end
of the exemption period.
 A loss incurred by a venture capital financing company from the disposal of shares in any venture
investment under section 17 of the Venture Capital Trust Fund Act, 2004 (Act 680) during a year
of assessment may be carried forward for five years of assessment after the year of disposal.
 Interest and dividends paid or credited to a person on a qualifying investment in a venture capital
financing company are exempt from tax.

"qualifying investment" means an investment by way of funding a qualifying venture capital

financing company in accordance with the Venture Capital Trust Fund Act, 2004 (Act 680); and

"qualifying venture capital financing company" means a company that satisfies the eligibility
requirements for funding under the Venture Capital Trust Fund Act, 2004 (Act 680).

Employment of Graduates

In calculating a company's income from conducting a business for a year of assessment, the company is
entitled to an additional deduction as provided in the table below for salary and wages paid during the year
to fresh graduates from a recognised Ghanaian tertiary institution.

The additional deduction is:

Percentage Of Fresh Graduates In Workforce Additional Deduction

Up to 1% 10% of salaries and wages

Above 1%, but not more than 5% 30% of salaries and wages

Above 5% 50% of salaries and wages

Free Zone Companies

Free zone developers and enterprises granted licenses under the Free Zones Act 1995 (Act 504) shall be
subject to tax at a rate of 1% for the first ten years from the date of commencement of operation.

FACTORS THAT AFFECT TAX PLANNING STRATEGIES

The tax laws are not applied uniformly to all activities, all time periods and all transactions. The Income
Tax Act, 2015 (Act 896) as amended is full of various provisions affecting activities, entities, time periods
and locations.
Activities Variable
The Income Tax Act, 2015 (Act 896) as amended provides various tax incentives to person that carry on
various activities like farming, estate development, rural banking, mining, agro processing and among
others
Entity Variable
The Income Tax Act, 2015 (Act 896) as amended imposes taxes on various entities viz:
 Individuals
 Companies
 Partners in partnership
 Bodies of persons
Act 896 charges different tax rates for different entities and some entities enjoy different tax holidays or
are totally exempt from the payment of taxes
Time period variable
The rules vary with time depending on the activities carried on by the taxable person.
Location variable
The taxing rule under Act 896 and other laws such as the Free Zone Act (Act 504) vary depending on the
location of the entity. For example, entities in the Free Zone enclave have generous tax incentives;
manufacturing companies located in areas other than Accra and Tema have generous tax rebate.
 CHAPTER 8
CALCULATION OF GAINS AND LOSSES FROM THE REALIZATION OF CAPITAL
ASSET.
A capital asset is an asset to the extent which it is employed in business or investment but does not
include trading stock or depreciable asset.
It must be noted that where a person make a gain from realization of a capital asset or makes any
gain from it liability from business or investment, it shall be included in determining the person’s
income business or investment respectively. Conversely, where a loss result from realization of the
asset and liability, the resulting loss shall be deemed as a deductible expense.
Gain from realization of asset and liability
A gain i s made by a person from the realization of an asset where the sum of the
consideration received for the asset exceeds the cost of the asset at the time of realization;
and also a gain is made from the realization of a liability where the sum of the consideration
offered for the liability is less than the amount outstanding at the time of realization.
Loss from realization of asset and liability
A loss of a person from the realization of an asset or liability is the amount by which;
 the cost of the asset exceeds the sum of the consideration receiv ed for the asset at
the time of realisation; or
 the sum of the consideration offered for the liability is more than the amount
outstanding at the time of realisation.

Cost of an asset
The cost of an asset of a person is the sum of;
 expenditure incurred by the person in the acquisition of the asset and includes
where relevant , expenditure of construction, manufacture or production of the
asset;
 expenditure incurred by the person in altering, improving, maintaining or repairing
the asset;
 incidental expenditure incurred by the person in acquiring and realising the asset.

 The cost of an asset does not include consumption expenditure, excluded expenditure and
expenditure to the extent to which it is directly deducted in calculating a person's income or
included in the cost of another asset.

"incidental expenditure" incurred by a person in acquiring or realising an asset includes-

 advertising expenditure, transfer taxes, duties and other expenditure of transfer;

 expenditure of establishing, preserving or defending ownership of the asset; and
 remuneration for the services of an accountant, agent, auctioneer, broker, consultant,
legal advisor, surveyor or valuer etc

Consideration Received
 Consideration received for an asset of a person at a particular time means-

a) amounts derived by the person in respect of owning the asset including-

 amounts derived from altering or decreasing the value of the asset; and
 amounts derived from the asset including by way of covenant to repair or otherwise; and

b) amounts derived by the person or an entitlement for the person to derive an amount in the
future in respect of realising the asset.

The consideration received for an asset does not include an exempt amount, a final withholding
payment or, other than in the case of trading stock, an amount to be directly included in calculating
the person's income.

Realisation

A person who owns an asset is treated as realising the asset-

(a) when the person parts with ownership of the asset, including when the asset is sold,
exchanged, transferred, distributed, cancelled, redeemed, destroyed, lost, expired or
surrendered;

(a) in the case of an asset of a person who ceases to exist, including by reason of the
death of an individual, immediately before the person ceases to exist;

(c) in the case of an asset other than trading stock or a depreciable asset, where the sum of
consideration received from owning the asset exceeds the cost of the asset;

(d) in the case of an asset that is a debt claim owned by a person other than a financial
institution, the person reasonably believes the debt claim will not be satisfied, the
person has taken all reasonable steps in pursuing the debt claim and the person writes
the debt off as bad;

(e) in the case of trading stock, a depreciable asset, a capital asset of a business or an
investment asset, immediately before the person begins to employ the asset in such a
way that it ceases to be an asset of any of those types; and

(f) Where the undelying ownership of an entity change by more than 50% within any three
year period) or where a resident person become non-resident person.

(2) The above shall not apply to realisation of assets accruing to or derived by a company arising out
of a merger, amalgamation, or re-organisation of the company where there is continuity of
underlying ownership in the asset of at least fifty per cent;

A person who owes a liability is treated as realising the liability-

a) when the person ceases to owe the liability, including when the liability is transferred,
satisfied, cancelled, released or expired;

(b) in the case of a liability of a person who ceases to exist, including by reason of the death
of an individual, immediately before the person ceases to exist; and
(c) Where the underlying ownership of an entity change by more than 50% within any three
year period) or where a resident person become non-resident person.

Reverse, Quantification and Compensation of Amounts

Where a person includes expenditure in the cost of an asset or liability and later recovers
the expenditure, the person must include the amount recovered in the consideration
received for the asset or liability, as the case requires.
Where a person includes an amount derived in the consideration received for an asset or
liability and, because of a legal obligation to do so, later refunds the amount, the person
may include the amount refunded in the cost of the asset.
Cost of Trading Stock and Other Fungible Assets
For the purposes of determining the cost of trading stock of a business of a person-
 the person shall not include the cost repair, improvement or depreciation of
depreciable assets as part of the cost of trading; and
 the absorption-cost method shall be used for amounts that are eligible to be
included in the cost of the trading stock.
 The owner of the trading stock may elect for the cost of the asset to be determined
according to the first-in-first-out method or the average-cost method. Once chosen,
the method may only be changed with the written permission of the Commissioner-
General.

Realisation with Retention of Asset

Where a person realized an asset as a result of the person events;

 in the case of an asset that is a debt claim owned by a person other than a financial
institution, the person reasonably believes the debt claim will not be satisfied, the
person has taken all reasonable steps in pursuing the debt claim and the person
writes the debt off as bad;
 in the case of trading stock, a depreciable asset, a capital asset of a business or an
investment asset, immediately before the person begins to employ the asset in such
a way that it ceases to be an asset of any of those types; and
 Where the undelying ownership of an entity change by more than 50% within any
three year period) or where a resident person become non-resident person.

a) the person is treated as having parted with ownership of the asset and deriving an
amount in respect of the realization equal to the market value of the asset at the time of
the realisation; and
b) the person is treated as reacquiring the asset and incurring expenditure of the amount
equal the market value of the asset immediately before the acquisition.
 Transfer of Asset to Spouse or Former Spouse

Where on death or as part of a divorce settlement or bona fide separation agreement an

individual transfers an asset to a spouse or former spouse the individual is treated as
deriving an amount in respect of the realisation equal to the net cost of the asset
immediately before the realisation; and the spouse or former spouse is treated as incurring
expenditure equal to the net cost of the asset immediately before acquisition in acquiring
the asset.

Transfer of Asset on Death

Where an individual realises an asset on death by way of transfer of ownership of the asset
to another person-

(a) the individual is treated as deriving an amount in respect of the realisation equal to the
market value of the asset at the time of realisation; and

(b) the person who acquires ownership of the asset is treated as incurring expenditure of the
amount referred to in paragraph (a) in the acquisition.

Transfer of Asset to an Associate or for No Consideration

Where a person realises an asset by way of transfer of ownership of the asset to an associate of the
person or by way of transfer to any other person by way of gift other than under a will or upon
intestacy or by way of transfer to the person’s spouse, child, parent, brother and sister-

(a) the person is treated as deriving an amount in respect of the realisation equal to the greater
of the market value of the asset or the net cost of the asset immediately before the
realisation; and

(b) the person who acquires ownership of the asset is treated as incurring expenditure of the
amount equal to the greater of the market value of the asset or the net cost of the asset
immediately before the realisation in the acquisition.

(2) Where a person realises an asset, being trading stock, a depreciable asset or a capital
asset of a business, by way of transfer of ownership of the asset to an associate of the person
the person is treated as deriving an amount in respect of the realisation equal to the net cost
of the asset immediately before the realisation; and the associate is treated as incurring
expenditure of in acquiring ownership of the asset of amount equal to the net cost of the
asset immediately before the acquisition provided the below conditions are met

 either the person or the associate is an entity;

 that the asset or assets are trading stock, depreciable assets or capital assets of a business of the
associate immediately after transfer by the person;
 at the time of the transfer-
o the person and the associate are residents; and
o the associate or, in the case of an associate partnership, none of its partners is exempt
from income tax; and
o there is continuity of underlying ownership in the asset of at least 50 percent;
 Realization of Asset with Replacement

Where a person realizes an asset and acquire s an asset of the same type to replace the asset to
be realized and the acquisition was done within six months before t h e date of realization
of the asset; or acquires an asset of the same type to replace the asset realized wi thin one year
after the realization of the asset.
The person is,
 in respect of the realization treated as deriving an a mount equal to
(i) the net cost of the asset immediately before the realisation; and
(ii) the amount, if any, by which the amount derived
in respect of the realisation exceeds the expenditure incurred in
acquiring the replacement asset; and
o treated as incurring expenditure in acquiring the replace ment asset, an
amount equal to
(i) the net cost of the asset immediately before the realisation; and
(ii) the amount, if any, by which expenditure incurred in acquiring the
replacement asset exceeds the amount derived in respect of the
realisation.

Realisation of asset by way of merger, amalgamation or re-organization

The gains on realisation of an asset accruing to or derived by a company arising out of a
merger, amalgamation or re-organisation of a company is exempt from tax where there is
continuity of at least fifty per cent of the underlying ownership in the asset.

Apportionment of costs and consideration received

Where a person acquires more than one asset at the same time by way of transfer or as part
of the same arrangement, the expenditure incurred in acquiring each asse t is apportioned
between the assets according to the market value of each of the assets at the time of acquisition.

Where a person realises more than one asset at the same time by way of transfer or as part
of the same arrangement, the amounts derived in realising each asset is apportioned between
the assets according to the market value of each of the assets at the time of realisation.

Where a person who owns an asset realises part of the asset , the net cost of the asset immed
iately before the realisation is apportioned between the part of the asset realised and the part
retained according to the market value of the asset on the date of realisation.

CHANGE OF OWNERSHIP (Section 62)

Where the underlying ownership of an entity changes by more than fifty percent at any time within a period
of three years, the assets and liabilities of that entity immediately before the change is deemed to be
realised.
An entity that changes ownership in the manner referred to in the above shall not;

 Deduct financial cost carried forward that were incurred by the entity before the change;
 Deduct an unrelieved tax loss that was incurred by the entity before the change
 Carry back a loss that was incurred after the change to a year of assessment before the change
  Claim a deduction after the change for refunds of an amount that was in included in calculating
the income of that person and that is later refunded by that person because of legal obligation
to refund
 Claim a deduction after the change for an amount disclaimed or written off in calculating the
income of the person where the person had included the amount in calculating income and
later the person disclaim an entitlement to receive the amount or in the case where the amount
constitutes a debt claim of the person, the person has write off the debt claim as debt.
Where a change of ownership of a type as discussed above occurs during a year of assessment of an entity,
the period before the change and the period after the change shall be treated as separate years of
assessment.
TREATMENT OF REALIZATION
a) Sale/Acquisition:
Where there is outright sale /acquisition, any realization that results from this transaction is subject to tax.
(i) If there is a gain, the amount realized is added to the income and taxed
appropriately.
(ii) If there is a loss, the quantum of the loss may be carried forward.
b) Merger, Amalgamation and Re-Organization
(i) Any gain on realization of an asset that accrues to, or is derived by a company arising
out of a merger, amalgamation or re-organization is;

 exempt from tax where there is continuity of at least 50% of the underlying
ownership in the asset.

 subject to tax where there is a continuity of less than 50% of underlying

ownership in the asset.

(ii) A realization of assets and liabilities is deemed to have taken place where within
three years, there is a change in the share structure of an entity by more than 50%.
Such an entity will beliable to all provisions in the Income Tax Act, 2015 (Act 896)
relating to disposal of assets and liabilities.

Illustration
A change in ownership of company A’ occurred on 31st May, 2016 and the company’s accounting year ends
on 31st December.

Implication
The period from January 1, 2016 – May 31 2016 is considered as a separate basis period from the period
June 1, 2016 to December 31, 2016. This requires the apportionment of capital allowance for the two
separate basis periods of the year of assessment.

(E) Further consideration

The following shall not be deducted when there is change in ownership as stated above;
 Unutilized financial cost incurred by the entity before the change.

 Provision for carry-over of losses incurred by the entity before the change.
  Bad debts incurred which have been included in the calculation of the income under the
provisions of the Act before the change.

 Contract losses at the end of long term contractcannot be carried back to periods before
the change.

CHANGE OF OWNERSHIP – COMPREHENSIVE ILLUSTRATION

ABC Limited is a wholly owned Ghanaian company and prepares accounts to 31 st December each year. In
2014, BCD Limited acquired 20% shares in ABC Limited. In 2015, BCD Limited further acquired additional
10% shares in ABC Limited, while DEF Limited also acquired 10% shares in ABC Limited. In 2016, BCD
Limited further acquired additional 5% shares in ABC Limited, while DEF Limited also acquired additional
15% shares in ABC Limited.

Below is the Capital structure of ABC Limited for the relevant years:
ABC LTD. BCD LTD. DEF LTD. TOTAL
2013 100% 100%
2014 80% 20% 100%
2015 60% 30% 10% 100%
2016 40% 35% 25 100%
The data below which relate to the end of 2015 year of assessment is relevant:
(i) The net cost of the assets of ABC Limited immediately before the realization is GHS1,567,890.
(ii) ABC Limited had an unrelieved financial cost of GHS12,345
(iii) ABC Limited had an unrelieved loss of GHS23,456
(iv) ABC Limited refunded an amount of GHS1,234.50 to Mr. Takoko in January, 2016 for a
Television set he bought from ABC Limited in February 2015 which became defective before
the expiration of the Guarantee period.
(v) One of the debtors of ABC Limited who owed GHS34,567 became bankrupt in February, 2016
(vi) The final change in the ownership of ABC Limited took place on 31st July, 2016
Required: Determine the tax treatment of the transactions of ABC Limited.
SOLUTION
(i) REALISATION OF ASSETS AND LIABILITIES OF ABC LIMITED
The underlying ownership of ABC Limited changed by sixty percent within a period of three years hence
all its assets and liabilities immediately before the change is deemed to be realised.
ABC Limited will be required to calculate the gain or loss on its assets and liabilities in line with section 45
of the Act.
(ii) DENIAL OF DEDUCTIONS
ABC Limited cannot claim any of the under-listed deductions in line with section 62(2) of the Act:
(i) The unrelieved financial cost of GHS12,345
(ii) The unrelieved loss of GHS23,456
(iii) The amount of GHS1,234.50 refunded to Mr. Takoko in January, 2016.
(iv) The bad debt of GHS34,567 .

(iii) SEPARATION OF ABC LIMITED’S BASIS PERIODS FOR 2016 YEAR OF

ASSESSMENT
In line with section 62(3) of the Act, the Basis periods of ABC Limited for 2016 year of assessment will be
determined as follows:
PERIOD ONE
YEAR OF ASSESSMENT BASIS PERIOD
2016 01/01/2016 - 31/07/2016

PERIOD TWO
YEAR OF ASSESSMENT BASIS PERIOD
2016 01/08/2016 - 31/12/2016

Question 1
(a) Companies A and B are associates. In March 2016, company B transferred stock of goods (market
value) GHS150, 000.000 to Company A. The original cost of the goods was GHS120,000.000.
Explain how this would treat the above transaction for tax purposed (10 marks)

SUGGESTED SOLUTIONS

Where a person realises an asset, being trading stock, a depreciable asset or a capital asset of a business,
by way of transfer of ownership of the asset to an associate of the person the person is treated as deriving
an amount in respect of the realisation equal to the net cost of the asset immediately before the realisation;
and the associate is treated as incurring expenditure of in acquiring ownership of the asset of amount
equal to the net cost of the asset immediately before the acquisition provided the below conditions are met

From the forgoing provisions, the consideration that will be deemed to have been received by
Company B for transferring the stock to A, will be the cost, i.e. GHS120, 000,000 (ideally it is should to
be the net cost.

The above treatment would held if the following conditions are satisfied concurrently.

i) that the stock would be treated as business assets of the transferee ie Company A.
ii) that both companies are resident in Ghana
iii) that company A (the transferee) is not exempt from tax.
iv) that company B (the transferor) continues to have at least 50% underlying ownership in the stock
transferred.

If any of the above conditions is not met, the GRA would value the stock at GHS150, 000,000
(ie the market value)
 CHAPTER 8

WITHHOLDING TAXES-GENERAL

Withholding Obligations
The provisions of the Act requires a resident person who pays an amount for works or the supply of
goods and services to another resident or non-resident person, with a source in Ghana, to withhold tax
from the payment at the appropriate rate and pay same to the Commissioner-General.
Source of Payment
A payment has a source in Ghana where the payment is attributable to the supply of goods or works and
services rendered in Ghana, regardless of the place of payment.
A payment for works has a source in Ghana where the payment is attributable to works undertaken in
Ghana, regardless of the place of payment.
Work is undertaken in Ghana where either:
a) the activities are carried out in Ghana; or
b) the payer is the Government of Ghana, including all Agencies of the Government except
specifically exempted
A service is said to be rendered in the country if the recipient of the service is in Ghana or the service was
used in Ghana by a resident person or a Ghanaian permanent establishment.

Persons Required to Withhold Tax

The withholding tax deduction applies to payments made by:
a) A resident person
b) Permanent Establishment of a Non-Resident person.

Withholding Tax Base

Calculation of the withholding Tax

Withholding Tax shall be computed on the gross amount paid without deduction of expenses or
allowances.
The withholding tax base amount shall be exclusive of any Value Added Tax or Communication Service
Tax included in the payment amount.

Example:
The cost of work liable for the withholding tax is GHS118 million (inclusive of VAT/NHIL) Determine the
withholding tax payable.

Solution
Contract sum (inclusive of VAT/NHIL) = 118,000,000
Less VAT/NHIL (118,000,000 x 17.5/117.5) = 17,574,468

Amount Exclusive VAT/NHIL 100,425,532

Withholding Tax @ 5% of 100,425,532 = 5,021,276.60

NOTE: The 5% withholding tax rate is applied on the amount exclusive of VAT/NHIL

DUE DATE FOR PAYMENT OF TAX

Tax withheld shall be remitted to the Commissioner-General within fifteen (15) days after the end
of the calendar month in which the tax was withheld.
Example:
Withholding tax deducted in the month of March 2016 shall be paid on or before the 15th day of
April 2016.

Filing of withholding tax return

1) Every withholding agent shall file with the Commissioner-General within fifteen (15) days after
the end of each calendar month in which tax is withheld, a return in the manner and form
prescribed specifying:
a) Payments made by the withholding agent during the period that are subject to withholding
tax
b) The name, address and Tax Identification Number (TIN) of the withholdee
c) Tax withheld from each payment; and
d) Any other information that the Commissioner-General may prescribe.

2) A withholding agent who has no withholding tax obligation for a particular month shall still file
a “Nil” return with the Commissioner-General within fifteen (15) days after the end of the
month in which the tax was withheld.

WITHHOLDING TAX CERTIFICATE

A withholding agent shall prepare and serve on a withholdee a Withholding Tax Certificate in
the form prescribed in Regulation 26 of the Income Tax Regulations, 2016 (LI 2244).
 TAX CREDIT
The withholdee of a payment which is not a final withholding tax is regarded as having paid the
tax withheld and shall be entitled to a tax credit in an amount equal to the tax withheld and
treated as paid for the year of assessment.

Rate of Withholding Taxes

RATES
Dividend 8% Final
Interest to persons other than individual 8%
Natural resource payment 15%
Rent (Residential 8% Final
Rent (Commercial or Non-residential 15% Final
property)
Royalty 15%

Fees, and allowances, to a resident director, manager, trustee or board member 20% on account
of a company or trust
for part-time teaching, lecturing, examining, invigilating or supervising an 10% Final
examination;
as an endorsement fee 10% Final
as a commission to a resident lotto receiver or agent 10% on account
as a commission to a sales or canvassing agent; 10% on account
as a commission to an insurance sales or canvassing agent
Supply of goods 3% on account
Supply of works 5% on account
Payment for unprocessed precious minerals located in the country or won from 3%
the country
Supply of services 7.5% on account

Withholding from Investment Returns

A resident person is required to withhold tax at the appropriate rate when making payment to
another person, of the following returns on investment which has a source in Ghana:
i) Dividend
ii) Interest
iii) Natural resource payment
iv) Rent or
 v) Royalty.

There is no amount set as a threshold limiting the withholding of tax in respect of any of the payments
listed above.

Exclusions: The obligation to withhold tax from returns on investment does not apply to the following:
 payments that are subject to withholding tax under employment income;
 payments made by an individual, unless the payment is made by the individual in conducting a
business;
 interest paid to a resident financial institution; or
 payments that are exempt amounts.

Withholding of Tax on payment of service fee with a source in Ghana to a resident

individual.

The Act under the provisions of subsection (1a) of section 116, requires a resident person to withhold
tax at the appropriate rate where that person pays a service fee with a source in Ghana to a resident
individual-
 as fees or allowances, to a resident director, manager, trustee or board member of a company or
trust,
 for part-time teaching, lecturing, examining, invigilating or supervising an examination;
 as an endorsement fee;
 as a commission to a resident lotto receiver or agent
 as a commission to a sales or canvassing agent;
 as a commission to an insurance sales or canvassing agent;
 for any other supply of services or
 for any other matter as may be prescribed by Regulation;

This provision requires all resident persons whether a company, trust, partnership or an individual
to withhold tax on payment of a service fee with a source in the country to a resident individual.

NOTE:
The Withholding tax threshold will not apply in the above instances.

Withholding from the supply or use of goods, the supply of service or the supply of works

A resident person other than an individual, shall withhold tax on the gross amount of a payment at the rate
provided for in the first schedule when the person makes a payment to another resident person for
 the supply or use of Goods
  the provision of any Works, or
 the supply of Services,
 in respect of a contract between the payee and the resident person, where the contract exceeds
2,000 currency points.

Withholding of tax on Rent Income

A resident person who makes a payment to another resident person in respect of rental of residential or
non-residential premises shall withhold tax as an investment return and the amount of tax withheld shall
be treated as a final withholding tax. However, where a resident person makes payment to another resident
person conducting a business of the sale or letting of residential or non-residential premises, the payment
shall be treated as a payment for the supply of services and not as a payment on investment return and tax
shall be withheld accordingly. The amount withheld shall be treated as tax withheld on account and not as
a final withholding tax.

Withholding of tax on Branch Profit Tax

A non-resident person who carries on business in Ghana through a permanent establishment and who has
earned repatriated profits shall pay tax on the repatriated profits for a basis period ending within the year
of assessment. The tax withheld shall be a final tax on the gross amount of the earned repatriated profits
and paid to the Commissioner-General in accordance with the appropriate rate. Where in any particular
year a permanent establishment incurs a loss, the loss shall be carried forward in accordance with the
relevant section of the Act.

NB: Earned repatriated profit of a permanent establishment of a non-resident person is equal to the net
profit after tax of that permanent establishment.

Example 1
XYZ Ghana Branch declares a profit after tax of GHS2, 000,000.00 in 2016 year of assessment. The branch
profit tax will be as follows:
2016 YEAR OF ASSESSMENT
Profit after tax 2,000,000.00
Branch Profit tax @ 8% 160,000.00

Example 2
XYZ Ghana Branch declared a loss of GHS500,000.00 in 2017 year of assessment in its Return which was
confirmed by the Commissioner-General.
XYZ limited submitted its returns for the 2018 year of assessment in March, 2019 and below are extracts
from the Returns:
Net profit as per accounts GHS3, 000,000.00
Depreciation GHS15, 550.00
Agreed capital allowance GHS14, 850.00
Tax rate is 25%
Required: Determine the Branch Profit tax payable by XYZ Ghana Branch for 2017 and 2018 years of
assessment

SOLUTION
2017 YEAR OF ASSESSMENT
In 2017 year of assessment there will be no Branch Profit Tax because there is no profit after tax. However,
the loss can be carried forward and deducted from profit in 2018.
2018 YEAR OF ASSESSMENT
Net Profit as per accounts 3,000,000.00
Add: Depreciation 15,550.00
3,015,550.00
Less: Agreed capital allowance 14,850.00
Adjusted Profit 3,000,700.00
Less Loss from 2017 brought forward 500,000.00
Adjusted Net profit 2,500,700.00
Tax @ 25% 625,175.00
Net profit after tax 1,875,525.00

Branch Profit Tax @ 8% (1,875,525.00 x 8%) = GHS150, 042.00

Withholding Tax for Petroleum Operations

A company that conducts petroleum operations shall withhold tax on the gross amount of a payment
the rate provided for in Paragraph 8 of the First Schedule when that company makes a payment to
resident or non-resident subcontractor as follows:
 where a contractor under a petroleum agreement sub-contracts part of the contract obligation to a
sub-contractor, the contractor shall withhold tax when making payment to the sub-contractor for
the works or services provided by the sub-contractor;
 where a sub-contractor under a petroleum agreement sub-contracts part of the obligations under
the sub-contract, the sub-contractor shall withhold tax when making payment to the sub-sub-
contractor for works and services provided by the sub-sub-contractor; or
 where a contractor under a petroleum agreement sub-contracts part of the contract obligation to a
syndicate of sub-contractors, the contractor shall withhold tax from the aggregate amount when
making payment to that syndicate.
A payment to be made to a syndicate of sub-contractors shall be made to the leader of the syndicate for
distribution among the members of the syndicate.
A leader of a syndicate of sub-contractors shall not withhold tax when distributing payment made by
the contractor for works or services provided by the members of the syndicate.
Where a sub-contractor enters into a contract with a non-resident person under which contract the
non-resident person is to provide works or services in connection with a petroleum agreement, the
sub-contractor shall notify the Commissioner-General in writing within thirty days of entering into the
contract for the Commissioner-General to determine the tax treatment of the income of the non-
resident person from that contract in accordance with the Act.
The tax withheld from the payment to a non-resident person shall be a final tax but a tax withheld from
payment to a resident person shall be on account.
A company that conducts petroleum operations shall withhold tax on payment of dividend to a resident
or non-resident company regardless of the percentage of control.

Withholding Tax from Minerals and Mining Operations

A company that conducts a Mineral and Mining Operations shall withhold tax under the relevant
Sections of the Act.
A company that conducts a Mineral Operations shall withhold tax at the rate provided for in paragraph
8 of the First Schedule of the Act when the person pays for unprocessed precious minerals located in
the Country or won from the country.
This does not apply to the following:
 payments made by individuals, unless made in conducting a business;
 payments made by the holder of a small scale mining license to a labourer with respect to
winnings from the area covered by the license; or
 payments received by the holder of a large scale mining lease.

A resident company or a resident company that is a partner in a partnership that conducts or has
conducted a mineral operation shall withhold tax on payment of dividend to a resident or non-
resident company regardless of the percentage of control.

Payment to Non–Resident person

A resident person shall withhold tax at the rate prescribed in the First Schedule when the person
makes a payment to a non-resident person in respect of the following where the contract give rise
to income in Ghana.
 Insurance premium with a source in Ghana
 Management and Technical Services Fees
  Supply or use of Goods
 Supply of Works
 Supply of Services

Where a payment is made to a non-resident person from a country which has a Double Taxation
Agreement with Ghana, the withholding tax rate shall be the rate applicable in the relevant article
of the Agreement.

A non-resident person who seeks to rely on an article in a Double Taxation Agreement shall submit
a Certificate of Residence from the competent authority of that person’s country of residence to the
Commissioner-General.

Obligation of Resident Persons who enter into contract with Non-resident persons
A resident person who enters into a contract with a non-resident person which gives rise to Income
from Ghana is required to notify the Commissioner-General within thirty (30) days. The notification
shall contain the following:
(b) The nature of the contract;
(c) The likely duration of the contract;
(d) The name and postal address of the non-resident person to whom payments under the
contract are to be made; and
(e) The total sum estimated to be payable under the contract to the non-resident person.

Payments Exempted from Withholding Tax

The following payments are exempted from withholding tax:
(i) Premium paid to a resident insurance company.
(ii) Payment for sale of goods which constitute trading stock of both the vendor and the
purchaser.
(iii) The interest or dividend paid or credited to a holder or member on the investment in an
approved unit trust scheme or mutual fund.
(iv) Interest paid to a resident financial institution.
(v) Payments made to persons specifically exempted from Income Tax
(vi) Payments which have been granted exemption from withholding tax by the Commissioner-
General.
(vii) Dividend paid by a resident company to another resident company which controls directly
or indirectly at least 25% of the voting power in the company paying the dividend.

NOTE: A sale of goods constitutes a trading stock of both the vendor and the purchaser if the goods
are the same goods that are being sold by the purchaser in the same distribution of the product.
Example 1
ABC Limited purchases bags of sugar from a wholesaler XYZ Limited for retail to the general public.
There will be no withholding tax because sugar is a trading stock to both ABC Limited and XYZ Limited.

Example 2
ABCD Limited purchases bags of sugar from XYZ Limited for use as raw material in the manufacture
of its final product (“Sweet Drinks”), a non-alcoholic beverage. ABCD Limited will be required to
withhold tax when making payment to XYZ Limited because the two companies do not trade in the
same goods.

ABCD Limited produces and sells an alcoholic beverage (“Sweet Drinks”) whereas XYZ Limited sells
sugar which are not the same goods.

Threshold for Withholding Tax

(i) Payment for the supply of goods, works or services which is less than or equal to
GHS2,000.00 shall not attract withholding tax.
(ii) Two or more contracts within the same financial year in respect of the same goods, works
or service is to be treated as a single contract for the purpose of determining whether or not
the value of the contract exceeds the threshold of GHS2,000.00 .

Illustration of the application of the Threshold

Below are the various contracts awarded to MNB Books and Stationery limited for the 2016 year of
assessment by the Ghana Police Service.
1st contract for the supply of stationary costing GHS1,000 in January 2016
2nd contract for the supply of Station Diaries costing GHS900 in March 2016
3rd contract for the supply of additional stationary costing GHS900 in August 16 2016

Treatment
The 1st Contract Sum of GHS1,000 does not meet the threshold amount so there will be no tax
withheld on the amount.

The 2nd Contract Sum of GHS900 does not meet the threshold of GHS2,000. Furthermore the
aggregate value of the 1st and 2nd contracts (GHS1,000 + GHS900 = GHS1,900) also does not
meet the threshold of GHS2,000 hence no withholding tax will be charged on payment of the 2nd
contract.
The 3rd Contract Sum of GHS900 does not meet the threshold of GHS2,000. However the
aggregate value of the 1st, 2nd and 3rd contracts (GHS1,000 + GHS 900 + GHS900 = GHS2,800)
exceeds the threshold of GHS2,000 hence the cumulative amount of GHS2,800 will be subject to
withholding tax at the applicable rate.
 The amount to be withheld as tax will be computed on the cumulative contract sum of GHS2,800
and not on the 3rd contract sum of GHS900.

PARTNERSHIPS

The tax deducted on a payment made to a partnership shall be allocated to the partners
proportionately according to each partner’s share of income and treated as having been paid
(advance tax) by the partners for the year of assessment.

CONDITIONS FOR GRANTING WITHHOLDING TAX EXEMPTION

Persons making payments for supply of goods, works and services are required by the provision of
the Income Tax Act 2015, (Act 896) to withhold taxes on the gross amount at various rates and pay
same to the Commissioner-General. However, where a good cause is shown or on account of
satisfactory tax record of the supplier, the Commissioner-General may exempt in writing that
supplier from the withholding taxes due.
The under listed conditions must be met to qualify for exemption from withholding tax:

1. Registration

a) The Taxpayer must have registered for all relevant tax types administered by the Commissioner
General, including VAT unless exempt under the law.
b) The following key persons of the Taxpayer must have Tax Identification Numbers (TIN):
i) Shareholders
ii) Directors
iii) Employees
c) Taxpayers in Large Taxpayer Office (LTO) should have been registered and filed returns on the
GRA PORTAL for E-Transaction.

2. Business Records
The Taxpayer should have kept and maintained adequate and reliable business records in the country.

3. Submission of particulars of contract with a non-resident

The Taxpayer must have submitted notice of particulars of the contracts entered into with non-resident
persons within THIRTY (30) days from the date of entering into such contracts in accordance with
Section 116 (11). Discovery of non-compliance with this provision disqualifies taxpayer for at least
twelve (12) months.
4. Submission of all tax returns by due date
a) TheTaxpayer should have submitted all relevant Tax returns administered by the Domestic Tax
Revenue Division (DTRD); such as Annual Corporate Tax Returns, Pay as You Earn (P.A.Y.E),
Withholding Tax, Value Added Tax (VAT), Communication Service Tax (CST), Excise and other tax
type (where applicable).

b) The following key persons of the Taxpayer should have submitted their returns by the due dates for
all relevant years:
i) All Directors
ii) Expatriate Staff
iii) Employees provided with accommodation and / or vehicle.

5. Assessment
a) Self-Assessment Estimate: The Taxpayer must have submitted its estimated Chargeable Income
and Taxes payable for the current year of assessment.
b) Provisional Assessment: Where this applies, taxpayer should have been provisionally assessed for
the current year.

6. Tax Payments by due dates

The Taxpayer should have paid all taxes which have fallen due by their due dates (both direct and
indirect taxes).

7. Audit
The Taxpayer should have been audited for a period within the last three (3) years. In addition,
repeated infractions of any provisions of the tax laws which has been uncovered by previous audits
disqualifies a taxpayer for the grant of exemption or renewal of exemption from withholding tax for at
least twelve (12) months

8. Dishonoured Cheques
Taxpayers whose cheques are not honoured by their bankers are disqualified for the next two (2) years
from the grant of exemption or renewal of exemption from withholding taxes
 9. Default in payment terms
Taxpayers who have defaulted in payment terms arrangement do not qualify for the exemption for at
least twelve (12) months.

10. Quarterly Submission of List of particulars of payments exemptedfrom withholding tax.

The Taxpayer should have submitted a list of particulars of all payments which would have suffered
withholding tax but for the exemption at the end of every calendar quarter.

11. Third Party Information

Discovery of Third Party information on transactions undertaken by Taxpayer which are not included
in Taxpayer’s Business Records and/ or Financial Statements disqualifies Taxpayer for at least twelve
(12) months.

12. Cash-Flow Challenges

The Taxpayer should demonstrate that suffering withholding tax would lead to:
i) Cash-flow problems, or
ii) Payment of taxes with part of working capital

13. Application
All applications for exemption from withholding tax should be submitted at the Taxpayer’s Tax Office
stating the following:
i) Projected Turnover for the current year
ii) Projected Chargeable Income for the year
iii) Projected Tax for the year.

Meaning of Goods, Works and Services

“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 do not exceed the value of the goods themselves;

“Goods” includes movable tangible property, thermal and electrical energy, heating, gas refrigeration, air
conditioning, and water, but does not include money.
“Works” is defined to include work associated with the construction, reconstruction, demolition, repair
or renovation of a building, structure or surface and includes site preparation, excavation, erection
including erection of mast for Telecommunication business, assembly, installation of plant, fixing of
equipment and laying out of materials, decoration and finishing, and any incidental activity under a
procurement contract. In this context excavation relates to removal of earth, cutting, digging and scooping
during constructional works.

“Service” means the furnishing of labour, time, or effort not involving the delivery of a specific end
product other than reports, which are merely incidental to the required performance; and includes
consulting, professional and technical services but does not include employment agreements or collective
bargaining agreements;

Types of Services

The payment subject to withholding tax under this Act is for service rendered by the recipient of the
payment through a business of that person or a business of any other person. The service fee should be for
provision of professional, technical or consultancy services or other similar services of an independent
business character other than remuneration for employment.
The services include scientific, literary, artistic, training activities as well as activities of physicians,
surgeon, lawyers, engineers, architects, surveyors, dentists, accountants, auditors and other such
professional activities.

The services are carried out by the withholdee in conducting the business, including an isolated
arrangement with a business character. “Technical Services” means services which are tendered and
contracted on the basis of performance of a measurable physical output such as drilling, mapping, aerial
photography, surveys, seismic investigations, maintenance of facilities or plant and similar operations;

Drilling includes activities in Petroleum, mineral and mining operations.

“Consultancy Services” means services which are of an intellectual and advisory nature provided by firms
or individuals using their professional skills to study, design and organise specific projects, advise clients,
conduct training or transfer knowledge;
 CHAPTER 9

RULES GOVERNING TYPES OF PERSONS

TAXATION OF INDIVIDUALS

It can be recall from our early discussions, that the assessable income of an individual for a year
of assessment is that individual income from business, investment and employment. Thus in
other to ascertain the chargeable of an individual, one need to determine the assessable income
from each source separately and after the relevant rate of income tax ( for a resident individual is
the graduated rate and 20% for non-resident individual) to the aggregate chargeable income for
the year.

The income of a resident person derived form a foreign source is taxable income in Ghana.
Despite, the forgoing, the income of a resident individual from employment exercised in a foreign
country with a non-resident employer; or with a resident employer; where the individual is
present in the foreign country for one hundred and eighty three continuous days or more during
the year of assessment is exempt from tax. (Section 111 (2)).

Income Tax Rate for an Individual

Resident:

Rate Year Cumm Monthly Monthly Tax Cum

First 0 2,592 2,592 216 0.00 216.00

Next 5% 1,296 3,888 108 5.40 324.00
Next 10% 1,812 5,700 151 15.10 475.00
Next 17.5% 33,180 38,880 2,765 483.88 3,240.00
Exceeding 25.0% 38,880 3,240

Non-Resident: 20%

Where an individual receives a gift other than a gift received in respect of business or
employment, the individual may elect to pay tax at the rate of fifteen percent.

Taxation of Shareholders
 A resident company which pays dividend to a shareholder shall withhold tax on the amount of the
dividend at a rate of 8%. This is a final withholding tax, thus the recipient shall not be subject to
any further tax obligation. In ascertain the income of a shareholder, there shall be included a
dividend paid by a non-resident company to the shareholder; and a gain made on the disposal of
the shares, where a shareholder deposes of shares in a company.
 It must be noted that, a dividend paid to a resident company by another resident company is
exempt from tax where the company that received the dividend controls indirectly or directly, at
least twenty-five percent of the voting power of the company which paid the dividend. This
however, does not apply to a dividend paid to a company by virtue of its ownership of redeemable
shares in the company that paid the dividend; or dividend that is the result of characterisation
due to anti-avoidance scheme.
 In instance, where the Commissioner-General is satisfied that a company controlled by not more
than five persons and their associate does not distribute to its shareholders as dividends, a
reasonable part of the income of the company from all sources for a basis period within a
reasonable time after the end of the basis period, the C-G may, by notice in writing treat as
dividend, that part of the income of that company which the C-G determined to be dividend paid
to its shareholders during that period or any other period.
 In making such determination, the C-G shall consider the current requirement of the business of
the company after accounting for any adjustment which the C-G due to Transfer pricing
adjustment and any other requirement necessary for the maintenance and development of the
business.

Taxation of Clubs and Trade Associations

For the purpose of the Income Tax Act, a club, a trade associate and any similar institution is a
company and any activity engaged in by each of these institutions in considered as conducted in
the course of a single business. The business income of these institutions includes entrance fees,
subscription and other amounts derived by that person from member for club, trade association
or similar institution during that year. The income accruing to or derived by the club, trade
association or similar institution is exempt from tax.

Taxation of building societies and friendly societies.

Building societies and friendly societies are companies for the purposes of the Income Tax Act. The
income of a statutory or registered building society or statutory or registered friendly society that
meets the requirements below is exempt.

The requirements are that-

a). only individuals are eligible to be members of and make contributions to the society;

b). the organisation does not engage in party political activities, support any political party or
use its platform to engage in party politics; and

c. the Commissioner-General has issued a ruling stating that the society complies with
paragraphs (a) and (b).

Where a society breaches a requirement (a) or (b), the Commissioner-General may revoke or refuse
to issue a ruling referred to in (c), or may amend or issue a ruling on such terms and conditions as
the Commissioner-General thinks fit.

a. Taxation of Trust

A trust is liable to tax separately from its beneficiaries and separate calculations of income must be
made for separate trusts regardless of whether they have the same trustees. A trust is taxed as an
entity, except a trust of an incapacitated individual (not being a minor), which is taxed as though it
were an individual. Amounts derived and expenditure incurred by a trust or a trustee (other than
as a bare agent) are treated as derived or incurred by the trust and not any other person. This rule
applies whether or not the amount is derived or incurred on behalf of another person and whether
or not any other person is entitled to such an amount or income constituted by such an amount.
Assets owned and liabilities owed by a trust or a trustee (other than as a bare agent) are treated as
owned or owed by the trust and not any other person.

Taxation of Beneficiaries

Distributions- of a resident trust are exempt in the hands of the trust's beneficiaries; and of a non-
resident trust are included in calculating the income of the trust's beneficiaries. Gains on disposal
of the interest of a beneficiary in a trust are included in calculating the income of the beneficiary

Taxation of Company

A company is liable to tax separately from its shareholders. Amounts derived and expenditure
incurred jointly or in common by the managers or shareholders for the purposes of a company
that lacks legal capacity are treated as derived or incurred by the company and not any other
person. Assets owned and liabilities owed jointly or in common by the managers or shareholders
for the purposes of a company that lacks legal capacity are treated as owned or owed by the
company and not any other person. The income of a resident company derived from a foreign
source is taxable in Ghana.
CHAPTER 10: TAXATION OF FINANCIAL INSTITUTIONS

7.0 TAXATION OF INSURANCE BUSINESS

In Ghana, the business of insurance is regulated by the Insurance Act, 2006 (Act 724).
The various classes of insurance business include the following;
 Life business;
 Non-life insurance ( which is also known a general insurance business or short term insurance
business)

Taxation of General Insurance Business

The general insurance business including

 Fire insurance
 Marine insurance
 Transport and aviation insurance
 Motor vehicle insurance
 Workmen’s compensation insurance;
 Any insurance business other than the foregoing; and
 Reinsurance business covering any or all of the foregoing business.

Any other business activity of a person who conducts a general insurance business is a separate business
from the general insurance business and the income or loss of that person from each of the businesses for
a year of assessment is to be computed separately.

Ascertaining the Income of from a General Insurance Business

The income derived by person from general insurance business comprise:

 The amount of gross premiums, which would include premiums on re-insurance, accruing to or
derived by that person during the basis period from carrying on the business of insurance of any
risk. It should be noted that premiums returned to the insured are excluded from such income;
  Amounts from any commission or expense allowance from re-insurers, as well as any amounts
from investment held in connection with that business; and

 The amount of any reserve deducted in the previous basis period

Reserve for unexpired Risk: This is an allowable item on a negotiated percentage of Net Premium
Income.

In instances where the previous year’s reserve exceeds the current year’s reserve, the exceed reserve
created for the previous year will be added back to the profit and assessed for tax purposes.

Net premium Income: This is Gross Premiums received less;

 any policies returned (if any) and
 Re-insurance premiums paid.

Owing to the huge amount of losses insured against, most insurance business re-insure the losses with
other companies so that in the event of a loss occurring, they join forces to compensate the insured. Such
companies who are re-insuring will thus also pay a premium to the re-insurance company and this has to
be taken the premium paid by the insured hence the treatment being given

Deductible Expense

It must be noted that the general rule for allowing an expense as a deductible expense is applicable, which
is the expense much be wholly, exclusively and necessarily incurred in generating income for the period
and must not be of capital nature.

For the purpose of the general insurance business, examples of allowable expenses include;

 The amount of any claims admitted by the person during the basis period of carrying on that
business. The amount of any re-insurance recoveries under a contract of re-insurance, guarantee,
security or indemnity should be deducted from such payment of claims;
 The amount of any reserve for unexpired risks referable to that business as at the end of the basis
period.

Format for Computing Chargeable Income from General Insurance Business

LIFE INSURANCE BUSINESS

The income of a person for a basis period from a life insurance business is assessed differently from that
of general business. The income taxable from such a business is made up of amounts accruing to or
derived by that person during the basis period from investment attributable to the business.
The expense allowable as deducted, for tax purposes, from such a business are management expenses,
including commission paid to insurance agents, to the extent incurred by that person during the basis
period in carrying on the life insurance business

Format
 Question 1

Royal Insurance Co. Ltd has been operating in Ghana for two years. Below is an extract from the
Trial Balance as at 31/12/16.

The Company commenced business on 1st January 2015.

Building (at cost) 650,000.

Motor Vehicle (at cost) 210,000
F & F (at cost) 140,000
Interest received on loans 61,000
Interest on Investment 75,000
States Capital 1,200,000
Gross Premium received 920,000
Claims paid during the year 320,000
Depreciation 200,000
Income Tax paid 70,000
Commission to Agents 24,000
General Administrative Expenses 350,000
Reserve (31st December 2015) 360,000
Reinsurance Premiums paid 5,400
Reinsurance recovers 180,000
Premiums returned to clients 19,000

Notes
(i) Reserve is calculated at 40% Net Premium Income
(ii) Assets were acquired on 1st January 2015

Where applicable, use the following rates of Capital allwances

POOL 1 - 40%
POOL 2 - 30%
POOL 3 - 20%
POOL 4 - 10%
 Required:

(a) Compute the tax liability of the Company for 2016 year Assessment.

(b) What would be the position if it had been a Life Insurance Company? (20 marks)

Corporate Tax: 25%

TAXATION OF BANKING BUSINESS

The provisions of sections 87(1) and 88(4) of the Act require that a company engaged in a banking business
as defined under section 90 of the Banking Act, 2004 (Act 673) and the first schedule of the Non-Bank
Financial Institutions Act, 2008 (Act 774) should keep the banking business separate from other business
activities of the company. Separate books of accounts are required to be kept for the banking business and
the other business activities of the bank.

The chargeable income from the banking business of a person is required to be determined separately from
the chargeable income of any other business activity of the person.

Provision for a debt claim

Where a person conducting a banking business makes specific provision for a debt claim which the
Commissioner-General is satisfied is a debt debt, in the case of a debt claim that has been previously
included in calculating income the business, the provision is deductible; in the case of a debt claim that
constitutes the advance of a principal sum, the provision is deductible and the cost of the debt claim is
reduced by an equal amount.

ILLUSTRATION 1:
A company that engages in Banking Business, Assets Management Business and Insurance Business is
required to keep separate books of accounts for the Banking Business, the Assets Management Business
and the Insurance Business.

The chargeable income of the company is required to be determined separately for the banking business,
Assets Management Business and the Insurance Business.

Banking Business

ILLUSTRATION 2
Company A is engaged in the business of Banking, Assets Management and Insurance. Information
gathered from their records indicates the following performance results for 2016 year:
 Banking Business Assets Management Insurance
GHS GHS GHS

Gross Profit 1,200,000 350,000 200,000

Expenses 800,000 250,000 150,000

Net Profit before Tax 400,000 100,000 50,000

Non-Allowable Expenses 200,000 50,000 50,000

Capital Allowance 250,000 80,000 75,000

Determine the Chargeable Income of the businesses of Company A as required under the Income Tax Act,
2015(Act 896) for 2016 year of assessment.

SOLUTION

Banking Business Assets Management Insurance

GHS GHS GHS

Net Profit before Tax 400,000 100,000 50,000
Add: Non-Allowable
200,000 50,000 50,000
Expenses
600,000 150,000 100,000
Deduct: Capital Allowance 250,000 80,000 75,000
Chargeable Income 350,000 70,000 25,000

Note: Company A is required to prepare separate Financial Statements for each of the three business
activities.

QUESTIONS

Questions 1
Mergers, amalgamations, reorganizations and acquisitions appear to be the order of the day in Ghana of
late, especially in the Banking Industry. You have been approached by the management of a leading bank
in Ghana which is contemplating one such transaction but is unsure of the tax implications. You are
required to analyse for them the tax implications of mergers, amalgamations, reorganizations and
acquisitions to enable them decide on the way forward.
 TAXATION OF PARTNERSHIP

Partnership is not liable to pay income tax with respect to the chargeable income of the partnership
and is not entitled to any tax credit with respect to that income, but the partnership is liable to pay
income tax with respect to final withholding payments. The income of a partnership or a loss of a
partnership is to be allocated to the partners in accordance with their interest in the partnership
An amount derived and expenditure incurred by a partner for and on behalf of the partnership in
common is treated as an amount derived or expenditure incurred by the partnership and not the
individual partners. An asset owned or a liability owed by a partner for and on behalf of the
partnership in common is treated as an asset or a liability of the partnership and not the individual
partners and is treated

 in the case of an asset acquired, when the asset begins to be owned in that way;
 in the case of a liability incurred, when the liability begins to be owed in that way; and
 as realized , when the asset ceases to be owned or the liability ceases to be owed in that
way.
the course of a single partnership business.
Arrangements between a partnership and its partners are recognised and taken into
account in determining a partner's share other than the following,

o loans made by a partner to a partnership and any interest paid with respect thereto;
and
o services provided by a partner to a partnership (including by way of employment) and
any service fee or income from employment payable with respect thereto.

If on the change of partners in a partnership at least two existing partners continue, the partnership
is treated as the same entity both before and after the change.

Taxation of Partners

For the purposes of calculating a partner's income from a partnership for a year of assessment of
the partner, include;
 the partner's share of any partnership income or deduct the partner's share of any partnership loss
of the relevant partnership year.

The relevant partnership year is the year of assessment of the partnership ending on the last day
of or during the year of assessment of the partner.

 Gains on disposal of an interest of a partner in a partnership are treated as income from a business
and included in calculating the income of the partner from the partnership.

 Partnership income or a partnership loss allocated to partners proportionately to each partner's

share, unless the Commissioner-General, by notice in writing and for good cause, orders otherwise.

 Tax paid under this Act and foreign income tax paid or treated as paid by the partnership with
respect to the partnership income is allocated to the partners, proportionately to each partner's
share, and treated as paid by them. The allocation occurs at the time partnership income is treated
as derived by the partners which is at the end of the year of assessment of the partnership.
  a "partner's share" is equal to the partner's percentage interest in any income of the partnership as
set out in the partnership arrangement.

Cost of and consideration received for partnership interest

Cost
The following are included in calculating the cost of a membership interest of a partner in a
partnership:

 the amount included in calculating the income of that partner, at the time of the inclusion of the
amount; and the share of exempt amounts and final withholding pay- ments of the partner derived
by the partnership, at the time the amount or payment is derived.

Consideration

The following are included in calculating the consideration received for a membership interest of a
partner in a partnership:
 the amount deducted in calculating the income of the partner, at the time of deduction of the
amount; and a distribution made by the partnership to the partner, at the time of distribution ; and
the share of domestic or excluded expenditure of the partner incurred by the partnership at the
time the expenditure is incurred.

QUESTIIONS

Question 2
Messrs, Aburo, Emo and Dokono have been in partnership for many years preparing accounts to 30 th
September each year.
They deal in hardware. Their capital contributions are as follows:
GHS
Aburo - 300,000
Emo - 200,000
Dokono - 100,000

Partners are entitled to 10% interest on their capitals.

The business assets as at 30/9/16 were

Motor Car Truck Office Equipment

¢20,500 ¢68,000, ¢135,000
Dokono resigned from the partnership on 1st July, 2018. On his exit, the remaining partners agreed to
share profits equally.

In 2017 year of Assessment, the engine of the Motor Car was replaced at cost of ¢10,000

The following assets were later acquired for use in the business.

Asset Cost Date of Acquisition

Building ¢520,000 15/5/18
Toyota Land Cruiser (4) ¢480,000 31/8/18

On 20th December 2018, some office equipment were sold for a consideration of ¢20,500.
The following accounts were submitted to the GRA for tax purposes after deducting Partner’
interest on capitals.
¢
Year to 30/9/17 - 250,000
Year to 30/9/18 - 320,000
Year to 30/9/19 - 385,000

Required:
Compute the assessable income of each of the partners for the relevant years of assessment.
(20 marks)
 CHAPTER 11
OIL AND GAS TAXATION

8.1 Overview of Revenue Types

Royalty
Payment for the right to take oil or gas from the land or sea. This is Levied as a percentage of the gross
value of oil or gas won (produced), irrespective of profitability. The rate ranges is from from 4% to 12.5%
but depends on each contractor’s PA (5%, 7.5%, 10% etc)

Carried Interest
Participating (or carried) interest entitles GNPC to 10% of any distribution of petroleum or revenue to
interest holders in any petroleum operation for which GNPC does not pay exploration and production
expenses. GNPC does this on behalf of the state

Additional interest
After discovery of petroleum in commercial quantities, GNPC on behalf of the State would be required to
pay an agreed percentage of the development and production cost to acquire additional interest in any
petroleum operations. This entitles GNPC to additional interest in any distribution of petroleum or
revenue to interest holders
Petroleum income tax
Petroleum Income Tax is essentially the tax payable on the income derived from oil and gas production.
It includes the corporate tax, withholding tax of subcontractors and employment tax.

Additional Oil Entitlement (AOE)

The AOE is an additional profit tax based on the rate of return achieved. The State is entitled to
additional oil, if the Contractor achieves a specified after tax real rate of return. The Contractor’s rate of
return is calculated on its net cash flow in accordance with a formula specified in the Petroleum
Agreement. The AOE is meant to ensure that the State shares in excess profit accruing to Contractors.
This applies where contractor’s actual IRR>Target rate of return used to evaluate the profitability of
venture during negotiations
Surface Rental
The Contractors are obliged to pay surface rentals for blocks assigned to them for petroleum operations
Surface rentals payable to the state are as follows:
 Phase of Operation Surface Rental Per Annum

Initial Exploration Period US$30 per sq. km

1st Extension Period US$50 per sq. km

2nd Extension Period US$75 per sq. km

Development and Production Area US$100 per sq.km

Other Rentals
These consist of:
• Government property
• Public lands
• Specific services provided by public enterprises (at not more than “commercial rates”)

Technology Allowance
This is a onetime payment by the Contractor to assist GNPC procure plants, equipment and machinery
required for petroleum operations.
Training Allowance
Annual payment by Contractor to support GNPC in human resource capacity building

8.2 Specific Legal Framework

Petroleum income tax regimes include:

• Income Tax Act, 2015 (Act 896);

• Petroleum Agreements;
• Petroleum and Exploration Act, 2015
•
8.3 Ascertainment of Chargeable Income & Deductions

Article 12.1 of the Petroleum Agreement (PA) stipulates the following:

“No tax, duty, fee or other impost shall be imposed by the State or any Political Subdivision on
a Contractor, its Subcontractors or its Affiliates in respect of activities related to Petroleum
Operations and to the sale and export of Petroleum other than as provided in the Article.”
 A contractor shall be subject to Income Tax in accordance with the Income Tax Act 2015, (Act
896) levied at the rate specified by the PA. The company tax rate is 35% which is the same as of
the rate provided in most of the Pas.
• A person carrying on petroleum operations shall pay tax for each year of assessment on
his chargeable income calculated in the manner prescribed by the ITA
• Chargeable income is calculated by deducting from the “gross income” for the year any
allowable deductions;
• Gross income means income from the sale at selling prices actually realised or export
without sale as per PA
• In the case of a sale to an affiliate or an export without sale at world market prices as
provided for under the specific PA to which such person is a party (See PA 11.7)

8.2.1 Income from Petroleum Operations includes:

 the market value of petroleum obtained from the separate petroleum agreement area that
is disposed of or treated as disposed of during the year;
 compensation derived, whether under a policy of insurance or otherwise, in respect of loss
or destruction of petroleum from the petroleum agreement area;
 amounts derived in respect of the sale of information pertaining to the operations or
petroleum reserves;
 gains from the assignment or other disposal of an interest in the petroleum right with
respect to which the operation is conducted;
 amounts required to be included in respect of a surplus in a decommissioning fund;
 Amounts received after production commenced as reimbursement of cost and premium to
a sole risk party under the sole risk terms of a joint operating agreement, and
 any other amounts derived by the person during the year from or incidental to the
operation that are included in calculating income under other provisions of this Act.
Deductible Expense
Expenses must meet the deductibility test as follows:
 All outgoings and expenses must be wholly, exclusively and necessarily incurred by such person
for the purpose of petroleum operations for the year of assessment. These include:
 Rentals
 Royalties
 Contribution to and other expenses incurred in respect of a decommissioning fund for the
petroleum operation in accordance with the rules for established for that fund
 Expenses incurred by that person in the course of closure the petroleum operation, where
funds in the relevant decommissioning fund are not yet available or are inadequate
  Interest, fees or charges upon any money borrowed by an operator, BUT the
Commissioner must be satisfied that such interest, fees or charges were payable on capital
employed for purpose of petroleum operations .....
 Expenses in respect of repairs of premises, plant and machinery or fixtures employed for
the purposes of petroleum operations
 Debts directly incurred in the conduct of petroleum operations proved to have become
bad or doubtful under certain conditions
 Tax losses of prior year after commencement of operations are legitimate deductions
 Contributions to a pension fund or provident fund approved by the Commissioner under
certain provisons
 Sums expended in educating or training of citizens and nationals of Ghana in an approved
educational and technical institutions et al
Non-Deductions not allowed

 Domestic or private expense

 Expenses not wholly, exclusively and necessarily made on petroleum operations
 Any capital withdrawn or sums employed or intended to be employed as capital
 Any capital employed in improvements
 Sums recoverable under an insurance policy or contact of indemnity
 Rent of or repairs to any premises or part of premises not paid or incurred for the purposes of
petroleum operations
 Any amount paid/payable in respect of income tax, profit tax or other similar taxes whether in
Ghana or elsewhere
 In calculating income from a separate petroleum operation, the commissioner-General shall not
allow a deduction
 For research and development
 If the amount does not meet the arm’s length principle
 For a bonus payment made in respect of the grant of the petroleum right
 For expenditure incurred as a consequence of a breach of petroleum agreement

Separation Petroleum Operation

Separate Petroleum Operation (Petroleum Right)

 Separate Petroleum Operation is defined under section 64(1) of the Act to mean petroleum
operations (exploration, development and production) conducted in respect of a petroleum right
(petroleum agreement).
Where a person is conducting petroleum operations in respect of two or more petroleum rights, the
petroleum operations under each petroleum right constitutes a Separate Petroleum
Operation.

Separate Petroleum Operation under section 64(2)

 Under section 64(2) of the Act, Separate Petroleum Operation means petroleum operations
conducted with respect to the petroleum right before the date of approval of the development
plan; and with respect to the development and production area after the date of approval of the
development plan shall be treated as conducted with respect to the same separate petroleum
operation
 Petroleum operations conducted from the date of approval of the development plan in respect of
the same petroleum right, but not in respect of the same development and production area
constitutes a new Separate Petroleum Operation.
Separate Petroleum Operation as an Independent Business
 Under section 63 (4), each Separate Petroleum Operation is required to be treated as an
independent business. The chargeable income of a person is required to be determined separately
for each Separate Petroleum Operation.
 Any person engaged in petroleum operations should therefore keep separate books of accounts
and file tax returns for each Separate Petroleum Operation.
 If the person has other chargeable income, that income is charged at the appropriate rate in
accordance with section 1.
 For the purpose of ascertaining the income of person from petroleum operations, the person
shall;
 Treat each separate petroleum operation as an independent business; and calculate the tax
liability of each independent business for each year of assessment

Transactions between Separate Petroleum Operations and any other activity

 Section 63(5) of the Act requires that the arms-length principle under should apply to
transactions or any arrangements between two or more Separate Petroleum Operations of a
person; and between a Separate Petroleum Operation and any other activity of the person. This
means that transactions between a Separate Petroleum Operation and another Separate
Petroleum Operation or any other business activities belonging to the same person should be
carried out as though they were done between independent persons.
Transfer of an Asset to or from a Separate Petroleum Operation

 Under section 63(6) of the Act, the transfer of an asset to or from a Separate Petroleum Operation
is required to be treated as acquisition or disposal of the asset.
 Deduction of Relevant Cost under Separate Petroleum Operation

The following rules are provided for deducting relevant financial cost.
 Relevant financial gain or relevant financial cost may be included in ascertaining the chargeable
income of a person from a Separate Petroleum Operation.
 The financial cost is deducted only to the extent the relevant financial gain is included in
determining the chargeable income of a person from a Separate Petroleum Operation.
 In a year of assessment, where any loss is incurred in respect of a derivative or a foreign currency
instrument, such a loss may be carried forward and deducted from the relevant financial gain of
the subsequent five years. The loss is required to be deducted in the order in which it was
incurred.
 Financial Gain means a financial gain derived from a derivative or a foreign currency instrument.
 Financial Cost is defined to mean loss incurred in respect with respect to a derivative or a foreign
currency instrument.

Illustration

The profit of a company from a Separate Petroleum Operation is GHS1, 000,000.00. An amount
of GHS200, 000.00 and GHS100, 000.00 in respect of relevant financial cost and relevant
financial gain respectively were reckoned in determining profit from the Separate Petroleum
Operation. Explain the tax treatment of the relevant financial cost and the relevant financial gain
in respect of the derivative instrument, and determine the chargeable income of the company
from petroleum operations.

Suggested Solution

The relevant financial cost that should be included in determining the chargeable income from
the separate petroleum operation is GHS100, 000.00. That is the financial cost even though is
GHS200, 000.00 has to be limited to the relevant financial gain of GHS100, 000.00.
 The excess of relevant financial cost over the relevant financial gain (Loss) may be carried
forward and deducted from relevant financial gain of the subsequent five years. The loss is added
back profit to arrive at the chargeable income.

 Computation of Chargeable Income

 Profit from Separate Petroleum Operation GHS1,000,000.00
 Add back excess of cost over gain GHS 100,000.00
 Chargeable Income GHS1,100,000.00

Exploration and Development Operations

The rules below apply to exploration and development operations conducted by a person as part of a
separate petroleum operation but prior to the person commencing production.

All expenditure, whether of a revenue or capital nature, incurred in the course of exploration and
development operations is placed in a single pool and- no deduction or capital allowance is granted
with respect to that expenditure; and that expenditure does not form part of the cost of an asset.

Expenditure is not included in the pool referred to in the above

 if it is domestic or excluded expenditure; or
 if the amount is not wholly, exclusively and necessarily incurred in the acquisition or
improvement of a value asset used in the production; or incurred in acquiring services or
facilities for the operation.

The pool balance of expenditure incurred during the exploration and development phase shall be
reduced by;

 An amount which is included in calculating the income the person from the separate
petroleum operation; or
 a consideration received in respect of a depreciable asset or capital asset of the
operation.
 The balance in the pool shall be carried forward from year to year until production
commences. However, where at the end of a year of assessment the balance in the pool
is negative
 that negative amount is included in calculating the person's income from the separate
petroleum operation for the year; and
 the balance shall not carried forward to the next year of assessment
 Where a person commences production with respect to a separate petroleum
operation, the balance in the pool of exploration and development expenditure at that
time is capitalised and capital allowances granted.

Losses from petroleum

 An unrelieved loss may be deducted by the person in the order in which the loss is incurred;

An un relieved losses from the separate petroleum operation may be deducted only in calculating
future income from that separate petroleum operation and not income from any other petroleum
operation or non-petroleum activity.

Decommissioning Fund

An amount accumulated in or withdraw from a decommissioning fund for decommissioning

purposes is exempt from tax. Where there is a surplus in the relevant decommissioning fund after a
person completes decommissioning of a separate petroleum operation conducted by that person; or
at the time the person breaches an approved decommissioning plan, the surplus shall be included in
calculating the income of that person from the separate petroleum operation for that year of
assessment.

Withholding tax compliance under Sub-contractors & Employees

Withholding Tax on Dividend

The exemption of tax on dividend paid by a resident company that has more than 25% in an entity paying
any dividend does not apply to a dividend paid by a company that conducts or that has conducted
petroleum operations or a company that is a partner in a partnership that conducts or that has conducted
petroleum operations.
Dividend received by a company that conduct petroleum operation is taxed at 8% final tax

Withholding Tax on Expatriate Employees

Unless, and to the extent that, a petroleum agreement provides in respect of an expatriate employee
employed by a contractor or subcontractor conducting exclusively petroleum operations, the gains or
profit of the employee is liable to tax and withholding tax.

Withholding Tax on Subcontractors

• Where a contractor under a petroleum agreement sub-contracts part of the contract obligation to
a sub-contractor, the contractor shall withhold tax when making payment to the subcontractor
for the works or services provided by the sub-contractor at a rate of 15%. This tax is a final tax
where the sub-contractor is a non-resident sub-contractor.
• Where the sub-contractor under a petroleum agreement sub-contracts part of the obligation
under the sub-contract, the sub-contractor shall withhold tax when making payment to the sub-
sub-contractor for Works and services provided by the sub-sub-contractor;
• Where a contractor under a petroleum agreement sub-contract part of the contract obligation to a
syndicate of sub-contractors, the contractor shall withhold tax from the aggregate amount when
making payment to that syndicate.
• A payment made to a syndicate of sub-contractors shall be made to the leader of the syndicate for
distribution among the members of the syndicate.
• A leader of the syndicate of the sub-contractors shall not withhold tax when distributing payment
made by the contractor for works or services provided by the member of the syndicate.
• Where a sub-contractor enters into a contract with a non-resident person under which contract
the non-resident person is to provide works or services in connection with a petroleum
agreement, the sub-contractor shall notify the CG, in writing, within thirty days after entering
into the contract for the CG to determine the tax treatment of the income of the non-resident
person from that contract.

Furnishing of quarterly return of income

• A person who engaged in a petroleum operation shall, not later than thirty days after the end of
a quarterly period, furnish or deliver to the Commissioner-General,
• a return containing an estimate of the chargeable income resulting from the operations during
the quarterly period, and
• an estimate of the tax due on the chargeable income computed and a remittance in settlement of
the tax so computed

Furnishing of annual return of income

A person engaged in petroleum operations shall not later than four months after the end of the year
of assessment, furnish a return for each separate petroleum operation with the CG

The annual return delivered shall include

• a statement containing the full names, addresses, nationality, salaries, wages, fees, allowances of
the employees in the Republic
• a statement of the amount of production during the year of assessment and the share of that
person in that production
• a statement of the price paid for the sale or export without sale of the person’s share of petroleum
produced
• any other statement or information required to be provided under other provisions of the Act.
• Information relating to matters referred to under this section that is provided under petroleum
agreement should be filed as part of the returns

• Where there is a dispute as to the price applicable in respect of that person’s share of petroleum
produced for a period in the year of assessment, a return indicating the amount of chargeable
income shall be computed on the basis of that person’s proposed price.
• In the event of final determination of the price in accordance with the terms of a petroleum
agreement there should be submitted fresh returns reflecting the determined price and the
adjustments and payments of tax due in respect of that price.
• The returns shall be submitted within thirty days of the final determination of the price.
• The Commissioner-General may give notice in writing to a person engaged in petroleum
operations as often as the Commissioner-General thinks necessary requiring that person to
furnish within the time specified in the notice fuller or further information as to the matters in
connection with the quarterly returns and annual returns or to any matters which the
Commissioner considers necessary for determining the assessment of the person

• Tax for the quarterly period is due and payable thirty days after the end of the quarterly period.

Capital Allowance for Petroleum Operation

All capital allowance expenditure incurred in respect of a separate petroleum operations during a
year of assessment is placed in a separate pool of depreciable assets.

The CG shall grant to that person a capital allowance with respect to each year at the rate of
twenty percent using straight line method.

Where an asset for which capital allowance expenditure has been incurred is disposed of during a
year of assessment- the consideration received for the disposal shall be included in calculating
assessable income from the separate petroleum operations for the year.

• Where in a year of assessment an asset is partly used in a separate petroleum operation and
partly used in another separate petroleum operation the capital allowance of that asset in that
 year shall be apportioned between the two separate petroleum operations in proportion to the use
of the asset in each separate petroleum operation.

• Where in a year of assessment a person has assigned his petroleum right the written down value
of all capital allowance expenditure of the person at the beginning of that year shall be transferred
to the assignee.

• The written down value of the capital allowance expenditure at the beginning of the year in which
the petroleum right was assigned shall be deducted from the consideration derived from the
assignment.

Where in a year of assessment a person has assigned part of his petroleum right, the written down
value of all capital allowance expenditure of the person shall be apportioned between that person and
the assignee in proportion to the percentage of the interest retained and the percentage of the
interest assigned.
Where a deduction is made in respect of a capital allowance expenditure in calculating the income of
a person a further deduction shall not be made in respect of the same capital expenditure allowance
under any other provision of this Act.
capital allowance expenditure" means expenditure for which capital allowances are available; and

"written down value" of an asset means the cost of the asset less all capital allowances granted with
respect to expenditure included in that cost.

QUESTIONS
Question 1
The petroleum industry has three different but related operations. Mention the three operations and
explain the processes involved in each operation. (20 marks)
Question 2
Companies involved in the exploration and production of oil and gas have the option of choosing between
two accounting approaches. Discuss the two accounting approaches and also state the differences between
the two approaches.
(b) Explain briefly the following and also state their differences, if any.
(i) Depletion;
(ii) Depreciation; and
(iii) Amortisation.
SOLUTIONS
Solution 1
The three different but related petroleum operations include the Upstream, Midstream and Downstream
Petroleum Operations. (3 marks)

The upstream oil and gas operations involve exploration, evaluation and appraisal,
development, and production of oil and gas. (3 marks)

 Exploration – means the search for petroleum by geological, geophysical and other methods, and
the drilling of exploration wells. (2 marks)
 Evaluation and Appraisal – means analysis of seismic data and other information, and drilling of
wells to determine the commerciality of a discovery. (2 marks)
 Development – This refers to the drilling of development wells, construction and installation of
equipments and facilities for production. (2 marks)
 Production – refers to the activities undertaken to extract, save, treat and transport oil and gas to
storage or offloading points. (2 marks)

The Midstream oil and gas operations include storage and transportation of oil and gas.
Oil is transported by tanker, pipeline, barge, truck. Gas is transported mainly through pipelines.
(3 marks)
The downstream petroleum operations include oil refineries, petrochemical plants, fuel product
distribution and retail outlets. Fuel products include gasoline, diesel, jet fuel, heating oil, asphalt,
lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides, natural gas, propane, etc.

Solution 2
(a) The two accounting approaches are the Successful Efforts Method and the Full Cost Method.
(2 marks)

The Successful Efforts Method allows a company to capitalize only those expenses incurred
in respect of search for petroleum that results into discovery of petroleum. Costs associated with
unsuccessful searches for petroleum are expensed. According to the proponents of the Successful
Efforts Method, the ultimate objective for any search for petroleum is to discover and produce
petroleum, and therefore only costs associated with successful efforts should be capitalised. Also,
because there is no effect on productive assets of a company if the company is unsuccessful in its
efforts, costs and expenses associated with the unsuccessful efforts should be expensed.
(3 marks)

The Full Cost Method allows all costs incurred in respect of search for petroleum to be
capitalised, regardless of the outcome. The reasons adduced by the proponents of this method are
that the main activity of upstream petroleum company is exploration and production of oil and
gas. Therefore all costs incurred in that regard, whether successful or unsuccessful, should be
capitalised. (3 marks)

The main difference between the two according approach is the treatment of exploration costs
associated with unsuccessful search for petroleum. (1 mark)

(b) (i) Depletion is an accounting method for accounting for the reduction of the reserves of
natural resources, such as minerals and petroleum, when under exploitation. Its purpose is to
reflect accurately the reducing value of the natural resources at the balance sheet date.
(2.5 marks)
 (ii) Depreciation – It is an accounting concept which means a decrease in the value of a tangible
asset or the allocation or the writing off of the cost of a tangible asset over its useful life to reflect
the decrease in the value of the asset. Tangible assets decrease in value due to wear and tear,
effluxion of time, and obsolescence. There are two main methods of computing depreciation.
These are the declining balance method and the straight line method.
(2.5 marks)

(iii) Amortisation – It is an accounting method of writing off or reducing the value of an

intangible asset, such as debt, goodwill, etc. to reflect their reduced value over time.
(2.5 marks)

Depletion, Depreciation and Amortisation are similar. They are all accounting methods of writing
off the value of assets so as to reflect their actual value at the balance sheet date. The difference
relates to the type of asset. Depleteion is used when writing off the value of reserves of natural
resources. Depreciation is used for writing off the value of tangible assets, and amortisation is
used for intangible assets. (1.5 marks)

Economists have cautioned the Government of Ghana as well as Ghanaians not to see the oil and gas find
as a panacea to the problems confronting the country in terms of revenue generation, more so when
citizens appear unaware of the type (s) of revenue expected from the find.
You are required to state and explain the source of revenue the nation expects from the oil and gas find.
(20 Marks)

MINERALS AND MINIG OPERATIONS

Tax Benefits for Mining Industry

 Retention of a portion of foreign exchange in an external account for the purchase of spare parts
and any other input required for mining operation.
 Employees who are provided accommodation at a mine or on site of mining operations are
exempted from payment of PAYE tax on rent element which is benefit to the employees.
 Carry forward of tax unrelieved losses for 5 years
 Exemption from payment of customs import duties in respect of plant, machinery and accessories
imported specifically and exclusively for the commencement of mineral operations.
 Expatriate staff are allowed personal remittances quota, free from tax impositions by an
enactment regulating the transfer of money out of the country.

Overview of Revenue Types

These include:
  Mineral Royalty (5% of Mineral won)
 Corporate Tax
 Dividend
 Ground Rental
 Property Rate
 Mineral Lease (one off payment)
 Mineral right licence (one off payment)

Ascertainment of Chargeable Income-Basis of Taxation

Income tax payable by a person with respect to the conduct of mineral operations is known as mining
income tax.
Mining income tax payable by a person for a year of assessment is calculated by applying the relevant
rate of 35% to the person's chargeable income from mineral operations for the year. If the person has
other chargeable income, that income is charged at the appropriate rate.
For the purposes of ascertaining a person's Chargeable income from mineral operations-
 each separate mineral operation is treated as an independent business and the person must
prepare accounts for that business separate from any other activity of the person; and
 the person must calculate income, loss and mining income tax liability for the business
independently for each year of assessment.

Where two or more persons hold a mineral right other than in partnership, they must ascertain their
assessable income from mineral operations with respect to the right separately, but do so as though
they were in a controlled relationship. As a result, section 31 (arm's length standard) applies to
arrangements between the persons.

Income from Mineral Operations includes:

 amounts derived or treated by section 31 (arm's length standard) as derived during the year from
the disposal of minerals obtained from a separate mining operation
 compensation derived, whether under a policy of insurance or otherwise, in respect of loss or
destruction of minerals from a separate mining operation
 amounts derived in respect of the sale of information pertaining to the mineral operations or
mineral reserves;
 gains from the assignment or other disposal of an interest in the mineral right with respect to
which the operation is conducted;
 amounts required to be included under section 84 in respect of a surplus in a rehabilitation fund;
and
  any other amounts derived by the person during the year from or incidental to the operation that
are included in calculating income under other provisions of this Act with respect to which the
operation is conducted;
Deductions
S.8–The cardinal principle
Expenses must meet the deductibility test as follows:
All outgoings and expenses must be wholly, exclusively and necessarily incurred by such person for
the purpose of petroleum operations for the year of assessment. These include:
 Rentals
 Royalties
 Capital Allowance granted with respect to the mineral operation
 Contribution to and other expenses incurred in respect of an approved rehabilitation fund for
mineral operation.
 Expenses incurred by that person in the course of reclamation, rehabilitation and closure of
the mineral operation where the funds in the relevant approved rehabilitation fund are not yet
available or are inadequate;
 Any other expenses incurred by that person during the year for the purpose of the mineral
operation that meet the threshold of allowing an expense as deductible
 Expenses in respect of repairs of premises, plant and machinery or fixtures employed for the
purposes of petroleum operations
 Debts directly incurred in the conduct of petroleum operations proved to have become bad or
doubtful under certain conditions
 Tax losses of prior year after commencement of operations are legitimate deductions
 Contributions to a pension fund or provident fund approved by the Commissioner under
certain provisions
 Sums expended in educating or training of citizens and nationals of Ghana in an approved
educational and technical institutions et al

Deductions not allowed

 Domestic or private expense

 Expenses not wholly, exclusively and necessarily made on mining operation operations
 Sums recoverable under an insurance policy or contact of indemnity
 Rent of or repairs to any premises or part of premises not paid or incurred for the purposes of
mineral operations
  Any amount paid/payable in respect of income tax, profit tax or other similar taxes whether in
Ghana or elsewhere
In calculating income from a separate mining operation, the commissioner-General shall not allow a
deduction
 For research and development
 If the amount does not meet the arm’s length principle
 For a bonus payment made in respect of the grant of the mineral right
 For expenditure incurred as a consequence of a breach an applicable mineral agreement

Separation Mineral Operation

Mine
Separate Mineral Operation under section 78 (1) (a) of the Act means mineral operations
(reconnaissance, prospecting, and mining for minerals or mining of minerals) conducted in
respect of each mine. Where a person is conducting mineral operations in two or more mines, the
mineral operations under each mine constitutes a Separate Mineral Operation for tax purposes.

Shared Processing Facility

Under section 78 (1) (b) of the Act, a Separate Mineral Operations means mineral operations with
a shared processing facility. Where a person is conducting mineral operations at different
locations with a shared processing facility, such mineral operations are required to be considered
as the same Separate Mineral Operation. Treat each separate mining operation as an
independent business; and calculate the tax liability of each independent business for each year of
assessment

Mineral Right
Under subsections (2) and (3) of section 78 of the Act, mineral operations conducted by a person
under a reconnaissance licence; and subsequently under a prospecting licence and mining lease
are required to be considered as the same Separate Mineral Operation, where the mining lease is
carved out of the prospecting area, and the prospecting area is carved out of the reconnaissance
license area.
For the avoidance of doubt mineral operation conducted by a person under a reconnaissance
license only, is a separate mineral operation, and mineral operation conducted by a person under
a prospecting license only, is a separate mineral operation and mineral operation conducted by a
person under mining lease only is a separate mineral operation. Where a person conducts
mineral operations under two or more mining leases with one processing facility, such mineral
operations constitute a separate mineral operation.
 Separate Mineral Operation as an Independent Business
Under section 77 (4), each Separate Mineral Operation is required to be treated as an
independent business. The chargeable income of a person is required to be determined separately
for each Separate Mineral Operation.
Any person engaged in mineral operations should therefore keep separate books of accounts and
file tax returns for each Separate Mineral Operation.
Illustration:
Company A is engaged in mineral operations in two mines. The law requires that the chargeable
income of Company A be determined separately for each mine.
Illustration:
If Company A is engaged in the conduct of mineral operations in two or more pits under the same
mining lease and with a shared processing facility, such mineral operations constitute the same
Separate Mineral Operation. The chargeable income of Company A should be determined for that
Separate Mineral Operation.

Transactions between Separate Mineral Operations and any other activity

The arms-length principle should apply to transactions or any arrangements between two or
more separate mineral operations of a person, and between a separate mineral operation and any
other activity of that person.
This means that transactions between a Separate Mineral Operation and another Separate
Mineral Operation or any other business activities belonging to the same person should be
carried out as though they were done between independent persons.
Where a person engaged in mineral operations earns income from a business other than from
mineral operations, the chargeable income of the person is required to be determined separately
for the mining operations and the other business. The chargeable income from the other business
is required to be determined in accordance with the relevant provisions under section 1 of the Act

Deduction of Relevant Financial Cost under Separate Mineral Operation

Relevant financial gain or relevant financial cost may be included in ascertaining the chargeable
income of a person from a Separate Mineral Operation.
The relevant financial cost is deducted only to the extent the relevant financial gain is included in
determining the chargeable income of a person from a Separate Mineral Operation.

Deduction of Relevant Financial Cost under Separate Mineral Operation

In a year of assessment, where any relevant financial cost is not allowed as deduction in determining
the chargeable income by virtue of the limitation to the relevant financial gain, such cost may be
 carried forward and deducted from the relevant financial gain of the subsequent five years of
assessment.
The carried forward relevant financial costs are required to be deducted in the order in which they
were incurred.
The relevant financial cost not allowed as deduction in determining the chargeable income should be
added back to the profit of the separate mineral operation to determine the chargeable income for the
year of assessment in which the limitation of the financial cost was effected.

ILLUSTRATION
The profit of a company from a Separate Mineral Operation is GHS2, 000,000.00. An amount of
GHS420, 000.00 and GHS200, 000.00 in respect of relevant financial cost and relevant financial
gain respectively were reckoned in determining profit from the Separate Mineral Operation.
Required:
Explain the tax treatment of the relevant financial cost and the relevant financial gain in respect of
the derivative instrument, and determine the chargeable income of the company from mineral
operations.
SOLUTION
The Act requires that relevant financial cost should be limited to relevant financial gain included in
the profit of the company. Even though the relevant financial cost reckoned in determining the profit
of the company is GHS420, 000 it has to be limited to the relevant financial gain included in the
profit, which is GHS200, 000. The excess of relevant financial cost over the relevant financial gain
(Loss) may be carried forward and deducted from relevant financial gain of the subsequent five years.
To determine the chargeable income from the separate mineral operation, the excess relevant
financial cost of GHS220, 000 reckoned in arriving at the profit of the separate mineral operation
should be added back.

SOLUTION
Computation of Chargeable Income
 Profit GHS 2,000,000.00
 Financial Cost GHS 420,000
 Less Allowable Cost (limited to Financial Gain) 200,000
 Excess cost added back 220,000
220,000.00
 Chargeable Income (Mineral Operations)
GHS2,220,000.00
 Financial Cost carried forward as loss 220,000.00
Reconnaissance and Prospecting Operations
The rules below apply to reconnaissance and prospecting operations conducted by a person as part of a
separate mineral operation but prior to the person commencing production of a commercial findings.

All expenditure, whether of a revenue or capital nature, incurred in the course of reconnaissance and
prospecting operations is placed in a single pool and-
 no deduction or capital allowance is granted with respect to that expenditure; and
 that expenditure does not form part of the cost of an asset.
Expenditure is not included in the pool referred to in the above
 if it is domestic or excluded expenditure; or
 if the amount is not wholly, exclusively and necessarily incurred in the acquisition or
improvement of a value asset used in the production; or incurred in acquiring services or facilities
for the operation.

The pool balance of expenditure incurred during the reconnaissance and prospecting phase shall be
reduced by an amount which is included in calculating the income the person from the separate mineral
operation; or a consideration received in respect of a depreciable asset or capital asset of the operation.

The balance in the pool shall be carried forward from year to year until production commences.
However, where at the end of a year of assessment the balance in the pool is negative, that negative
amount is included in calculating the person's income from the separate mineral operation for the year;
and the balance shall not carried forward to the next year of assessment Where a person commences
production with respect to a separate mineral operation, the balance in the pool of reconnaissance and
prospecting expenditure at that time is capitalised and capital allowances granted.

Losses from Mineral operation

An unrelieved loss may be deducted by the person in the order in which the loss is incurred;
An un relieved losses from the separate petroleum operation may be deducted only in calculating future
income from that separate mineral operation and not income from any other activity.

Rehabilitation Fund
An amount accumulated in or withdraw from a rehabilitation fund for the purpose of rehabilitation is
exempt from tax. Where there is a surplus in the relevant rehabilitation fund after a person completes
rehabilitation of a separate mineral operation conducted by that person; or at the time the person
breaches an approved rehabilitation plan, the surplus shall be included in calculating the income of that
person from the separate mineral operation for that year of assessment.
Capital Allowance for Mineral Operation
All capital allowance expenditure incurred in respect of a separate mineral operations during a year of
assessment is placed in a separate pool of depreciable assets.
The CG shall grant to that person a capital allowance with respect to each year at the rate of twenty
percent using straight line method.
Where an asset for which capital allowance expenditure has been incurred is disposed of during a
year of assessment-
o if the consideration received for the disposal exceeds the written down value of the asset;
include the excess in computing the assessable income of that person from separate
mineral operation for the year
o If the written down value of the asset exceeds the consideration received for the disposal,
grant an additional capital allowance for the year in an amount equal to the excess; and
Reduce the pool of the depreciable asset by the written down of the asset

Where in a year of assessment an asset is partly used in a separate mineral operation and partly
used in another separate mineral operation the capital allowance of that asset in that year shall be
apportioned between the two separate mineral operations in proportion to the use of the asset in
each separate mineral operation. Where in a year of assessment a person has assigned his mineral
right the written down value of all capital allowance expenditure of the person at the beginning of
that year shall be transferred to the assignee. Where in a year of assessment a person has
assigned part of his mineral right, the written down value of all capital allowance expenditure of
the person shall be apportioned between that person and the assignee in proportion to the
percentage of the interest retained and the percentage of the interest assigned. Where a deduction
is made in respect of a capital allowance expenditure in calculating the income of a person a
further deduction shall not be made in respect of the same capital expenditure allowance under
any other provision of this Act.

capital allowance expenditure" means expenditure for which capital allowances are available; and

"written down value" of an asset means the cost of the asset less all capital allowances granted with
respect to expenditure included in that cost.
TAX EVASION, TAX AVOIDANCE AND ANTI-AVOIDANCE PROVISIONS
TAX EVASION
Tax evasion is the general term for efforts by taxpayers to evade the payment of taxes by illegal means. In
other words, tax evasion can be generally defined as the direct violation of a tax provision. It will typically
result in a criminal sanction e.g. penalties and/or jail.

Four Related Studies" of 1987, the term "tax evasion" includes:

- failure to notify the tax authorities of the carrying out of an activity that is subject to tax;
- presenting false declarations, for example, with regard to non-existent losses;
- the use of fake invoices;
- opaque structures;
- leaving a country owing tax; and
- the use of proxies in other territories with the intention of simulating income not attributable to
the taxpayer.

This is the illegal means of avoiding tax by under-declaring income/or over-claiming expenses.
It is any action 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 the payment of taxes.
It is a fraudulent denial, concealment or shirking of a person’s tax liabilities either partly or wholly, covertly
or overtly.
SOME WAY OF EVADING TAXES
• Manipulation, falsification or alteration of records or documents.
• Keeping two sets of books of accounts simultaneously
• Failure to report fully and accurately on income and expenditure
• Keeping stock of goods away from registered business place
• Failure to submit returns
• Misappropriation of assets
• Engaging in barter trade

TAX AVOIDANCE

Tax avoidance is the legal exploitation of the tax regime by taxpayers by applying atypical structures to
reduce tax whilst making a full disclosure of the material information to the tax authorities. Tax avoidance
is an indirect violation of the law if the sole objective of the structure is to reduce or eliminate the tax
burden. Although not normally illegal, tax avoidance can still result in heavy penalties. This is a legal
means of reducing taxes achieved through careful planning supported by court decisions. The idea is to
pay the legally required tax and not more. Tax avoidance is changing your behaviour so as to reduce your
tax liability.

There is nothing illegal about tax avoidance, and this is captured by Judge Learned Hand in the case
Commissioner v Newman, 1947 in the following words:

Over and over again courts have said that there is nothing sinister in so arranging one’s affairs so as to
keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any
public duty to pay more than the law demands; tax are enforced exactions, not voluntary contributions.
To demand more in the name of morals is mere cant.

The above statement means the tax authorities are only entitled to collect tax when they have clear
parliamentary approval to authorize them to collect the taxes.

Therefore if what the tax authorities is not covered by the words of laws, it cannot be taxed.

ANTI-AVOIDANCE PROVISION

If individuals find it prudent to take the necessary lawful steps to minimise the incidence of tax, it is logical
to expect that the revenue authority would also take measures to ensure that provisions in the law are so
closely knit as to prevent being unduly exploited by persons for whom the relief was not originally
intended. Such legislation as are passed to plug opportunities being exploited in the tax law is generally
known as anti-avoidance legislation.

ANTI-AVOIDANCE SCHEMES UNDER ACT 896 (AS AMENDED)

• GENERAL ANTI-AVOIDANCE RULES-SECTION 34

• SPECIFIC ANTI-AVOIDANCE RULES-SECTION 31-33

GENERAL ANTI-AVOIDANCE RULES- (SECTION 34)

In determining the tax liability of a person the CG the GRA is empowered to re-characterised or disregard
such an arrangement or part of such arrangement that is entered into or carried out by such taxpayer as
part of a tax avoidance scheme which is;

• fictitious or does not have a substantial economic effect, or

• the form of which does not reflect its substance

Anti-avoidance legislations are intended to counteract transactions designed to avoid taxation.

arrangement” is defined in the Act 896 as amended to mean any arrangement, action, agreement,
course of conduct, promise, transaction, understanding, or undertaking, whether express or
implied, whether or not enforceable by legal proceedings and whether unilateral or involving more
than one person.

SPECIFIC ANTI-AVOIDANCE RULES-

INCOME SPLITTING- (SECTION 32)

Where a person attempts to split income with another person, the CG may adjust the chargeable
income of both persons to prevent a reduction in tax payable as a result of the splitting of income.
A person attempting to attempted to split income includes a reference to an arrangement between
associated person,

• For the transfer of an asset, directly or indirectly, including the transfer of an amount
derived

• Where the transferor retains legal or implicit right to benefit from the asset currently or in
the future; and

• Where one of the reasons for the transfer is to lower the tax payable by an associate person.

In determining whether a person is seeking to split income, the Commissioner shall consider
the value given by the associate for the transfer. A transfer of income or property indirectly from a
person to an associate of that person includes a transfer made through the interposition of one or
more entities

TRANSFER PRICING - SECTION 31

First it has to be understood that a transfer price is a price set by a taxpayer when selling to, or
buying from or sharing resources with a related person (for the purpose of Ghana tax law an
associate). This in itself is not an illegal or an avoidance scheme, however, the manipulation of the
transfer price such that it is not at arm 'length ( i.e. the price charge for transaction between
unrelated parties) is what is of concern to the revenue authorities as it leads to the base erosion of
profits (BEPS) leading to tax revenue loss to the state.

For example, if company P manufactures goods in country A and sells them to its foreign affiliate,
F, organised in county B, the price at which the sales takes place is called a transfer price, which is
the price set in the market place for transfer of goods and services between unrelated persons.
Transfer pricing is normally used to shift tax liability among associated persons to obtain the best
overall tax outcome. The transfer pricing regulation of Ghana L.I. 2188 provides that transaction
between associated persons to be at arm’s length. A transaction is conducted at arm’s length
between persons in a controlled relationship, if the terms of the transaction do not differ from the
terms of a comparable transaction between independent persons. Application of the arm’s length
 principle is generally based on a comparison of the conditions in a controlled transaction with the
conditions in transactions between independent enterprises.

To be useful, the economically relevant characteristics of the situations being compared must the
sufficiently comparable. In selecting comparable transaction, the following need to be considered

In selecting comparable transaction, the is the need to consider;

• Whether there exist economically relevant characteristics of the transactions to be compared in

relation to

• The characteristics of the goods, property or services transferred

• The relative importance of functions performed

• The contractual terms and conditions of the transactions

• The assets used

• The relevant risk assumed by the associated persons and any independent party, where the
independent party is considered as a possible comparable

• The economic and market circumstances in which the transaction takes place

• The business strategies pursued by the connected person in relation to the transaction

Where an arrangement exists between associated persons, the persons shall calculate their income
and tax payable according to the arm's length standard.

The arm's length standard requires associated persons to quantify, characterise, apportion and
allocate amounts to be included or deducted in calculating income to reflect arrangements that
would have been made between independent persons. Where, in the opinion of the Commissioner-
General, a person fails to comply with the arm 'length standard, the Commissioner-General may
make adjustments consistent with the arm’s length standard and in doing so the Commissioner-
General may-

• re-characterise an arrangement made between associated persons, including re-characterising

debt financing as equity financing;

• re-characterise the source and type of any income, loss, amount or payment; and

• apportion and allocate expenditure, Permanent establishment and it owner based on turnover

TRANSFER PRICING METHODS

 The transfer pricing methods approved by the Commissioner-General are

• The comparable uncontrolled price method

• The resale price method

• The cost-plus method

• The transactional profit split method

• The transaction net margin method

• Illustration question

• RAK company limited is a holding company that produces plastics bottles for mineral water
producers. NAM Company Limited packages mineral water for export only. RAK Company limited
has 60% shares in NAM Limited. The open market value of a plastic bottles is GHS 0.0003. RAK
sells all its products to NAM. Below are the extract of the financial statements of the 2 associated
companies.

RAK Company Ltd GHS GHS

Sales (100millions bottles @0.0002 per bottle) 20,000

Deduct expenses 19,000

Net Profit 1,000

Tax @25% 250

NAM Company Ltd GHS GHS

Sales (export) 60,000

Deduct

Purchases ( GHS .0002 * 100m) 20,000

Other expenses 20,000 40,000

Net Profit 20,000

 Tax @8% (non-traditional export) 1,600

The CG is empowered to adjust the chargeable incomes of both companies.

RAK Company Ltd GHS GHS

Sales (100millions bottles @0.0003 per bottle) 30,000

Deduct expenses 19,000

Net Profit 11,000

Tax @25% 2,750

THIN CAPITALISATION

This happens when an enterprise introduces very little equity into its operation and operates mainly with
borrowed funds. Interest eats into taxable profits as it is tax deductible just as any deduction that is wholly,
necessarily and exclusively incurred. Normally, the debt to equity ratio of a company is used to measure
the acceptability of debt levels, as well as the interest cover. Thin capitalisation concerns in particular the
level of the related party debt made available to a resident company. The rates of interest, discount or other
consideration on the debt may also need to be reviewed. Under normal circumstances, interest on third
party debt is deductible for tax purpose. Excess related debt is treated as equity and a deduction for that
part is denied.

Where a resident entity which is not a financial institution and in which fifty percent or more of the
underlying ownership or control is held by an exempt person either alone or together with an associate
has a debt-to- equity ratio in excess of 3-to-1 at any time during a basis period, a deduction is disallowed
for any interest paid or foreign currency exchange loss incurred by that entity during that period on that
part of the debt which exceeds the 3-to1ratio being a portion of the interest or loss otherwise deductible
but for this subsection.

 exempt person” means a non-resident person; and a resident person for whom interest paid to
that exempt person by the resident entity or for whom any foreign exchange gain realised with
respect to a debt claim against the resident entity constitute exempt income; or is not included in
ascertaining the exempt person’s assessable income;
 resident entity” means a resident partnership, resident company, resident trust or permanent
establishment of a non-resident person in Ghana.
 Debt means an obligation to pay an amount owned to an exempt person
 Equity means the sum of stated capital and income surplus.

ILLUSTRATION

Nana Adu Ltd, a company resident in Ghana since the year of assessment 2007, is wholly owned
subsidiary of Holiday Ltd South Africa. Nana Adu Ltd contracted a loan from Holiday Ltd South Africa
of an amount of 10 million dollars to meet deadlines in its operations. The balance standing on the
loan account at the beginning of 2016 stood at 5 million dollars and anticipated to be 4.5 million dollars
at the end of year 2016. exchange rate at the year start of 2016 is $1 –GHS 1.2 and anticipated to be
$1= GHS 1.21 at the end of the year 2016.

the extract of financial statement at the beginning of the year 2016 is as follows:

• Stated Captial GHS 200,000

• Income Surplus GHS 1,235,000

Interest anticipated to be paid during the year will amount to GHS 78,125 and foreign exchange loss
on the loan repayment is hoped to stand at GHS 145,000.

What is the possible and expected tax implication of this transaction?

Suggested Solution

Loan debt= 5,000,000 X 1.2 = 6,000,000

Interest expected to be paid= 78,125

Exchange loss= anticipated=145,000

Equity:

Stated Capital 200,000

Income Surplus 1,235,000

1,435,000

Debt loan that is allowed = 3X 1,435,000=GHS 4,305,000

Interest to be allowed

78,125 x 4,305,000/6,000,000

= 56,054.69
 Interest disallowed= GHS 78,125- GHS56,054.69= GHS 22,070.31

Foreign exchange to be allowed

145,000 x 4,305,000/6,000,000

= 104,037.50

Foreign exchange disallowed= GHS 145,000- GHS104,037.50= GHS 40,962.5

Illustration 2

A foreign parent company, AMADEUS LIMITED has a loan of GHC4,000,000 to its wholly-owned
subsidiary in Ghana, Amazon Ghana Limited. Amadeus Limited’s equity in Amazon Ghana Limited is
GHC200,000 and interest payable on the debt for the 2016 year of assessment is GHC600,000.
Determine the interest that should be allowed for tax purposes in 2016 year of assessment for Amazon
Ghana Limited. Explain your answer.

QUESTION 2

“In the tax planning pro9cess, an effort should be made to distinguish between tax evasion and tax
avoidance”. Discuss the distinction between tax evasion and tax avoidance in the tax planning process.

SUGGESTED ANSWERS

1. Tax Planning entails organizing one’s tax affairs in such a way as to pay just what is due. Tax
Evasion refers to failing to pay legally due taxes or using illegal means to reduce taxes. It involves
understatement of income, overstatement of expenditure, making incorrect returns and
preparing false statements among others. Tax evasion is criminal and punishable under the laws
of Ghana in the form of heavy fines, imprisonment or both.
Tax avoidance generally takes the form of taking advantages of all entitlements, reliefs, rebates,
exemptions or any loophole in the law. It is a legal way of operating within the ambit of the law to
pay what is due. To be successful in avoiding taxes, one has to be conversant with the tax laws and
their provisions since there is a thin line between tax evasion and tax avoidance.

DOUBE TAXATION

This is the imposition of comparable taxes in two or more state on the same income in respect of the
same subject. It interesting to know that there is no rules of international laws that prohibits
international double taxation.
 FORMS OF DOUBLE TAXATION

Double taxation can take two types namely;

 Judicial Double taxation

 Economic Double Taxation
Judicial Double taxation

The is where the same income is being taxed twice in the hands of the same taxpayer. For example,
where dividend is being taxed in the country of source by a way of withholding tax and then one more
time in the country of residence of the shareholder by a way of tax assessment.

Economic Double Taxation

This is where the same income is being taxed twice in the hands of two different taxpayers. Continuing
with previous example, the profit earned by the company, which paid the dividend may be subject to
corporate income tax. Economically, the corporate profits and the dividends are the same income,
however taxed in the hands of two different taxpayers – company paying the corporate income tax and the
shareholder – subject to the taxation on the distributed profits.

Effects of Double Taxation

 It hampers free flow of capital

 It results in multiplicity of tax

METHODS OF RELIEF FROM INTERNATIONAL DOUBLE TAXATION

International double taxation may be eliminated either by concession by one state, that is unilaterally
(on the basis of domestic law), or bilaterally (on the basis of tax treaties)

Bilateral methods of eliminating double taxation- Double Taxation Agreements/Treaty

(DTA)

Double taxation cause untold hardship to the taxpayer and discourage international investments. As a
result this most countries enter into bilateral agreement with other countries to provide tax relief on
reciprocal basis to their citizens and residents.
As the name suggests, a double tax agreement is an agreement or a contract regarding double taxation or,
more correctly, the avoidance of double taxation. It is an agreement between two sovereign states (separate
and distinct political entities). It has the status of a ‘treaty’ – hence, its alternative name of double tax
treaty.

A DTA is therefore a contract signed by two countries (referred to as the contracting states) to avoid or
alleviate (minimise) territorial double taxation of the same income by the two countries.

How territorial double taxation occurs

When residents (been it individuals, corporations or enterprises) of any two given countries trade or
transact commercially with each other, it gives rise to international trade, or cross-border transactions.

Illustration 1

A typical scenario is when A, a person based in Country A, transacts business with a person resident in the
other country, Country B. The profits or gains thus accruing to A is, say, $100. This $100 is likely to be
subject to tax in Country A (because he is resident or based in Country A), as well as in Country B (because
the gains are derived or sourced from Country B). Thus, the same income item of $100 is subject to
territorial double taxation, once in Country A, then again in Country B.

Assuming Country A has a tax rate of 30%, while Country B taxes the income at 25%, A will potentially
suffer a global tax of $55 [(30%of $100) + (25% of

$100)], leaving him with a measly after-tax income of only $45.

Why have DTAs?

Territorial double taxation obviously discourages international trade. A trader is better off trading within
the state boundaries and suffer tax in one country only. However, it is a widely accepted commercial reality
that international trade is economically good for the countries concerned, and that international trade
should be encouraged. Thus, countries believing in the benefits of international trade would try to provide
a more conducive environment for cross-border trade by putting down rules to avoid or minimise double
taxation.
Countries that have Double Taxation Agreement with Ghana

 France.
 The United Kingdom
 Belgium.
 Italy.
 Germany.
 South Africa.
 Switzerland.
 Netherlands.

Advantages of Double Taxation Agreements

Double taxation arguments are necessary because

 They allow for the allocation of tax between treaty partners. Since each country’s citizens in the
other state pay taxes in those states and only get a relief in their home countries, both countries get
to share the tax revenue between them.
 The create environment of fiscal certainty which encourages trade ad investments. By the
agreement, double taxation is eliminated and hence encourages investors to go into places where
their tax liability is minimized
 They protect international shipping and air transport activities. By the agreement, shipping and air
transport businesses pay taxes in the country who flag they fly, hence resolving the thorny issue of
having to pay taxes in each and every country they find passengers or cargo.
 They discourage the more obvious forms of discriminatory taxation of foreign nationals and
enterprises. This is because whatever taxes that foreign nationals and enterprises will pay leads to
them being granted tax credit relief in their home country based on what they have paid in the
county where the income accrued or was derived
 They help prevent international tax avoidance and tax evasion.

Treaty overrides domestic laws

Section 98 of the Revenue Administration Act, 2016 ( Act 915) provide that if a DTA has been
entered into and it has started to take effect, then, so long as the DTA remains in force, the DTA shall
have effect in relation to tax under this Act notwithstanding anything in any written law.’

To the extent that the terms of an international arrangement to which the Republic is a party are
inconsistent with the provisions of a tax law, the terms of the international arrangement shall prevail
over the provisions of the tax law. This applies only to an international arrangement ratified by
Parliament.

It is important to note that the provision of double taxation agreements supersede the laws of such
countries so far as they conflict with the terms of the signatory nations.
 Another principle that has been supported in judicial decisions is that a DTA exists to avoid double
taxation, not to impose tax, if there is no such tax liability under domestic law. Essentially, the
domestic law in the form of the Income Tax Act 2015, is the one and only law to impose a tax liability.

Treaty shopping
This term refers to the practice of searching for (hence the ‘shopping’ element) a suitable country to
locate a company in and then placing the said company i n that country mainly to take advantage of the
treaty benefits accorded to its residents. If such a company is merely a ‘conduit’ structure and does not
have sufficient ‘substance’ (i.e. real and actual commercial activities being carried out by such a
company), it may come under scrutiny by the relevant tax authorities and treaty benefits may be denied
as a result.

International Arrangement

Automatic Exchange of Information agreements are made between the Ghana and other countries
Ghana has double Taxation agreements with.. These agreements allow the exchange of information
between tax authorities of different countries to help stop tax evasion.

As a result of this, the Revenue Administration Act, 2016, Act 915 provides in an instance where
Commissioner-General receives a request pursuant to an international arrangement from the
competent authority of another country for the collection in the country of an amount payable by a tax
debtor under the tax laws of that other country. The Commissioner-General may, by service of a notice
in writing, require the tax debtor to pay the amount to the Commissioner-General by the date specified
in the notice for transmission to the competent authority.

Where an international arrangement requires Ghana to exempt an amount from tax or subject an
amount to reduced taxation, the exemption from or reduction of tax is not available to an entity that

 for the purpose of the arrangement, is a resident of the other contracting state; and

 fifty percent or more of whose underlying ownership is held by persons who, for the purpose of the
arrangement, are not residents of the other contracting state or Ghana.

TAX CREDIT
This is a means of eliminating double taxation unilaterally under domestic laws. This means where a
resident has overseas income which has suffered foreign tax, the tax authorities will allow the liability on
the same income up to a maximum, equal to the amount of the resident’s tax liability in his country of
residence. Section 112 of the Income Tax Act, 2015 (Act 896) as amended provides that resident person
other than a partnership may claim a foreign tax credit for a year of assessment for any income tax paid
by that person to a foreign country and to the extent to which that income tax is paid with respect to the
assessable foreign income of that person for the year.
A foreign tax credit claimed is to be calculated separately for each year of assessment and separately for
assessable foreign income from each employment, business or investment; and with respect to each
calculation, may not exceed the average rate of Ghanaian income tax of the person for the year applied to
the assessable foreign income of that person.

METHOD OF CALCULATING TAX CREDIT RELIEF

1. Find the average rate of the foreign source income
AR= Tax charge/Chargeable Income * 100

2. Find the Average Tax rate in Ghana.

ATR Ghana= Ghanaian Income Tax/ Chargeable Income * 100

This will include both the income earned in Ghana and the gross foreign income. In calculating
the tax paid in Ghana, one should not forget to go through the computation per the format shown
under taxation of individuals, that is, reliefs should be granted where due and rent and car
elements should added where applicable to arrive at the chargeable income before the tax
computed

3. Compare the foreign average tax rate with the Ghana Average Tax rate,, and if
The Ghana rate is higher, the tax credit relief will be granted on the full foreign tax paid.
Ghana average is lower, the tax credit will be limited to the average rate of Ghanaian income tax
applied to the gross foreign taxable income.

ILLUSTRATION QUESTION

Kwaku Boafo has been in employment since 2016 on a consolidated salary of GHC3,600 per annum with
Daakye Timbers Limited. In the year 2017, his consolidated salary was GHC15,000 from which he
contributed 5% to the Social Security and National Insurance Trust. In the same year he remitted an
amount of GHC1,800 (in cedi terms of his UK Pounds Sterling) being his net share of partnership profits
in UK, into Ghana, after tax of GHC450 had been deducted in the UK.

Kwaku Boafo is married with three children two of whom are in Christ the King Junior High School in
Accra and one in Konongo Odumasi Senior High School (Great KOSS).
You are required to:

(a) Determine the Tax Credit Relief to be granted to Kwaku Boafo, on the basis that a double
taxation agreement exists between Ghana and the United Kingdom (UK) and that Kwaku Boafo
has provided evidence of payment of foreign tax on the amount remitted.(14½ marks)

(b) What is Kwaku Boafo’s net tax liability in Ghana? (8 marks)

SUGGESTED ANSWER

A). Kwaku Boafo

Determination of Tax Credit Relief

1. Average Tax Rate on U.K. Income 1½ marks

Tax Charged X 100 = GH¢450 X 100 Total

Chargeable Income GH¢2,250
= 20%

2. Effective rate of Tax in Ghana ½ mark

GH¢ GH¢

Salary in Ghana 15,000

Add Partnership Income (U.K.) 2,250
17,250
Less Reliefs
SSF (5% X GH¢15,000) 825
Marriage/ Responsibility 200
Child Education ( 3 X GH¢200) 600 (1,625)
Chargeable Income 15,625

Rate Year Cumm Tax

First 0 2,592 2,592 0

Next 5% 1,296 3,888 64.8
Next 10% 1,812 5,700 181.2
Next 17.5% 33,180 38,880 1,736.88
Exceeding 25.0% 38,880
Tax Charged 1,982.08
Average Tax Rate in Ghana
Tax Charged X 100 = GH¢1,982.08 X 100 Total Chargeable
Income GH¢15,625
= 12.69%

Since Ghana average tax rate is lower, the tax credit will be limited to the average rate of
Ghanaian income tax applied to the gross foreign taxable income.
Tax Credit= 12.69%* GHS2, 250= GHS 285.53
Net Tax Liability is: GH¢ Tax Charged
1,982.08
Less Tax Credit Relief 285.53
Net Tax Liability 1,696.56

C). Countries with which Ghana has Double Taxation Treaty are:

a. South Africa
b. Germany
c. Belgium
d. Italy
e. United Kingdom
f. France
g. Netherlands
h. Switzerland
Lecture note: Richard Nana Adu Akyeanfo

EXEMPTION METHOD OF ELIMINATING DOUBLE TAXATION

This is where an exemption is given on foreign source income rather than by way of tax credit.
This is where certain types of income derived or arising from one of the two countries and earned
by residents of the other country are exempted from been taxed in one of the countries

OTHER INTERNATIONAL TAX ISSUES

Taxation of Non Residents on Domestic Source of Income (Inbound) and on Foreign

Source of Income

As provided for in section 3 of the Income Tax Act, 2015 (Act 896) as amended, non- resident is taxable
income that has a source in Ghana. Except where the non-resident person has a permanent
establishment in Ghana. In that instance, the income of that is connected with the permanent
establishment, irrespective of the source of the income. An income is deemed to be sourced in Ghana if
the income accrues in or derived from Ghana.
Income Accrued or Derived From Ghana

An amount directly included in calculating income has a source in Ghana where it consists of-

 consideration received, a gain or an amount resulting from trading stock, capital asset or liability,
to the extent to which a domestic asset or domestic liability is involved; and

 a payment that has a source in Ghana.

Payments sourced from the Country

Section 105 of Act 896 as amended clearly states conditions under which certain types of income will be
deemed as accruing or derived from Ghana
1. Dividends -Dividend is accrued or derived from Ghana where the dividend is paid by a
resident company
2. Interest Paid
Is accrued or derived from Ghana where the interest paid;

 is on debt obligation that is secured by a real property located in Ghana

 by a resident person or

 by a Ghanaian permanent establishment;

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Lecture note: Richard Nana Adu Akyeanfo

Natural resource payments ·

 Where the payment is made in respect of a natural resource situated within the
country or its territorial waters and taken from land or the sea; or

 computed by reference to a natural resource situated within the country or its

territorial waters taken from land or the sea;
3. Rent Income

 rent paid for the use of an asset situate in the country or the right to use an asset
situate in the country or forbearance from using an asset situate in the country;
4. Royalties

 royalties paid for the use of an asset in the country, right to use an asset in the
country or forbearance from using an asset in the country;
5. Insurance Premiums

 premiums for general insurance paid to a person in respect of the insurance of a

risk in the country and proceeds from general insurance paid by a person to an
insured person in respect of the insurance of a risk in the country;
6. Gross Receipts of a Non-resident Person who carries on transport business

 payments received by a person who conducts a relevant transport business as

payment for carrying passengers, cargo, mail or other movable tangible assets that
are embarked in the country, other than as a result of transhipment; or

 renting containers and related equipment which are supplementary or incidental

to the business referred to in the above.
7. Gross Receipt of a non-resident person transmitting message, by cable, radio,
optical fibre or satellite communication

 payments received by a person who conducts a business of transmitting or

receiving messages by cable, radio, optical fibre or satellite or electronic
communication in respect of the transmission, reception or emission of messages
by an apparatus located in the country, whether or not the messages originate,
terminate or are used in the country;
8. Employment income and Service

 payments for or attributable to employment, service rendered or a forbearance

from exercising employment or rendering a service in the country, regardless of the
place of payment, or

 where the payer is the Government of Ghana, regardless of the place of

employment, rendering of service or a forbearance of that service, including service
fees of a type not mentioned in respect of the person conducting the transport or
transmitting or receiving referred to in the above;

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Lecture note: Richard Nana Adu Akyeanfo

"domestic asset" means-

(a) an asset owned by a resident person (other than foreign land or buildings), or an asset held by a
foreign permanent establishment of the person or held by a Ghanaian permanent establishment;
(b) an interest in land or a building situated in Ghana; and
(c) shares in a resident company where-
(i) the owner of the shares together with associates controls, or within the previous five years
controlled, either directly or indirectly, 25 percent or more of the voting power in the company; or
(ii) the property of the company consists, directly or indirectly through one or more interposed
entities, principally of immovable property or interests in land or buildings situated in Ghana;

"domestic liability" means a liability owed by a resident person (other than a liability attributable to a
foreign permanent establishment of the person) or attributable to a Ghanaian permanent establishment;
and
"relevant transport business" means a business of land, sea or air transport operator or charterer
carrying passengers, cargo, mail or other moveable tangible assets.

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Lecture note: Richard Nana Adu Akyeanfo
PERMANENT ESTABLISHMENT
When an entity (Company R), which is resident in Country R, wishes to undertake business
transactions in country S through a presence in country S, company R typically does so
through a subsidiary company ( company S) located in country S. In deriving those, profits,
interest and royalty payment may be made by Company S to its parent, Company, R, in
country R. such payment may be treated as deductible expense to arriving at the chargeable
income of Company R. The after-tax profits will usually be distributed by Company S by way of
dividend payment to Company R. Such dividend payments are also likely to be subject to
withholding tax at source in Country S. The important point to note first of all, from an
international tax perspective, it that, in this parent-subsidiary scenario, there are two
separate legal entities. It is important to note that a subsidiary in the case of Ghana is an
incorporate company, thus is it a resident company.
An alternative structure by which company R may undertake its business in Country S is for
Company R to open a branch in country S. In this case, the branch is not a separate legal
entity, but merely an extension of Company R. Here, the profit derived by the branch from
Country S will be taxable in Country S, having a source in Country S. the branch is known as a
permanent establishment (PE) of company R ( the non-resident company) located in
Country S.
In general, an enterprise should not be liable for tax on profits earned in a country that is not
the country of residence of the enterprise, unless the enterprise has a real and significant or
substantial economic connection with the country in which the profits accrue. An enterprise will
only have such a real and significant or substantial connection if it carries on business in the
other country through a PE in that country.
Legally, the branch is not incorporate in Ghana, thus cannot be deemed to be a resident
person. As we are already aware, a non-resident person is taxable in Ghana only when the
non-resident sourced income from the Country. A non-resident company is deemed to have
sourced in from Ghana where the income is attributable to a PE in the Country. Flowing from
the foregoing a non-resident company will be taxed on its business profit in Ghana only so much
as them as attributable to the PE.

Permanent establishments are treated as entities separate from their owners. The income of a
permanent establishment and any tax liability is calculated as if-

the permanent establishment and its owner were separate but associated persons; and
the permanent establishment were a person resident in the country in which it is

situated;
The business income attributable to a permanent establishment of a non-resident person in
Ghana shall be calculated as those which the permanent establishment might be expected to
make if it were a distinct and separate person engaged in the same or similar activities under
the same or similar conditions and dealing wholly independently with that person of which it is
a permanent establishment.

A Ghanaian permanent establishment is subject to tax in the same manner as a resident

company; and the income of a foreign permanent establishment is taxable in the hands of the
resident owner.

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Lecture note: Richard Nana Adu Akyeanfo
What is Permanent establishment?

The income Tax Act, Act 896 as amended provides for two types of Permanent Establishment.
These are foreign permanent establishment and Ghanaian Permanent establishment.
Foreign permanent establishment" means 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.

Ghanaian permanent establishment" means a place in Ghana where a non-resident

person carries on business wholly or partly or that is at the disposal of the person for that
purpose and includes-
 a place in Ghana where a person has, is using or is installing substantial equipment or
substantial machinery;
 a place in Ghana where a person is engaged in a construction, assembly or installation
project for 90 days or more, including a place where a person is conducting supervisory
activities in relation to such a project;
 the provision of services in Ghana,
 a place in Ghana 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 risks situated in Ghana; but excluding a case involving a general agent of independent
status with its own legal personality acting in the ordinary course of business as such; and
Agency PE

The dependent agents is a person who is not independent, acts on behalf of the enterprise, has
authority to conclude contracts in the name of the enterprise ( that is, legally bind the
represented enterprise), exercise his or her authority habitually and does not carry out any
excluded activity. Where a person’s commercial activities for an enterprise are subject to the
detailed instruction or comprehensive control by the enterprise. The authority to conclude
contracts must cover contracts relating to the business of the enterprise. However, the powers
do not need to extend to the actual signing of the contract. A person who is authorised to
negotiate all elements and details of a contract in a way that binds the enterprise can be said to
conclude contract even if the contract is signed by another person in the state in which the
enterprise is resident.

Where a non-resident person carries on business through a broker, general commission agent
or any other agent of an independent status provided that such person are acting in the
ordinary course of their business. An agent of independent status means an agent that is legally
and economically independent of its principal. Legal dependence means that the principal has
no control over or power to interfere in, the day-to-day business of the agent. Legal
independence would normally be evidenced by the existence of a contract between the agents

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Lecture note: Richard Nana Adu Akyeanfo
and its principal. Economic independence means that the agent conduct its own exclusive
business wherein it bears the entrepreneurial risk of the business
Preparatory or auxiliary activity

The criterion of determining whether or not the activity of the fixed place of business in itself
form an essential and significant part of the activity of the enterprise as a whole. In other
words, if the activity is an essential and significant part of the all business activity of the
enterprise, it is not preparatory or auxiliary activity. For example, after-sale activity ( such as
supply customers with spare part for machinery previously supplied to those customers or to
maintain or repair machinery) is normally regarded as part of the essential and significant of
an enterprise, so that the place where after-sales activity occurs would constitute a PE.
Auxiliary activities include
the use of facilities solely for the purpose of storage, display or delivery of
goods
or merchandise belonging to the enterprise;

the maintenance of a stock of goods or merchandise belonging to the enterprise

solely for the purpose of storage, display or delivery;

the maintenance of a stock of goods or merchandise belonging to the enterprise

solely for the purpose of processing by another enterprise;

the maintenance of a fixed place of business solely for the purpose of

purchasing
goods or merchandise, or of collecting information, for the enterprise;

collecting information
invoicing
research development
However, some these activities could be an essential or significant part of the business
activity of an enterprise. For example, research performed by a pharmaceutical company is
part of its main activity, and not merely preparatory or auxiliary.
Ghanaian Permanent Establishment

A Ghanaian permanent establishment, must withhold tax from payments made by it

in the same circumstances as a resident company making such payments;

The income of a PE and any tax liability is computed as if that PE and its owners were
separate but are person in a controlled relationship and that PE is a person resident in
the country in which it is situated.

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Lecture note: Richard Nana Adu Akyeanfo
is subject to withholding of tax on payments received by it in the same circumstances
as a resident company receiving such payments; and

is subject to payment of tax by instalment and on assessment in the same

circumstances as a

Activities, Assets and Liabilities of a Ghanaian Permanent Establishment

All activities of a permanent establishment are treated as conducted in the course of a single
business.

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Lecture note: Richard Nana Adu Akyeanfo

The activities of a permanent establishment are those conducted by the owner through the
permanent establishment. In addition, the following activities are treated as conducted by a
Ghanaian permanent establishment (but not a foreign permanent establishment):
employment by the owner of any individual who is resident in Ghana;
sales of trading stock by the owner of the same or a similar kind as those sold through
the permanent establishment; and
other business activities of the owner conducted with persons resident in Ghana of the
same or a similar kind as those effected through the permanent establishment.

The assets or liabilities of a permanent establishment are:

assets held by or to the extent employed in the activities of the permanent
establishment;
intangible assets created by or through the permanent establishment;

in the case of a Ghanaian permanent establishment, intangible assets, to the extent

that they may be exploited in Ghana;

debt obligations incurred in borrowing money, to the extent that the money is
employed in the activities of the permanent establishment or used to acquire an asset
referred to in the above; and

other liabilities arising directly out of the activities of the permanent establishment.
Income or Loss of a Permanent Establishment
In calculating a permanent establishment's income from its business, attributable to the PE

amounts derived and payments received in respect of assets held by, liabilities owed
by or the activities of the permanent establishment; and

expenditure incurred and payments made for the purposes of assets held by, liabilities
owed by or the activities of the permanent establishment, but only to the extent the
expenditure is properly recorded in the accounts of the permanent establishment.

A permanent establishment is treated as acquiring an asset or liability when the asset or

liability becomes an asset or liability of the permanent establishment.

A permanent establishment is treated as realising an asset held by it or liability owed by it

when the asset or liability ceases to be an asset or liability of the permanent establishment.

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Lecture note: Richard Nana Adu Akyeanfo

OVERVIEW OF OECD DOUBLE TAXATION AGREEMENT

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QUESTION AND SUGGESTED SOLUTION

QUESTION 1
Casting International is a multinational enterprise that develops, manufactures and sells
electronic product. The multinational head office, Casting International PLC, is in London. All
the subsidiaries are 100% owned by Casting International PLC.
The electronic products are manufactured in China by Casting Asia. There are three regional
logistics management subsidiaries around the world including Casting Europe in Liechtenstein.
There is a sales centre and supply-chain management company, Casting South Africa in Pretoria,
South Africa.Ghana Revenue Authority receives information that Casting Europe is operating a
branch office in Accra. As a response to a query, the branch office claimed that they arrange for
delivery of goods to customers on behalf of Casting South Africa. As such, their activities are
preparatory and auxiliary’ within the Ghana /South Africa Double Taxation Agreement. Casting
Europe has no office on Liechtenstein. The Chief Financial Officer and the company secretary of
Casting Europe who lives in Liechtenstein work from their own private residence and
videoconference in for board meetings from their homes.All exchanges of information among
the directors are done by emails, except the videoconference meetings. The directors have never
met physically in Liechtenstein or in Ghana. The branch office management claimed that the
Chief Financial Officer run the day to day affairs of the branch. However, the Ghana Revenue
Authority found out that the Chief Executive Officer of Casting Europe makes all the key
decisions for the day to day running of the business and updates the other Directors on those
decisions during the videoconferences.In Ghana, three directors of Casting Europe including the
Chief Executive Officer have their own offices in the same building with the other branch staff.
They use the branch office’s office equipment. Sixty people work in the branch office in Ghana.
There is neither an office nor an employee in Casting Europe, Liechtenstein, except the two
Directors, the company secretary and the Chief Financial Officer. The branch staff negotiates
with customers on issues such as reduction of price and schedules for payment. When the
customer is ready to make a purchase, he/she is asked to phone the call-centre in South Africa
to confirm. Casting South Africa then issues the relevant invoices for the customer to
authenticate and return to Casting South Africa. Casting South Africa then instructs the branch
in Accra to supply the products to the customer. They key terms of the sales contracts are agreed
between the branch staff and customers. The branch also designs advertisement and directs the
advertising campaigns.

Required
Determine whether

a. Casting Europe and Casting South Africa has permanent establishment in Ghana.
(12 marks)

Casting Europe and Casting South Africa are resident companies in Ghana for tax purposes.
Provide reasons for your answer.
SOLUTION1
Determination of Permanent establishment
Casting Europe

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Lecture note: Richard Nana Adu Akyeanfo

In accordance with the definition of permanent establishment in Section 167 Act 592, Casting
Europe will be a permanent establishment in Ghana if it has a place in Ghana where it carries on
business through an agent, other than a general agent of independent status acting in the
ordinary course of business.
(2 marks)
Sixty employees of Casting Europe work in dedicated offices in Ghana. These employees are the
agents as stipulated in the definition. There seems little doubt, therefore, that it has a “fixed
place” at its disposal. There is little doubt, also, that Casting Europe conducts business through
that fixed place in Ghana. There is thus a very good argument that Casting Europe has a fixed
place of business permanent establishment in Ghana and that it conducts business activities in
the branch. (2 marks)
The argument that Casting Europe’s activities are “preparatory and auxiliary” can be analyzed if
Ghana has Double Taxation Agreement with Liechtenstein. ‘Preparatory and auxiliary’ is an
exception to the general definition of a Permanent Establishment laid down in Paragraph 1 of
the OECD Models Tax Convention. According to the convention, even if the activity is carried on
through a fixed place of business, as long as it is “Preparatory and auxiliary”, the place does not
constitute a Permanent Establishment. Ghana has no Double Taxation Agreement with
Liechtenstein. As such the preparatory an auxiliary argument might not hold. Notwithstanding,
the activities performed at the Ghana branch cannot be described as preparatory and auxiliary.
Besides, providing logistic management function, the branch staff negotiates and agreed on key
terms of sales contracts with customers. This means sales are actually being effected from the
branch in Ghana. (2 marks)

Casting South Africa

Casting South Africa does not appear to have any physical presence in Ghana- there are no
employees of the company in Ghana. It looks unlikely, then that Casting South Africa has a fixed
place of business permanent establishment in Ghana.
(1 marks)
However, there is the need to consider whether there is a “dependent agent” permanent
establishment of Casting South Africa. This will be the case if:
 A person acts on behalf of Casting South Africa and has, and habitually exercises, an
authority to conclude contracts in the name Of Casting South Africa

 Add that person is not an independent agent.

In case, there are indications that employees of the branch of Casting Europe conduct a
significant amount of sales activity on behalf of Casting South Africa and this may well constitute
the requisite level of authority to conclude contracts. It is demonstrated that the terms of sales
agreements are effectively agreed by the employees of Casting Europe with customers, and that
these terms are routinely approved by Casting South Africa, then there is a good argument that
Casting Europe has, and habitually exercises, an authority to conclude contracts in the name of
Casting South Africa. (4 marks)
The final test is to determine whether the employees of Casting Europe are “independent agents”.
This seems unlikely if they carry out this agency function only on behalf of Casting South Africa.
(1 mark)
b.

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Lecture note: Richard Nana Adu Akyeanfo

Determination of Residence
Casting Europe
Section 161, Act 592 provides that a company is tax resident in Ghana if it is
a. incorporated under the laws of Ghana. Or
b. has its management and control exercised in Ghana at any time during the year of
assessment.
(3 marks)
As there is no treaty between Ghana and Liechtenstein treaty considerations are not relevant.
However Ghana’s domestic legislation states the term ‘management and control’ which is
construed to mean ‘effective management’ in Article 4 of the OECD Model Tax Convention and
its commentary.
In this case, three of the five directors including the Chief Executive Officer of Casting Europe
live in Ghana and carry out their duties in Ghana. Whether this is sufficient to “effective manage”
Casting Europe from Ghana is a matter of fact. In addition the commentary provides that the
following factors should be taken into account to determine where an entity has its place of
effective management.

I. Where the Board of Directors usually meets:

In this case the Board meetings are carried out by video conference with some directors
calling from the Liechtenstein and some from Ghana. The evidence here is, therefore, not
conclusive and cannot be relied upon.
(3 marks)
II. Where the Chief Executive Officer and other senior executives usually carry on their
activities and where the senior day-to-day management of Casting Europe is carried on:
The Chief Executive Officer and other two directors live in Ghana and they have never
been to Liechtenstein. It is clear that the activities they carry out are done in Ghana.
However, the Chief Financial Officer and the Company Secretary live in the Liechtenstein
and have never been to Ghana so carry out their activities in Liechtenstein. Casting
Europe claims that the running of the company is carried out by the Chief Financial
Officer. However, the fact that these two individuals are the Chief Financial Officer and
Company Secretary is not sufficient to demonstrate that the company is tax resident
there. In fact, it is unlikely that these officers would effectively manage the company. The
Executive Officer who is located in Ghana directs the activities carried out by the branch
staff and there are no Casting Europe employees in Liechtenstein apart from the Chief
Officer and Company Secretary. There are therefore strong grounds for arguing that the
day to day senior management of the company takes place in Ghana.
(4 marks)
III. Where the company’s Headquarters are located. Which country’s law governs the legal
status of the company? The company is resident clearly incorporated in and governed by
Liechtenstein law which indicates it is resident in the Liechtenstein. However, it could be
argued that its headquarters are in Ghana as it has no offices in the Liechtenstein.
(2 marks)
Casting South Africa
There is no evidence that Casting South Africa is effectively managed from Ghana.(1
mark)
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Lecture note: Richard Nana Adu Akyeanfo

APPROACH TO DETERMINE THE CHARGEABLE INCOME OF AN INDIVIDUAL

WHO DOES NOT KEEP PROPER ACCOUNT (NETWORTH APPROACH)

This is a method applied to ascertain the income of individual who do not keep books of
accounts. The principle is that whatever a person saves plus whatever he consumes less any
windfall gains should be equal to his income, that is:
Profit= Saving + Drawing-Non-Business Income
Where
Saving = Increase in capital (i.e. closing capital- opening capital
Drawing = Private expenditure
Non Business Income = Non-Taxable income (i.e. Income other than business income as well
exempt income).

ILLUSTRATION QUESTION
Osikani Richard return to Ghana in the year 2016 after a long stay in Pakistan, where he
worked as a special agent to the militant group. He opened a bank account at United Bank of
Africa and paid in GHS 50,000. In January 2016, he started business with the capital of GHS
50,000. he travel to the Netherlands, Italy and other counties to buy goods for sale in Ghana,
dealing mainly in gent’s shoe and suiting materials. Osikani has no store but has customers at
opera square and oxford street, Osu who take his goods on credit basis. He does not keep
records of his business activities and thus cannot submit accounts.
In January 2016, when he arrived in the country, he lived with his friend Edem for few days
beforen renting a flat at Roman Ridge, paying a rent of GHS 500 a month. He furnished the flat
at a cost of GHS 15,000. he brought along with him from Pakistan his DVD player, television
set, refrigerator, a freezer, among others with a total value of GHS 85,000.
Osikani has two children who attend a preparatory school in Dzorwulu and the fees for the two
children for a term is GHS 3,000. he engaged a housemaid who is paid GHS 1,000 a month. He
spends on the average GHS 2,000 a month on food, water and electricity bills.
Osikani joined the El-Wak Keep Fit Club in May 2016 and contributed GHS 5,000 to the
activities of the club. After training sessions on weekends he visits an omo tuo joint with some
friends and spends GHS 500 a month on such sessions.
Osikani acquired a plot of land at Oyarifa for GHS 30,000 which he intends to develop as a
residential property. During the Christmas break in 2012, he visited his parents in kumasi and
the presents he bought for the parents and other family members amounted to GHS 5,000. On
the death of his uncle in September 2012, his contributions towards the funeral amount to GHS
2,500, whereas the donation contributions he Received from friends and sympathisers came up
to GHS 14,000. Osikani’s wife is still in Pakistan since she has to wind up her business. She
remitted Osikani an amount of GHS 30,000 during the year 2012 as her contribution to the
running of the home in Ghana.
His bank account showed a balance of GHS 65,000 as at December 31, 2012, whereas the cash
on hand was GHS 1,500.
Osikani has applied for a tax clearance certificate to enable him clear some of his goods from
the Kotoka International Airportm as they are in commercial quanties and you have asked to
determine his profit for 2012 to enable the Ghana Revenue Authority to assess him to tax. Set
out your computation.

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Lecture note: Richard Nana Adu Akyeanfo

SUGGUSTED SOLUTION
Osikani Richard
Computation of Chargeable Income
2016 YOA
Basis Period: 1/01/2016-31/12/2016

GHS

Closing Balance:

Bank 65,000

Cash 1,500

Total 66,500

Less Opening Balance 50,000

Saving ( Increase in Capital) 16,500

GHS

Drawings (Private Expenses)

Rent (GHS 5,000*12) 6,000

Furnishing 15,000

School fees (GHS 3,000*3) 9,000

Housemaid’s wage 12,000

Food, water e.t.c 24,000

Donation to El-Wak Keep Fit Club 5,000

Entertainment (GHS 500*8) 4,000

Acquisition of Land 30,000

Christmas Expenses 5,000

Funeral Expenses of late uncle 2,500

Total 112,500

Non- Business ( Non- Taxable) Income

Funeral donations received 14,000

Remittances from wife 30,000

Total 44,000

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Lecture note: Richard Nana Adu Akyeanfo

GHS

Saving 16,500

Add: Drawing 112,500

129,000

Less Non Business Income 44,000

Profit for 2016 85,000

END OF CHAPTER QUESTIONS

QUESTION 4

Kwadwovi Ameko stayed in the UK for over 25 years where he was a professional boxer. He
decided to settle back home in Ghana when he turned 50. He returned to Ghana in
November 2015 with his total savings of £5,000. He also brought a slightly used BMW
Saloon car valued at GHC25,000 and decided to set up his own business which he began on
1/1/2016.

He changed his £5,000 at the rate of GHC1.7 for £1, raising GHC8,500 which he used as his
working capital. He has an estate house at Abeka Lapaz which he purchased in 1983 before
leaving for the UK. He used his garage as a factory where he installed machines for purifying
water. The machine cost him GHC2,500 which he paid from his money from abroad and
deposited the remaining GHC6,000 in his AMALBANK account.

Many “Pure Water” retailers registered with him hence his business was very successful. In
January 2017, the domestic Tax Revenue Division of the Ghana Revenue Authority’s office
at Abeka Lapaz invited him for discussion on his tax affairs since he had so far not paid any
tax on his income.

The following facts emerged during the discussions:

1. He purchased a Delivery Van costing GHC3,000 during the 2016 year of assessment.
2. He had also acquired two new machines costing GHC5,000 during the year under
review.
3. He had extended his garage/factory at a cost of GHC2,000.

By the end of the 2016 year of assessment some customers owed him GHC7, 500 whereas he
owed an amount of GHC1,500 in respect of water and electricity. He caused to be
transferred from UK an amount equivalent to GHCS5,000 being winnings on football pools
he staked before leaving the UK, which amount was transferred into his bank account with
AMAL BANK.

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Lecture note: Richard Nana Adu Akyeanfo

His wife and his children are still living in the UK, making him stay in Ghana alone,
since the children are all working in the UK.
His private living expenses for 2016 were as follows:
GHC
Rent/Rates 400
Food 2,400
Medical Bills NIL
Social Activities 250
Clothing NIL
3,050

Required:

Using the Net Worth Method, you are to determine his Chargeable Income for the year
2016. Explain your computations where necessary.
20 marks

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Lecture note: Richard Nana Adu Akyeanfo

CHAPTER 9

a. Introduction to Tax Administration

The Ghana Revenue Authority (GRA) is the body in charge with the administration
and collection of Tax in Ghana, thus before we delve into the administration of taxes
in Ghana it will be imperative to familiarize yourself with the Ghana Revenue
Authority
The GRA is a body corporate with perpetual succession and a common seal and may
sue and be sued in its corporate name.

2.1.2 Objects of the Authority

The GRA was set up to:
 Provide a holistic approach to tax and customs administration;
 Reduce administrative and tax compliance cost and provide better services to
taxpayer
 Promote efficient collection of revenue and the equitable distribution of the tax
burden and ensure greater transparency and integrity;
 Ensure greater accountability to government for professional management of tax
administration;
 Improve information linkage and sharing of information among the divisions of
the authority
 Provide a one-stop service for taxpayers for the submission of returns and
payments of taxes
 Provide for other matters related to the improvement of revenue administration

2.1.2 Vision
 To be a world class revenue administration recognised for professionalism,
integrity and excellence
2.1.3 Mission Statement
 To mobilise revenue for national development in a transparent, fair, effective and
efficient manner, to be achieve through:
 Professional and friendly client services;
 Promoting of voluntary compliance;

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 Application of modern technology;

 Effective border protection; and
 A well trained, disciplined and highly motivated staff.

2.1.4 Core values

 Integrity and fairness in their service delivery;
 And team work, innovation and professional as it hallmark.

2.1.5 Functions of the Authority

In order to achieve the objects, the Authority has been charged to perform the
following functions:
 Assess and collect taxes, interest and penalties on taxes due to the
republic with the optimum efficiency;
 Pay the amounts collected in the consolidated Fund unless otherwise
provide by the Act 791 and other Acts;
 Promote tax compliance and tax education;
 Advise the District Assemblies on the assessment and collection of
their revenue;
 Prepare and publish reports and statistics related to revenue
collection;
 Make recommendations to the minister on revenue collection policy.

2.1.6 Division of the Authority

The authority have the following divisions
Domestic Tax Revenue Division (DTRD):
This division is in charge of income tax, excise duties, Value Added Tax, National
Health Insurance Levy, Communication Service Tax and other domestic taxes.
Customs Division:
This division handles taxes on imports and exports such as import duty, export
duty, import Value Added Tax, National Health Insurance Levy on imports.
The activities of this division are categorized into operations, preventive and
policy and programs, all headed by deputy commissioner.
Support Services Division
This division takes care of the entire administration, finance and logistics needs
of the Authority. Departments under this division include planning and
monitoring, information technology, finance, research and human resource all
headed by deputy commissioner.

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Taxpayers have been segmented into three identifiable groups based

on the following threshold:
Large Taxpayers are under the Large Taxpayer Office (LTO).
These are taxpayers with annual turnover of GHS 5 million and above
Medium Taxpayers are under the Medium Taxpayer office (MTO).
These are taxpayers with turnover above GHS 90,000 but below GHS 5 million;
and
Small Taxpayers are under Small Taxpayer Office (STO).
These are taxpayers with turnover below GHS 90,000.

2.1.6 Governing Body of the Authority

The president shall appoint the chairperson and member of the Board (which
shall be the governing body of the authority) in accordance with Article 70 of the
constitution and shall consist of :
 A chairperson;
 The Commissioner-General of the Authority;
 A representative of the Ministry of Finance not below the rank of a director;
 A representative of the Ministry of Trade and Industry not below the rank of a
Director;
 The Governor of the Bank of Ghana or representative of the Governor not below
the rank of Deputy-Governor, and
 Four other person from the private sector two of whom are women.

2.1.7 Functions of the Board

The board shall ensure the proper and effective performance of the functions of the
Authority through the:
 Supervision and monitoring of the authority in the performance of its functions;
 Formulation of administrative policy of smooth and efficient management of the
authority;
 Determination of a scheme of service for the staff of the authority;
 Performance any other function incidental to the objects of the authority; and
 Make recommendations to the minister on tax policy, tax reform, tax legislation,
tax treaties and tax exemption and tax concession.

2.1.8 Tenure of Office of Members of the Board

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Lecture note: Richard Nana Adu Akyeanfo

 A member of the board shall hold office for a period of not more than four years
and is eligible for re-appointment but a member shall not be appointed for more
than two terms.
 This means that after being a member for two terms, that is eight years, such
member cannot be re-appointed to the board. This provision is in respect of the
chairperson and the four other persons from the private sector.
 A member of the board may at any time resign from office in writing addressed to
the president through the minister of Finance.
 The president may by a letter addressed to a member revoke the appointment of
that member.

2.1.9 Appointment of the Commissioner-General (CG) of the GRA

 The CG of the GRA is appointed by the president in accordance Article 195 of the
Constitution and he shall hold office on the terms and conditions specified in the
letter of appointment for a term of four years which may be renewed for another
term of four years.

2.1.10 Functions of the CG

 The CG is responsible for the day-to-day administration of the affairs of the
Authority and is answerable to the Board.
 The CG shall perform any other function determined by the board

 May delegate function to an officer of the authority but is not relieved from
ultimate responsibility for the performance of the delegated function.
 The CG is responsible for the direction and supervision of the employees of the
Authority
 Shall nominate one of the commissioners of the authority to act in his/her
absence.

The above functions of the CG may be delegated to a tax officer of the rank of senior
revenue officer or above or specifically authorised by the Commissioner-General may
perform a delegated function under the tax law. However only a Commissioner may
exercise the following powers on behalf of the Commissioner-General:
The power to:
 the power to issue practice notes
 the power to grant an extension of time for holding documents or assets seized
 the power to remit a penalty or refund tax

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Lecture note: Richard Nana Adu Akyeanfo

 the power to compound offences

 the power to exempt a person from withholding tax; and
 the power to abate a custom duty

The Commissioner-General may in writing give administrative directives as he

considers necessary for the administration and implementation of the provisions of
the Income Tax Act.

CHAPTER 3

3.0 OFFICIAL COMMUNICATION AND DOCUMENTATION

3.1 Practice Note

To achieve consistency in the administration of tax laws and to provide guidance to
persons affected by the tax laws, including tax officers, the Commissioner-General
may issue practice notes setting out the interpretation placed on provisions of a tax
law by the Commissioner-General. A practice note is binding on the Commissioner-
General until revoked. A practice note is not binding on persons affected by a tax law.
The Commissioner-General may issue a practice note by publishing the notice of the
practice note in the Gazette. A practice note shall have a number and subject heading
by which the practice note can be identified. A practice note applies from the date
specified in the notice and if no date is specified, from the date of publication in the
Gazette. The Commissioner-General may amend or revoke a practice note, in whole
or in part, by publishing a notice of the amendment or revocation in the Gazette. The
subsequent enactment of legislation or issue of a practice note that is inconsistent
with an existing practice note revokes the existing practice note to the extent of the
inconsistency. The amendment or revocation of a practice note, in whole or in part,
has effect;

 In the instance where the CG published the revocation or the amendment in the
gazette, from the date specified in the notice of amendment or revocation and if a date
is not specified, from the date the notice of the amendment or revocation is published
in the Gazette; or
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Lecture note: Richard Nana Adu Akyeanfo

 where the revocation is as a result of inconsistency, from the date the inconsistent
legislation or practice note applies. It must however be noted that the amended or
revoked part of a practice note continues to apply to arrangements commenced
before the amendment or revocation; and does not apply to arrangements
commenced after the amendment or revocation.

3.2 Private or Class rulings

The Commissioner-General may, on an application in writing by a person, issue to
that person a private ruling or a class ruling setting out the position of the
Commissioner-General regarding the application of a tax law with respect to an
arrangement proposed or entered into in the case of a private ruling, by the person;
or in the case of a class ruling, by persons in a specified class.
A private or class ruling may apply to multiple arrangements and multiple tax laws.
Unless amended or revoked, private or class ruling is binding on the Commissioner-
General with respect to the application of a tax law mentioned in the ruling to an
arrangement of the applicant, in the case of a private ruling; and a person in the
specified class, in the case of a class ruling.
A private or class ruling is binding only if prior to the issuance of the ruling
 the applicant makes a full and true disclosure of all aspects of the arrangement
relevant to the ruling to the Commissioner-General; and the arrangement proceeds
in all material respects as described in the application for the ruling;
 if the ruling is headed “private ruling” or “class ruling” as the case requires; and
 for the period specified in the ruling.
A private or class ruling does not bind the applicant or any other person; or the
Commissioner-General with respect to any person other than, in the case of a private
ruling, the applicant or, in the case of a class ruling, persons in the specified class. A
private or class ruling is not subject to challenge but a person may challenge a tax decision
made with respect to an arrangement which is the subject of a private or class ruling.
The Commissioner-General may charge a fee for a private or class ruling issued to an
applicant.
A fee for a private or class ruling shall be based on the cost structure of similar legal or
tax advisors and shall be paid before the ruling is communicated to the applicant.

Refusing application for private or class ruling

The Commissioner-General may refuse an application for a private or
class ruling if;
 in the case of a private ruling the arrangement has already been the subject of a tax
decision; or the Commissioner-General has commenced an investigation of the tax
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Lecture note: Richard Nana Adu Akyeanfo

affairs of the applicant in respect of the arrangement or, before the application, has
notified the applicant in writing of an intention to do so;
 the Commissioner-General is of the opinion that an existing practice note adequately
covers the arrangement;
 the application is frivolous or vexatious;
 the arrangement has not been carried out and there are reasonable grounds to believe
that the arrangement will not be carried out;
 the applicant has not provided the Commissioner-General with sufficient
information to make a ruling;
 the applicant for the ruling has not paid the fee for the ruling; or
 in the opinion of the Commissioner-General, it would be unreasonable to comply with
the application having regard to the resources needed to comply and any other
matters the Commissioner-General considers relevant.
Where the Commissioner-General refuses an application for a private or class ruling,
the Commissioner-General shall, within thirty days of the decision, serve the
applicant with a written notice of the refusal stating the reason for the refusal.

Amendment or revocation of private or class ruling

The Commissioner-General may for reasonable cause, amend or revoke a ruling, in
whole or in part, by written notice served on the applicant in the case of a private
ruling; and served on the applicant and made publicly available in the case of a class
ruling.
The subsequent enactment of legislation that is inconsistent with a private or class
ruling revokes the private or class ruling to the extent of the inconsistency. The
amendment or revocation of a private or class ruling, in whole or in part, has effect
from the date specified in the notice of amendment or revocation issued from the date
of the legislation in the case of legislation that is inconsistency with the private ruling.
The amended or revoked part of a private or class ruling continues to apply to
arrangements commenced before the amendment or revocation; and does not apply
to arrangements commenced after the amendment or revocation.

3.3 Tax Clearance Certificate

A tax clearance certificate" means a certificate issued by the Commissioner-General
to a person stating that no tax is due under this Act by that person in respect of the
periods stated in the certificate or that that person has made arrangements
satisfactory to the Commissioner-General for the payment of the tax due.
Instance where a Tax Clearance Certificate is required

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Lecture note: Richard Nana Adu Akyeanfo

 The Commissioner-General shall not permit any importer or other person to clear
goods in commercial quantities or meant for commercial purposes from a port or a
factory in Ghana unless the importer or other person produces to the Commissioner-
General a tax clearance certificate issued in respect of the importer or that other
person in the year of assessment in which the goods are to be cleared.
 Where any authority or person is empowered by an enactment to effect the
registration of title to land or a document conferring title to land, that authority or
person shall not effect the registration of that title or document unless there is
produced to that authority or person a tax clearance certificate issued in the year of
assessment in which the registration is to be effected and in respect of the person
applying for the registration or, in respect of the person on behalf of whom the
application is made.
 No contract shall be awarded by any agency or body in which public funds are vested
to any person for the provision of services including consultancy services, unless that
person produces to the agency or body a Tax Clearance Certificate issued by the
Commissioner-General in respect of that person in the year of assessment in which
the contract is to be awarded.
 Also for the purpose of renewing registration with some professional or regulatory
bodies, tax clearance certificate is required. For example, before a SEC regulated
company can renew its operating licence, it has to produce a tax clearance certificate.

INSTITUTION PURPOSE OF TRANSACTION

Ghana Revenue Authority Importation of goods in commercial quantities; customs

clearing and forwarding. Application for licence under the
Customs Act, 2015 (Act 891)

Chief Registrar of Lands Land title registrations and land transactions

Government Ministries, Government Contracts, including contracts for the supply of goods and
Agencies, Local Government Authorities services
and other bodies in which public funds
are vested

Professional bodies Renewal of practising licence

Application for and issue of Tax Clearance Certificate

A person may apply in writing to the Commissioner-General for a Tax Clearance
Certificate. The applicant shall state the purpose for which the Tax Clearance Certificate

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Lecture note: Richard Nana Adu Akyeanfo

is required. The Commissioner-General shall issue a Tax Clearance Certificate where the
Commissioner-General is satisfied that the applicant:
 has been issued with a Taxpayer Identification Number and the number is specified
in the application;
 has no outstanding tax, returns or other obligations under any tax law; and
 has satisfied any other condition that the Commissioner-General may determine.

A tax clearance certificate issued to an applicant shall indicate

 the name of the taxpayer;

 the Taxpayer Identification Number;
 the period for which the tax clearance certificate applies, which may be a continuous
period and with respect to that period, whether
 tax is due by the person;
 arrangements have been made by the person for the payment of tax that are
satisfactory to the Commissioner-General; or
 the Commissioner-General is currently satisfied that the taxpayer is in good standing;
and
 any limit on the purpose for which the Tax Clearance Certificate may be used.
A Tax Clearance Certificate is valid only for the period and purposes specified in the
Tax Clearance Certificate.

3.4 OFFICIAL LANGUAGE

English is the official language of this country and the Authority may refuse to
recognise a communication or document that is not in the official language. Where a
communication or document that is not in the official language is relevant in applying
a tax law to a taxpayer, the Commissioner-General may by request in writing and
served on the taxpayer, require the taxpayer to provide a translation of the
communication or document into the official language. The taxpayer shall use a
translator approved by the Commissioner-General and shall bear the expense of the
translation. Where a taxpayer fails to comply with the forgoing the Commissioner-
General may have the communication or document translated at the cost of the
taxpayer.

3.5 OFFICIAL CURRENCY

The Cedi is the official currency for purposes of the tax laws and, subject to any
provision in a tax law to the contrary, every amount taken into account under a tax
law is to be denominated in or converted into Cedis. The conversion of a foreign
currency amount into Cedis shall be at the Bank of Ghana inter-bank exchange rate
applying on the date the amount is to be taken into account under the tax law in
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Lecture note: Richard Nana Adu Akyeanfo

question. The Commissioner-General may, on a written application by a person,

require that person writing, to take a foreign currency amount into account for the
purpose of a tax law. A requirement of the Commissioner-General
 may be by way of practice note;
 may apply to one or more tax laws and for one or more periods; and
 may be subject to conditions that the Commissioner-General determines.
In exercising the forgoing discretion the Commissioner-General shall take into
consideration the volume of foreign currency activities conducted by the person. The
Commissioner-General may, by notice in writing and for reasonable cause, revoke a
requirement for a person to account for tax in other currency other than the official
currency.

3.5 Paper Documents Filed with Commissioner-General

A paper document is filed with the Commissioner-General under a tax law by delivering
the document to an office of the Revenue Authority; or it by post to an office of the
Revenue Authority.

A document referred to in the above is treated as received by the Commissioner-General-

when the document is posted, as long as it is received in an office of the Revenue
Authority within a reasonable time; or in any other case, when the Revenue Authority
acknowledges it by stamping.

3.5.1 Service of Paper Documents

The Commissioner-General or a tax officer sufficiently serves a paper document on a
person under a tax law if the document is-
 handed to the person or, in the case of an entity, a manager of the entity;
 left at or sent by post to the usual or last known place of abode, business, office, post
office box or other address of the person; or
 sent by registered post addressed to the usual or last known place of abode, business,
office, post office box or other address of the person

A document is considered served at the following time:

(a) in the case of service by handing to a person or leaving at a place, at the
time of handing or leaving;
(b) in the case of service by registered post, at the time the document is
delivered or the person is informed that the document awaits the person;
(c) in the case of other service by post to an address within Ghana, seven days
after posting; and
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Lecture note: Richard Nana Adu Akyeanfo

(d) in the case of other service by post to an address outside Ghana, the time
at which the document would normally be delivered in the ordinary course of
post.

3.6 Accounts and Records

Unless otherwise indicated by the Commissioner-General, a person required to

be registered with the Commissioner-General under the Income Tax Act other
than an employee with respect to the employment income of that person shall
maintain in Ghana the necessary records to explain the information to be
provided in a return or in any other document to be furnished to the
Commissioner-General or to enable an accurate determination of the tax payable
or income earned by that person. The necessary records required to be
maintained by a person includes all underlying documents however described in
the nature of receipts, invoices, vouchers, contracts or any electronic data from
which information can be extracted. Where a person does not maintain records
as required, the Commissioner-General may adjust that person's liability to tax in
a manner that is consistent with the intention of tax law. The records shall be
retained for a period of not less than six years unless the Commissioner-General
otherwise specifies in writing.

The records to be maintained by a business shall include a record of all receipts

and payments, all revenue and expenditure, and all assets and liabilities of the
business.

3.6.1 Record of Shareholders of company

A company which is incorporated under the laws of Ghana or has its management
and control exercised in Ghana at any time during the Year of Assessment, need
to maintain available in Ghana:

 a register of members reflecting the names and addresses of the members,

and

In the case of a company having shares, maintain

 a statement of the shares held by each member distinguishing each share by
a number where the share has a number and the amount paid or agreed to be
considered as paid on the shares of each member and the amount remaining
payable on the shares
 The date on which the person was entered in the register as a member and
 The date on which that person ceased to be a member

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Lecture note: Richard Nana Adu Akyeanfo

CHAPTER 4

THE RIGHTS AND OBLIGATIONS OF THE TAXAPAYER

In any democratic society, of which Ghana is no exception, taxpayers and citizens will
have a number of basic right and as well as obligations in relations to their government
and its revenue authority. In this regard, most countries have legislation governing
taxpayer’s rights and obligations in relations to taxation.

4.1 RIGHTS OF A TAXPAYER

4.2 OBLIGATIONS OF A TAXPAYER

4.2.1 Registering With the Ghana Revenue Authority as a Taxpayer

Taxpayers are under obligation to register their business activities with the Ghana
revenue authority immediately the business is established so as to enable them comply
with their other tax obligations. Section 6 of the Value Added Act, 2013 (Act 870)
provides that for the registration requirement of for Value added tax purposes. Similarly,
section 1 of Internal Revenue (Registration of Business) Act, 2005 (Act 684) provides

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Lecture note: Richard Nana Adu Akyeanfo

that a person shall not carry on any business unless that person has registered the
business with the Commissioner-General.

4.2.1.1 Offence of Failing to Register

A person who fails to register as required under the tax law commits an offence and is
liable to summary conviction to pay the tax payable under that tax law; and pay a fine
of not more than two times the amount of tax payable or an amount of one thousand
penalty units (i.e. GHS 12,000) which even is higher. In addition to this, the CG may
authorise the forfeiture of any or materials used by the person in carrying on the business
of that person. Note: a penalty unit is equivalent to GHS 12

4.2.2 Filing of Return

4.2.2.2 Filing of Annual Income Tax

The law requires that every person chargeable with tax to deliver a return of his income
for the year of assessment not later than 4 month after the end of the basis period of that
person to the CG (Section 124 of Act 896).

A return is a form prescribed by the Commissioner-General (CG), which state the

information required, and it is furnished (filed) in a manner that the CG shall prescribed.
A tax return to be filed by an entity shall be signed by a duly authorised manager of the
entity and shall have a declaration to the effect that the return is complete and accurate.

A return of income of a person for a year of assessment must, be in the manner

and form prescribed specifying-
 the person's assessable income for the year from each employment, business
and investment and the source of that income,
 the person's chargeable income for the year and the tax payable with respect
to that income
 any tax paid by the person for the year by withholding, instalment or
assessment for which a tax credit is available.
 the amount of tax still to be paid for the year; and
 any other information that the Commissioner-General may prescribe;

Due date for filing Annual Corporate Tax Return.

A company or trust shall file with the CG it annual return of income not later than four
months after the end of each year of assessment. For example, where a company’s

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Lecture note: Richard Nana Adu Akyeanfo

financial year ends 31 December 2016, it annual corporate income tax return must be
filed not later than 30 April, 2017.

Extension of time to file annual income tax return

Where a taxpayer anticipate that it will not be able to meet the deadline for file of its
annual income tax return, the taxpayer can apply to the CG for an extension of time to
file return. The taxpayer has to apply in writing stating the reasons for requesting the
extension before the due date for filing the return to the CG. Upon receipt, the CG may
be notice in written, extend the date by which the return is to be filed if the CG is of the
opinion that the applicant has shown reasonable cause for the extension. It must be noted
that any extension granted by the CG may be subject to terms and conditions that the CG
considers appropriate, including the payment of security.

The CG may grant multiple extensions but the extensions shall not in total exceed sixty
days from the date the return was originally to be filed. From the foregoing example,
where the company is unable to file it return on or before 30 April, the company can apply
for an extension of time to 30 June.

Due date for submission of statement of estimated tax payable

It must be noted that companies are require to make quarterly instalment tax payment
for every year of assessment, and thus required to file with the Commissioner-General an
estimate of tax payable for the year by the date for payment of the first tax instalment.
This means that companies are required to submit statement of estimated tax payable
by instalment return ( on a form known as self-assessment form) on the day first
instalment tax payment in due. Let take a company with 31 December as its year end:
the company is required to make quarterly tax payment not later March ending, June
ending, September and December ending. It must be noted that the tax payment will be
based on an estimated assessable income of the company for the year, the estimated
chargeable income and the tax payable for the year. These information must be submitted
to the CG in a form (called the self-assessment return or statement of estimated tax
payable) not later than March ending).

Circumstance where a person would be required to file return before the due
date

As discussed in the above, there are some stipulated time where a taxpayer is required to
file its tax return. This notwithstanding, the CG may by notice in writing require a person
to file a return before the date for filing of tax returns where:

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Lecture note: Richard Nana Adu Akyeanfo

 the person becomes bankrupt, is wound-up or goes into liquidation;

 the Commissioner-General believes on reasonable grounds that the person-
o is about to leave Ghana indefinitely;
o is otherwise about to cease activity in Ghana; or
o has committed an offence under a tax law; or
 the Commissioner-General otherwise considers it appropriate, including but not
limited to where the person fails to maintain adequate documentation as required the
tax law.

Where the above apply, the CG will serve a notice in writing requesting the person to file
return on or before the date specified in the notice. The CG may also use a pre-emptive
assessment to determine the tax liability of that person.

Cases Where Return of Income not required (Section 125)

Unless requested by the CG by notice in writing, a return of income shall not be furnished
for a year of assessment,

 By a resident individual who has no tax payable for the year

 by a non-resident person who has no tax payable for the year.

4.2.2.3 Filing of Monthly Employee Income Tax by Employer

An employer is enjoined the Income Tax Act to file with the Commissioner-General
within fifteen day after the end of each calendar month a statement in the form prescribe,
which specify the payment of an amount to be included in ascertaining the income of the
employee from the employment and the tax withheld from such payment. (Section 117 of
ITA)

4.2.2.4 Filing of Annual Employee Income Tax by Employer

In addition to the foregoing, an employer is also require to submit to the Commissioner

General not later than four months after the end of the year of assessment ( i.e. the fiscal
year) an employer’s Tax Deduction Schedule which specify tax withheld in respect of each
employees for the year.

4.2.2.5 Filing of Monthly VAT return

A taxable person is require to account for the VAT on a tax return for each tax period
which is a calendar month. A tax return is required to be submitted not later than the last

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Lecture note: Richard Nana Adu Akyeanfo

working day of the month immediately following the month to which the return relates,
whether or not tax is payable for the month. This is to say, January 2017 VAT return, will
be submitted not later than 28 February 2017.

Summary on due date for submission of returns

RETURN TPYE DUE DATE

Annual Corporate Income Tax return Not later than four month after the end of the basis period of the
period.
Estimate of tax payable by instalment By the date for payment of the first tax instalment is due
Withholding Tax Not later than 15th of the month following the month in which the
deduction was made
Monthly PAYE return Not later than 15th of the month following the month in which the
deduction was made
SSNIT Contribution Return Not later than 14th of the month following the month in which the
deduction was made
Value Added Tax Return Not Later than the last working day of the month following the
month in which the supply was made.

4.2.2.6 Failure to file tax return on time

Action by the CG (Section of 31 of Act 915)

Where a person fails to file a tax return by the due date:

 The Commissioner-General may appoint another person to prepare and file any
information as the Commissioner-General may require, including information required
by the return.
 The Commissioner-General shall make an assessment of the tax liability of the person as
required by the tax law, including by way of adjusted assessment, and for this purpose
may use any information in the Commissioner-General’s possession..

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Lecture note: Richard Nana Adu Akyeanfo

Penalty for failing to file tax return (Section 73 of the Revenue Administration
Act, 2016 (Act 915)

A person who fails to file a tax return as required by a tax law is liable to pay a penalty of five
hundred currency points ( GHS 500) and a further penalty of ten currency points
(GHS 10) for each day that the failure continues. This applies to failure to submit any tax
return, being is Value Added tax return, Withholding Tax return, Corporate tax return and
any other return required by the tax law.

However, in the case of communications service tax, the penalty is two thousand
currency points (GHS 2,000) and a further penalty of five hundred currency points
(GHS 500) for each day that the failure continues.

A penalty imposed under this section applies separately for a failure to file an estimate and
a failure to file a tax return incorporating the final amount (annual income tax return).

Where a person fails to submit the tax return four months after the imposition of the penalty
for non-submission, the Commissioner-General shall, in addition, prosecute the person to
compel the person to submit the return.

4.3 PAYMENT OF TAXES

Determination of Person Tax Liability (Assessment)

The tax liability payable by a person may be determined by the taxpayer or by Commissioner-
General. The type of assessment are:

1. Self-Assessment
2. Provisional Assessment
3. Additional Assessment
4. Final Assessment
5. Pre-emptive Assessment

Payment of tax by Quarterly Instalment

A person who derives or expected to derive assessable income during a year of assessment
from business or investment; or from an employment (where the employer is not required to
withhold taxes from the payment made in respect of employment) is required to tax by
quarterly instalments. Where the basis period of the person is a twelve month period
beginning at the start of a calendar month, on or before the last day of the third, sixth, ninth
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Lecture note: Richard Nana Adu Akyeanfo

and twelfth months of the basis period; or in any other case, at the end of each three-month
period commencing at the beginning of each year of assessment and a final instalment on the
last day of each year of assessment, unless it coincides with the end of one of the three-month
periods. The estimate of tax payable must be in the manner and form prescribed indicating
estimate of-
 the person's assessable income for the year of assessment from each employment,
business and investment and the source of that income;
 the person's chargeable income for the year and the tax to become payable with respect
to that income
 any other information that the Commissioner-General may prescribe.

An instalment payer's estimate remains in force for the whole of the basis period unless the
person files a revised estimate as and when necessary with the Commissioner-General
together with a statement of reasons for the revision. A revised estimate filed by a person is
the person's estimated tax payable for the year of assessment, but only for the purposes of
calculating instalments payable after the date the revised estimate is filed with the
Commissioner-General. It is important to note that the estimated tax payable for the year
must not be less than 90% of the actual tax payable for the year. In instance where the
estimated taxa payable is less than 90% of the actual tax payable for the year, the taxpayer is
deemed to have underestimated the tax payable by instalment and interest shall be imposed
on the underestimated amount.

Determination of Tax Liability at the End of the Basis Period

At the end of the basis period of a person, a taxpayer is require to compute its chargeable
income and the tax payable thereon for the year. The chargeable income determined at this
stage is based on the actual financial performance of the person for that year. In the case of
a company, the chargeable income determined is based on the annual financial statement for
that year. This must be submitted to the CG of the Ghana Revenue Authority not later than
four months after the end of the year of assessment for that taxpayer. However, the amount
of tax to be paid for the year is arrived at after deducting tax already paid for that year from
the tax liability computed.

The above method of determining tax liability is what is termed as self-assessment.

Provisional Assessment
The commissioner- General may for the purpose of determining the amount of tax payable
by

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Lecture note: Richard Nana Adu Akyeanfo

instalment, make a provisional assessment on that person’s chargeable income and tax
payable.
The provisional assessment is computed according to the best judgement of the
commissioner.
The commissioner shall serve a notice of the assessment on that person stating:
 the estimated chargeable income;
 The estimated tax payable;
 The amount and timing of tax instalments to be paid; and
 The time, place and manner of objecting to the assessment.
The CG may also use his best judgement and information reasonably available to him to
assess a taxpayer where the person has failure to file return on time.

Final Assessment (Adjusted Assessment)

The Commissioner-General may make an assessment at any time, including an adjusted

assessment where the Commissioner-General discovers a case of fraud, wilful default or
serious omission by or on behalf of a taxpayer. It is however important to note that the power
of the Commissioner-General to make an original assessment expires six years from the date
on which the Commissioner-General was first entitled to make the assessment; an adjusted
assessment expires six years from the due date for filing the tax return that gives rise to the
assessment or, if later, the date the tax return is filed where a self-assessment is adjusted; the
date on which the Commissioner-General serves the notice of assessment on the taxpayer
where any other original assessment is adjusted. An assessment made under this section is
treated as an assessment made under the tax law that charges the person or subject matter
assessed.

The Commissioner-General shall not adjust an assessment that has been adjusted pursuant
to a decision of a court unless the decision is vacated. An assessment ceases to have effect to
the extent to which it is adjusted.

Final assessment are usual made during the course of tax audit conducted the the Ghana
Revenue Authority on taxpayers

Pre-emptive assessment and security (Section 38 of the Revenue

Administration Act, 2016)

The Commissioner-General may, where he perceived that revenue is at risk, make a pre-
emptive assessment of tax payable or to become payable by a person under a tax law whether
or not the person is required to file a tax return. The Commissioner-General may, instead of
making a pre-emptive assessment, accept from a person security for outstanding and future

35
Lecture note: Richard Nana Adu Akyeanfo

tax liabilities as the Commissioner-General considers appropriate. The Commissioner-

General shall use best judgement and information reasonably available in making a pre-
emptive assessment or fixing the amount of security. A pre-emptive assessment may be for a
period or with respect to an event or subject matter that the Commissioner-General may
specify in the notice of assessment. Unless the Commissioner-General specifies otherwise in
the notice of assessment, a pre-emptive assessment does not relieve a person from the
obligation to file a tax return or otherwise report a taxable event as required by a tax law. The
filing of a tax return, including where the filing of the return results in a self-assessment, does
not affect a pre-emptive assessment. A tax paid with respect to a pre-emptive assessment is
credited against tax payable with respect to a self-assessment that covers the same period,
event or tax.

Notice of assessment

Where the Commissioner-General makes an assessment under a tax law, the Commissioner-
General shall serve a written notice of the assessment on the taxpayer. In addition to any
requirement of the tax law in question, the Commissioner-General shall, in the notice of
assessment, state

 the name of the taxpayer;

 the Taxpayer Identification Number of the taxpayer;
 the assessment by the Commissioner-General of the tax payable by the taxpayer for the
period, event or matter to which the assessment relates;
 the amount of tax remaining to be paid after any relevant credits, reductions or pre-
payments;
 the manner in which the assessment is calculated;
 the reason why the Commissioner-General has made the assessment;
 the date by which the tax is to be paid; and
 The time, place and manner of objecting to the assessment.

Extension of Time for Paying Tax

A taxpayer may apply, in writing, to the Commissioner-General for an extension of time to

pay tax under a tax law. On receiving an application, the Commissioner-General may,
where good cause is shown, extend the date on which tax or part of tax is payable on such
terms and conditions as the Commissioner-General thinks fit (including as to security). An
extension of time to pay cannot exceed six months, but a taxpayer may reapply to the
Commissioner-General before the end of an extension. The Commissioner-General must
serve the applicant with written notice of the Commissioner-General’s decision on the
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Lecture note: Richard Nana Adu Akyeanfo

application. Where an extension is granted by permitting the taxpayer to pay by

instalments and the taxpayer defaults in paying any of the instalments, the whole balance
of the tax outstanding becomes payable immediately.

4.4 INTEREST, PENALTIES AND OFFENCES

4.4.1 Interest for under-estimating income tax payable

This applies where an estimate or a revised estimate of tax payable by a taxpayer with
respect to chargeable income tax for a year of assessment is less than ninety percent of
the actual chargeable income determined at the end of the year.

Where the estimated or revised estimated tax payable for the year is less than 90% of the
actual amount, the taxpayer is liable to pay interest for the period from the date the first
instalment for the year of assessment is payable; until the due date by which the person
files its annual income tax for the year of assessment.

The amount of interest that a taxpayer is required to pay for each period is calculated as
one hundred and twenty- five per cent (125%) of the statutory rate, compounded
monthly, applied to the difference between ninety percent of the total amount that would
have been paid by way of instalments during the year of assessment to the start of the
period had the estimate of the person equalled the correct amount; and the amount of
income tax paid by instalments during the year of assessment to the start of the period.

The Statutory rate mean the Bank of Ghana rediscount rate. The rediscount
rate is now called the Monetary Policy Rate

Determine the understated estimate tax payable by instalment as follows:

Actual tax payable XXXX
90% of actual tax assessed (XXX*90%) XXX
Less Estimated tax XXX
Under estimated tax payable XX
The amount of underestimated tax payable above shall be compounded monthly using
the formula for compounding interest on unpaid taxes
𝑟 𝑛𝑡
𝐴 = 𝑃 (1 + )
𝑛
Illustration

BAC Ltd is a company under self-assessment. The company submitted its self-assessment
project for 2016 year of assessment showing an estimated chargeable income of GHS
577,187. The actual chargeable income of BAC Ltd at the end of the 2016 year of

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Lecture note: Richard Nana Adu Akyeanfo

assessment was GHS 1,062,609.89.Using the Bank of Ghana Rediscounted rate of

26%.Determine the penalty payable by the company, if any. ( the basis period of the
company is from 1 January to 31 December)

Suggested Solution

GHS 90% of CI Tax@ 25%

Actual Chargeable Income (CI) 1,062,609.89 956,348.90 239,087.23
Projected Chargeable Income 577,187 144,296.75
Difference 94,790.40

Formula for compounding interest on unpaid taxes

𝑟 𝑛𝑡
𝐴 = 𝑃 (1 + )
𝑛
From the example above the first instalment is due by 30 March 2016 and the actual tax
payable is due on by 30 April 2017
P = Principal amount (the initial tax due)
r = 125% of annual statutory rate (as a decimal)
t = number of years the amount is in arrears
A = amount of debt accumulated after t years, including interest at statutory rate.
n = number of times the interest is compounded per year
P= 94,790.48
r = 26%*125%=32.5%
t=1
A=?
n = 13
A=94,790.48 (1+0.325/12) (13*1)
A=94,790.48 (1.0270) (13)
A=137,798.31

Interest= GHS 43,007.83

Illustration 2
ABC Co. ltd filed its return for 2016 on 28 Febuary 2017 and the following details applies:
GHs
Actual tax payable 200,000.00
Estimated tax 100,000.00
Other relevant information;
Statutory rate = 20%
Required
Calculate interest on the underestimated tax for the year 2016.

Suggested Solution

Step 1 Determine the underestimated tax payable

GHs GHs
Actual tax payable 200,000.00

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Lecture note: Richard Nana Adu Akyeanfo

90% of actual tax (200,000*90%) 180,000.00

Less Estimated tax 100,000.00
Under estimated tax payable 80,000.00
Step 2 Determine balance of the underestimated tax after returns were filed in April
2017?
𝑟 𝑛𝑡
𝐴 = 𝑃 (1 + )
𝑛
P=80,000.00
r = 20%*125%=25 %(0.25)
t = 1 year
A=?
n = 12
A=80,000.00(1+0.25/12) (12*1)

A=80,000.00(1+0.0208) (12)

A=80,000.00(1.0208) (12)

A= 80,000.00(1.2803)

A= 102,424.00

Balance of the underestimated tax after returns were filed in February 2016 including
interest = 102,424

4.4.2 Interest for failing to pay tax on due date

 A person who fails to pay tax by the date on which the tax is payable is liable to
pay interest for each month or part of a month for which any part of the tax is
outstanding. The interest is calculated as one hundred and twenty-five percent of
the statutory rate, compounded monthly, applied to the amount outstanding at
the start of the period.
 Tax is payable in the case of an adjusted assessment, on the date on which tax is
payable under the original assessment; and in any other case, on the date in the
service of notice
 Where a withholding agent is liable for interest for failing to pay withholding tax
in respect of a payment made by the agent, the agent may not recover the interest
from the person subject to the withholding tax.

Formula for compounding interest on unpaid taxes

𝑟 𝑛𝑡
𝐴 = 𝑃 (1 + )
𝑛
P = Principal amount (the initial tax due)
r = 125% of annual statutory rate (as a decimal)
t = number of years the amount is in arrears

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Lecture note: Richard Nana Adu Akyeanfo

A = amount of debt accumulated after t years, including interest at statutory rate.

n = number of times the interest is compounded per year

Illustration
In the case of unpaid tax on one return
Example:
Unpaid tax =100,000 (January returns for PAYE 2016)
Statutory rate = 20%

Requirement
What is the balance of the unpaid tax after 2 years?
Solution
Therefore, using the formula for compounding interest:
𝑟 𝑛𝑡
𝐴 = 𝑃 (1 + )
𝑛
P=100,000.00
r = 20%*125%=25 %( 0.25)
t = 2 years
A=?
n = 12
A=100,000.00(1+0.25/12) (12*2)
A=100,000.00(1+0.0208) (24)
A=100,000.00(1.0208) (24)
A= 100,000.00(1.6390)
A=163,900.00

EXAMPLE

Whatsup Ltd, a developer of computer software submitted and paid it’s

withholding tax of GH₵ 1000.00 for the month of February, 2016 on May 18th,
2016. Required: Compute interest and penalties if any.

Assume bank of Ghana rediscount is 20%.

Solution continued
Days in default – 64days equivalent to 2 months and 4 days.
(i) Penalty due = 64 days x GH₵ 10 + GHS 500
= GH₵ 1,140
(ii) Calculating interest due : x(1 + r)ⁿ, where x is principal value, r is monthly
rate of interest and n is number of months in default.
Months in default (n) = 2months 4 days
Amount paid but was outstanding after due date = GH₵ 1,000.00 (x).
Bank of Ghana rediscount rate = 20%
Interest rate applicable per the law =
125/100* 20/100
= 25% per annum.
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Rate applicable per month = 0.25/ 12

= 0.02083 per month(r)
x(1 + r)ⁿ = 1,000(1 + 0.02083)2
= GH₵1,042.10
Interest due = 1,042.10 – 1,000
= GH₵42.10 for 2 months

4.4.3 Penalty for failing to maintain documents

 A person who fails to maintain proper documents as required by a tax law is liable
to pay for each month or part of a month during which the failure continues

o seventy- five percent of the tax attributable to that period where the failure is
deliberate ; or
o in any other case, the lesser of the amount referred to in above or two
hundred and fifty currency points.
 The Commissioner-General shall determine tax attributable to a period on a just and
reasonable basis including apportioning tax assessed with respect to a larger period
or by reference to taxable events happening within the period.

4.4.5 Penalty for failing to file tax return

 A person who fails to file a tax return as required by a tax law is liable to pay a
penalty of five hundred currency points and a further penalty of ten currency points
for each day that the failure continues.

 In the case of communications service tax, the penalty is two thousand currency
points and a further penalty of five hundred currency points for each day that the
failure continues.

 The above penalty apply separately for a failure to file an estimate and a failure to file
a tax return incorporating the final amount.

 Where a person fails to submit the tax return four months after the imposition of the
penalty for non-submission, the Commissioner-General shall, in addition, prosecute
the person to compel the person to submit the return.

4.4.6 Penalty for making false or misleading statements

 A person who, without reasonable excuse makes a statement to a tax officer that is
false or misleading in a material particular; or omits from a statement made to a tax

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officer, any matter or thing without which the statement is misleading in a material
particular

 is liable to a penalty of one hundred percent of the tax shortfall where the statement
was made without reasonable excuse; or thirty percent of the tax shortfall in any
other case.

Instances where a person is deemed to have made a false or misleading

statement to a tax officer
 Where a person who is not the holder of a Taxpayer Identification Number or a
Tax Clearance Certificate, or has not been issued with a particular Taxpayer
Identification Number represent to another person, including a tax officer, that,
that person has a Taxpayer Identification Number or a Tax Clearance Certificate;
 Where person who is a holder of a Taxpayer Identification Number apply for
another Taxpayer Identification Number;

 where a person files a tax return in which the tax stated as payable is less than
the actual tax liability by a margin of between thirty and fifty percent , the
person is treated as making a false or misleading statement to a tax officer; or by
a margin of fifty percent or more, the person is treated as making a false or
misleading statement

4.5 TAX DISPUTE RESOLUTION

4.5.1 Tax decisions

A "tax decision" is a decision made by the Commissioner-General under a tax law,

including an assessment or omission, but does not include

 a practice note, class ruling, or private ruling;

 a decision or omission to issue, refuse or revoke a practice note, class ruling or
private ruling;
 a decision or omission that affects a person only as a tax officer or employee or
agent of the Authority;
 a decision or omission of the Commissioner-General, including an objection
decision under; or
 a decision to compound an offence under a tax law.

When is a tax decision deemed to be made?

A tax decision is made

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 in the case of an assessment made by the Commissioner-General, when the notice of

assessment is served on the taxpayer; and
 in the case of any other tax decision, when the Commissioner-General serves the
affected person with written notice of the decision.
 In the absence of the notice, a person may elect to treat the Commissioner-General
as having made a favourable tax decision, if
o the tax law specifies a time by which the Commissioner-General is to make a
decision and that time expires; or
o a time frame is not specified in the tax law and sixty days have elapsed after
the affected person files a request for the Commissioner-General to make the
decision.

For the purpose of the above, a reference to the Commissioner-General making a decision
includes the Commissioner-General exercising a discretion, making a judgement, giving
a direction, expressing an opinion, granting an approval or consent, or being satisfied in
respect of a matter.

4.6 Objection to tax decision

A person who is dissatisfied with a tax decision that directly affects that person may lodge
an objection to the decision with the Commissioner-General within thirty days of being
notified of the tax decision. An objection to a tax decision shall be in writing and state
precisely the grounds upon which the objection is made. A person may apply in writing
to the Commissioner-General for an extension of time to file an objection. Where the
Commissioner-General is satisfied that there are reasonable grounds for the extension,
the Commissioner-General may grant the application for extension and shall serve notice
of the decision on the applicant. An objection against a tax decision shall not be
entertained unless the person has;

 in the case of import duties and taxes, paid all outstanding taxes including the full
amount of the tax in dispute; and in the case of other taxes, paid all outstanding taxes
including thirty percent of the tax in dispute. Notwithstanding the foregoing, the
Commissioner-General may waive, vary or suspend the foregoing requirements
pending the determination of the objection or take any other action that the
Commissioner-General considers appropriate including the deposit of security. A tax
decision to which an objection is not made within thirty days is final.

4.6.1 Objection decision

After consideration of an objection, the Commissioner-General may vary the tax decision
in whole or in part or disallow the objection. The Commissioner-General shall, within
sixty days of receipt of an objection, serve the objector with a notice of the decision

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including the reasons for the decision. Where the Commissioner-General does not serve
the person with notice of the decision within sixty days, the person may, by notice in
writing to the Commissioner-General, elect to treat the Commissioner-General as having
made a decision to allow the objection. A decision is made in respect of an objection on
the date the person is served with notice of the decision; or if a person makes an election
to treat the CG failure to respond to an objection with sixty days as the CG having made
a decision to allow the objection, thirty days from the date the person files the election
with the Commissioner-General. A notice served on a person in respect of an objection is
conclusive evidence that a decision has been made and is correct.

4.6.2 Appeal against objection decision

A person who is dissatisfied with a decision of the Commissioner-General may appeal

against the decision to the High Court within thirty days of the decision. An appeal
against an objection decision does not operate as a suspension of the objection decision.

TRIAL QUESTIONS:

QUESTION 1

Probity Company Limited applied to be gazetted to be under self-assessment, which application

was reviewed and duly granted by the Commissioner-General of the Ghana Revenue Authority.
The company submitted its self-assessment for 2012 year of assessment showing an estimated
chargeable income of GH¢200,000.00. At the end of the 2012 year of assessment, the actual
chargeable income of the company was GH¢1,000,000.00. the schedule officer in charge of the
company’s records at the Domestic Tax Revenue Division of the Ghana Revenue Authority
notified the company of the fact that penalty would be due from them in respect of the above
information. The company then approached you as a Tax Expert to assist them determine their
penalty exposure.

You are required to determine the penalty payable by Probity Company limited, if any.

QUESTION 2

(a) You are Tax Consultant of Prospective Consult, a firm of Tax & Corporate Advisory
Service Providers and at a meeting with a potential client from Barbados who intends
to set up a business in Ghana, she said that she had been informed that as long as a
taxpayer is consistent in paying taxes in Ghana there was no need for such a person
to furnish returns to the Ghana Revenue Authority. Please advise

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(b) Creative Minds Limited is a company gazetted by the Commissioner of General

Revenue Authority to be under self-assessment. The company’s self –assessment
projections submitted to the General Revenue Authority for 2016 year of assessment
showed an estimated chargeable income of GH¢C40,000.00. Annual Returns filed
by the company at the end of its basis period for the 2016 year of assessment disclosed
the company’s actual chargeable income to be GH¢C200,000.00

Required:
Determine the penalty payable by Creative Minds Limited, if any.

QUESTION 3
You are the tax consultant to the President of Ghana. There have been various
discussions on an earlier visit to the Ghana Revenue Authority to file his periodical tax
returns. Some commentators have argued that as long as a taxpayer is consistent in
paying taxes or is exempted from paying taxes in Ghana, there is no need for such a
person to furnish a return to Ghana Revenue Service.
The Commissioner General of the Ghana Revenue Authority may, by a notice publish in
the Gazette, specify persons who are subject to payment of tax by installment under
self-assessment rules.
Required:
Outline the information which a person subject to self-assessment is required to furnish
the
Commissioner.
QUESTION 4
Mr. Ralph Boadu, managing director of Boadu Metal Works Limited, has expressed
interest in the self-assessed system and wishes to apply on behalf of his
establishment for consideration. Presently, Boadu Metal Works Limited is under the
provisional assessment system.
Compare and contrast the two systems to enable Mr. Boadu to take a firm decision
SUGGESTED ANSWER

SUGGESTED ANSWER 3
A return is a specified form or means for the declaration of income from all sources by
taxable persons for the correct assessment of their tax.
Furnishing of returns entails completing the required form attaching signed audited
accounts, attaching tax compensation, attaching any other information required to be
filed and attaching a cheque in payment of any tax due.
Purposes and Reasons for Filling Returns
- Gives information about one’s total income
- Shows individuals circumstance of taxpayers allowing for necessary adjustments in
assessing tax liabilities.
- Provides information on others to be brought into the tax net for example landlords,
money lenders etc.
- It is a statutory requirements

Cases where returns are not required

- Non- resident person who has no income accruing in or derived from Ghana.
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- Where a non-resident has derived income from Ghana and final withholding tax has
been paid on it.
- A resident individual who has no chargeable income or whose chargeable income for
the year is subject to nil rate.

Filing Dates:
Not more than four months after the company’s financial year in case of company.

Tax extension may be sought from the Commissioner stating the grounds for such need.
Penalty for failure to file returns may be applied by the Commissioner
Estimate of chargeable income to be derived by that person for a year of assessment.
(ii) Tax payable
(iii) Estimate shall be in the prescribed form
(iv) Estimate shall be furnished to Commissioner on or before the commencement of
basic year
(v) Revised estimates

Currently, the two systems in operation are:

1. Provisional Assessments and
2. Self-Assessments

SUGGESTED ANSWERS

4.
Provisional Assessments: This type of assessment is raised by the Commissioner –
General as soon as may be after the commencement of each basis period of a person
who pays tax by instalments. It is computed according to the best judgment of the
Commissioner – General. The provisional assessment would provide the following
details:
a. The estimated chargeable income;
b. The estimated tax to be paid;
c. The amount and timing of tax instalments to be paid and
d. The time, place and manner of objecting to the assessment
Taxpayer is to pay 30% deposit of the provisional assessment on objection
Self-Assessment: As the name suggests, the taxpayer makes his own estimate of
chargeable income and tax payable thereon for a year of assessment. This is only done
under the authority of the Commissioner – General in a notice published in the Gazette
or in the print media. This assessment is done on or before the commencement of the
basis period. The taxpayer has the right to revise his own estimates giving reasons for
such a revision. The self – assessment or the revised self – assessment shall b e deemed
to be as assessment by the commissioner.
Comparisons:
In the main, both are provisional assessments except that the Commissioner – General
prepares one while the taxpayer prepares his own self – assessment. In the case of the
provisional assessment raised by the Commissioner – General, the taxpayer may object
within 9 months in writing stating the grounds of his objection and also provide an
estimate of his chargeable income. In the case of a self- assessment the taxpayer cannot

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raise an objection against his own assessment but he is permitted to revise his estimates
providing reasons for his revision. Again, in the case of self – assessment, where the
estimate or revised estimate of chargeable income for a year of assessment is less than
90% of the taxpayer’s actual chargeable income assessed for the year, the taxpayer shall
be liable to a penalty equal to 30% of the difference between the tax calculated in
respect of that person’s estimate or revised estimate of chargeable income and the tax
calculated in respect of 90% of that person’s actual chargeable income for the year. This
does not apply to provisional assessments raised by the Commissioner – General. Self –
assessment demands proper record keeping enabling the taxpayer to prepare accurate
estimates. Failure to prepare accurate estimates will results in penalties being imposed.

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VALUE ADDED TAX (VAT)

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The VAT in Ghana is regulated by Value Added Tax, Act, 2013 (Act 870) as
amended and its related Regulations, L.I. 2243

VAT is a consumption tax applied on the value added resulting from the own-
activity of business enterprise. It is imposed on the expenditure incurred in
buying goods and services. VAT is generally a consumption tax which is ultimately
paid by consumers and collected on behalf of a country’s tax officers by registered
businesses.

Section 1: Imposition of VAT

A transaction is within the scope of VAT if the following conditions are met:
 It is a supply of goods or services,;
 the supply take place in Ghana;
 it is made by a taxable person; and
 the supply must be made in the course of furtherance of any business
carried on by that person.

VAT is imposed on the supply of goods or services made in Ghana unless those
goods or services are exempt from VAT. Section 42 provides rules to determine if
a supply takes places in Ghana. Supplies outside Ghana are beyond the scope of
VAT.
Thus, VAT is charged on taxable supply of goods and services made by a taxable
person in the course of, or in furtherance of the person’ taxable activity, provided
the goods and services concerned are not exempt. For example, if a taxable person
converts business goods to personal use, then the person is deemed to have made
a supply of those goods in connection with a taxable activity. Otherwise, however,
VAT is not levied on supplies of personal items not connected with a taxable
person’s taxable activity. For example, if a sole proprietor operating a clothing
store sell her used personal refrigerator, the sale of the refrigerator is not subject
to VAT as the supply is not in the course or furtherance of the person’s taxable
activity. But if the refrigerator had been purchased for use in the store and an
input credit obtained, the supply will be taxable

Also imports of goods or import of services is also subject to VAT unless the law
(VAT Act, 2013 (Act 870) specifically exempt such imports.
Import means in the case of goods, to bring or cause to be brought into the
country from foreign country or place.
In the case of import of services, a supply of services to a resident person by a
non-resident; or a resident person from a business carried on by the resident
person outside the country to the extent that the services are utilised or
consumed in the country other than to make taxable supplies. An example of an
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import of services is a supply of accounting services by an accountant in a foreign

country to a bank in Ghana where the services relate to supply of exempt financial
series in Ghana by the bank.

It is worthy of note that VAT is chargeable on the value of a supply of good by:
 a diplomatic mission,
 international agency,
 an organisation,
 a government agency, or
 other person

who has obtained a relief from or a refund from the tax on the importation or
domestic acquisition of the goods.

Section 2: Person Liable to Pay Tax

The tax shall be paid;
 in the case of a taxable supply, by the taxable person making the supply;
 in the case of an import of goods, by the importer; or
 in the case of an import of services, by the recipient of the service.

 In the case of an unregistered, non-resident persons who provide

telecommunication services or electronic commerce to persons for use or
enjoyment in the country, the non-resident is liable for the payment of the tax.

Section 3: Rate of the Tax

The rate of VAT applicable on a supply is dependent on the VAT Scheme that the
taxable person operate. There are two main scheme that a person may be register
to operate. These are the standard rate scheme and Flat Rate Scheme
Under the standard rate scheme, the person is require to charge and account for
VAT and National Insurance Levy (NHIL) simultaneously at the rates of fifteen
percent and two and half percent respectively on the value of the taxable supply or
on the value of the import.
The Flat rate scheme applies to retailer or wholesaler of goods. The applicable rate
under this scheme is a flat rate of three percent calculated on the value of the
taxable supply.

Section 4: Taxable Person

A taxable person is a person who is registered for VAT purposes or required to
register.
Essentially, a person is liable to be registered for the purposes of the Act if the
person engaged in a taxable activity or makes or is expected to make taxable
supplies in excess of the registration threshold.

Sections 5: Taxable Activity

A “taxable activity” means an activity which is carried on by a person in the
country or partly the county whether or not for a pecuniary profit that involves or
is intended to involve, in whole or in part, the supply of goods or services to
another person for consideration. For example, a traveling music group that
performs in concert in Ghana is conducting an activity partly in Ghana

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A taxable activity includes

 an activity of a local authority or unincorporated association or body that
involves, in whole or in part, the supply of goods or services to another person for
consideration;
 the processing of data or supply of information or similar service;
 the supply of staff;

You make a supply of staff for VAT purposes if, for a consideration, you
provide another person with the use of an individual who is: contractually
employed or otherwise engaged by you or is a director of your company is
a supply regardless of whether the terms of the individual’s employment
or engagement with you are set out: in a formal contract or letter of
appointment or are on a less formal basis What is important is that the
staff are not contractually employed by the recipient of the supply, but
come under the direction of that person. If your business supplies
services, such as construction services, to another person but your staff
continue to operate under your direction, this is not a supply of staff. It is
a supply of those construction or other services.

 the acceptance of a wager or stake in any form of betting or gaming,

including lotteries and gaming machines;
 the making of gifts or loans of goods;
 the leasing or letting of goods on hire;
 the appropriation of goods or services for personal use or consumption
by the taxable person or by any other person;
 the sale, transfer, assignment or licensing of patents, copyrights,
trademarks, computer software and other proprietary information; and
 the export of non-traditional products.

When can it be said that a supply is made for a consideration

A supply is considered to be a supply for consideration where the supplier is

directly or indirectly entitled to receive payment wholly or partly in money or in
kind from the person to whom the supply is made or from any other person, and
includes (a) a supply made between related persons for no consideration; (b) a
supply of goods for use only as trade samples.

A supply is part of a taxable activity of a person if the supply is made by person as

part of or incidental to any economic activity the person conducts. This is to say,
VAT is not levied on purely personal transactions of a taxable person.

A transaction involving either goods or services supplied in the country by a non-

resident person shall be considered to have been made in the country, if
The transaction is made in the course of a business carried on in the country; and
at the time of the transaction, the person is registrable for VAT purpose.

Section 6: Registration requirement.

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A person only qualifies to be registered for VAT purpose where the person meet
a threshold in terms of turnover (total amount of supply made).

Every who makes make taxable supplies of goods and/or services becomes
registrable if at the end:
 of any period of twelve or less months, the person made, during that
period, taxable supplies exceeding GHS 200,000; or
 of any month, there are reasonable grounds to expect that that person will
make taxable supplies in the next twelve or less months exceeding GHS
200,000.
 any period of three months, the person made, during that period, taxable
supplies exceeding GHS 50,000;
 there are reasonable grounds to expect that the total value of taxable
supplies made by that person during that period and to be made during
the next consecutive nine months will exceed GHS 50,000

In determining the above threshold, the Commissioner-General may have regard

to the value of taxable supplies made by another person, if that other person is a
related person or the taxable person and that other person are acting in concert in
making the taxable supplies. This is intend to prevent avoidance of the
registration requirement through fragmentation of a taxable activity among
related persons. For example, taxable supplies by branches given authority to
register separately under section 12 (3) and treated as related persons must be
aggregated.

Section 11: Exceptions regarding thresholds for registration

It is important to state that despite the above discussed turnover threshold
required to be registered as a taxable person:
 a promoter of pubic entertainment;
 an auctioneer,; or
 a national, regional, local authority or other authority or body,
which carries on any taxable activity shall apply for registration in respect of
whether the threshold is met or not.

The national, regional, local or other authority or body shall apply for registration
within thirty days after the date the national, regional, local or other authority or
body commences a taxable activity. That is when these bodies carries on taxable
activity including
 Auction;
 Hiring of equipment;
 Renting of space; and
 Any activity commonly conducted for profit

An auctioneer shall apply for registration within thirty days after the date on
which that person becomes an auctioneer;

Promoter of public entertainment, shall apply for registration at least forty-eight

hours before the commencement of the public entertainment if, within any period
of twelve or less months that includes the date of the public entertainment to
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which the application relates, the total value of taxable supplies of the promoter or
the licensee or proprietor is reasonably expected to exceed GHS 10,000.

Section 7: Period for becoming a taxable person

A person who is not registered, but who is required to apply for registration is a
taxable person from the beginning of the tax period immediately following the tax
period in which the duty to apply for registration arose.

Section 8: Notice of registration

A person who is required to register for VAT shall apply for VAT registration in
the form and manner prescribed by the Commissioner-General and shall file the
application for registration within thirty days after the end of its required period
of registration. Further, the applicant is obliged to provide any further
information that the CG may require.
The Commissioner-General shall within thirty days after the receipt of an
application for registration give notice to the applicant of his decision to register
or not to register the person. Where the Commissioner-General fails to serve
notice, the Commissioner-General is deemed to have made a decision to register
the applicant except where the Commissioner-General is satisfied that the person
is not eligible to apply for registration Broadly, this means that the CG must
refuse to register a person who is neither making nor intends to make taxable
supplies (such as a person who only makes exempt supplies or otherwise does not
carry on a taxable activity).
Where within the thirty days, the Commissioner-General requests additional
information from the applicant in order to determine if the applicant is eligible to
apply for registration, the thirty-day period shall be suspended and the
Commissioner-General shall have not less than fourteen days after the
Commissioner-General receives the required information in the form prescribed
by the Commissioner-General to give the notice of decision to register or not to
register the applicant.

Section 9: Certificate of registration

The Commissioner-General shall issue to each person registered for Value

Added Tax, a certificate of registration.
A registered person shall exhibit the certificate of registration at the principal
place of business of the person; and at every other location at which the person
engages in a Taxable activity

Regulation 1: Registration Name

The name for registration of a taxable person for value added tax purpose shall;
 in the case of an individual, be the name of the individual, except that
where the application indicates a business registered name, the name for
registration shall be both the individual name and the business name;
 in the case of a partnership, the name of the partnership; and in any
other case, be the name submitted on the application form for registration.

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Section 12: Group Registration

Two or more corporate bodies may on application be registered as members of a

group if each member is a registered corporate body in Ghana and has an
established places of business in Ghana, and one of them controls the others in
the group or one company controls all the members of the group.
Each member of the group shall be jointly and severally liable for any liability or
contravention of the Act 870 and its related Regulations.
The registration is made in the name of the representative member, who is
responsible for completing and rendering the single return on behalf of the group.
Whilst the representative member is responsible for paying the VAT or receiving
any repayment due, all the companies are jointly and severally liable for any VAT
debts. Supplies between group members are normally disregarded for VAT.
What are the advantages of group registration?
These are:
 the representative member accounts for any tax due on supplies made by
the group to third parties outside the group. This is particularly helpful if your
accounting is centralised
 as the group is treated as a single taxable person, you do not normally
account for VAT on goods or services supplied between group members
 you submit a single VAT return for the whole group

Regulation 33: Manner of maintaining records by registered group

All the members of the group must adopt the same tax period and the same
accounting basis for the tax. Despite the fact that no output tax shall be paid on
transaction between members of the group, each member of the group must
maintain distinct records, including tax invoices, for all transactions between
members of the group.

Separate registration of divisions of business

A taxable person whose business is structured into distinct divisions may apply
to the C-G to register one or more of its divisions for the tax. A taxable person in
his application for separate registration must state the branches and divisions,
including self-accounting branches where the business has more than two
branches or divisions.

Section 13: Voluntary registration

 A person who is not required to be registered may apply voluntarily to be

registered by the Commissioner-General. This is to enable business to take
advantage of the benefits of input tax credits.
The Commissioner-General may not register a person who voluntary apply to be
registered as a taxable person where the C-G :
 is satisfied that the person has no fixed place of abode or business; or
 where the C-G has reasonable ground to believe that that person may not
 Keep proper accounting records related to any business activity carried
on by that person
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 Submit regular and reliable tax returns as required by or under this Act;
or
 is not a fit and proper person to be registered.

Section 14: Compulsory registration

Where a person who qualifies as a taxable person fails to apply for registration,
the C-G may notify and direct that person in writing to apply to be registered
within thirty days after service of the notice on that person. Where a person
notified by the C-G fails to apply for registration, the CG may issue a warrant in
the form and manner determined by the C-G to lock up or seal off the business
premises of that person until the person applies for registration.
The CG has been given powers to compulsorily register eligible taxable persons
who may be attempting to avoid or evade registration.

Section 15: Sanction for failure to register

A person who fails to apply for registration is liable to a penalty of not more than
two times the amount tax on taxable supplies payable from the time the person is
required to apply for registration until the time the person files an application for
registration with the CG.

Section 16: Unregistered, non-registered persons who provide

telecommunication services or electronic commerce.
An unregistered, non-resident person who provide telecommunication services
or electronic commerce to persons for or enjoyment in the country, other than
through Value Added Tax registered agent registered person if that person makes
taxable supplies exceeding the registration threshold.
Electronic commerce covers business transactions that take place through the
electronic transmission of data over communications networks like the internet,
computer networks, and global telex networks.
Supply of telecommunication services and electronic commerce includes
 Website supply
 Web-hosting
 Distance maintenance of programmes and equipment
 Images, text and information and making database available
 Music and games, games of chance and gambling games;
 Political, cultural artistic, sporting, scientific and entertainment
broadcasts and events; and distance teaching.
Telecommunication services are services that relates to the transmission,
emission or reception of signals, writing, images and sounds of information of
any nature by wire, radio, optical or other electromagnetic systems, including
the provision of access, transmission, emission or reception.

The commissioner-General may in writing and subject to conditions that the

Commissioner-General may determine, permit a non-resident person providing
telecommunication services or electronic commerce to :
 Register for the tax
 File returns; or
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 Account for the tax by electronic means

A person who acts as an agent or carries on business on behalf of a non-resident
person who is required to register but who has failed to register shall register for
the tax.
An agent, in the above context, includes a representative or any other person
representing the interest of a taxpayer in this country whether or not there is a
subsisting contract between the person and the taxpayer.

Section 18: Notice of change in business

A taxable person is required to give notice to the Commissioner-General in
writing
 if that person
o ceases to operate ;
o sells, or
o relocates
the business engaged in the taxable activity;
 if there is change in the ownership of the business engaged in the taxable
activity; or
 of a change
o in the name or address of that person
o in the circumstances which disqualify that person for registration; or
o in the taxable activity or in the nature of taxable supplies being made

The notice shall be given within fourteen calendar days after the cessation, sale,
relocation, change of ownership or any other change as the case maybe. Where a
person ceases to carry on a taxable activity in relation to which the registration was
made, the notice shall be made within fourteen calendar days after the date of the
cessation and shall state whether or not that person in tends to carry on the
taxable activity within twelve months from that date.

A taxable person who commences the sale of a business as a going concern shall
give notice in writing to the Commissioner-General of that fact at least fourteen
calendar days before the
o sale closes,
o purchaser acquires any legal interest in the assets to be acquired, or
o assets of the going concern are transferred, whichever date is earliest.

Regulation 8: Transfer of a going concern

 A going concern is not a dormant or prospective business but an income-
generating activity capable of separate operation and that is in fact operational and
capable of operating without interruption after the transfer
 A transfer qualifies as a transfer of a going concern where it constitutes
the entire taxable activity of the supplier that is a going concern or a portion of
such taxable activity capable of being carried on as a going concern
 A supply can constitute a transfer of a going concern even where the
transferred business is not profitable, or is being transferred to a liquidator,
receiver, trustee in a bankruptcy or other person appointed upon the insolvency of
a taxable person;

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 The supply is not zero rated unless a notice in writing in the prescribed
form signed by both transferor and transferee is filed with the Commissioner-
General fourteen days prior to the date the sale, transfer, or acquisition of legal
interest takes place and contains details of the supply.

The sale is deemed to be concluded where

 Consideration is paid, whether partial or in full;
 The deed of sale is duly executed
 The rights, assets and liabilities attributed to the sale become the
entitlement of the transferee or the operation of taxable activities is in the control
of the purchaser.

Section 19: Cancellation of registration

The Commissioner-General shall cancel the registration of a taxable person

where the CG is satisfied that the taxable person:
•no longer exists;
•is not carrying on a taxable activity;
•is not required or entitled to apply for registration;
•has no fixed place of business or abode;
•has not kept proper accounting records related to a business activity carried on
by that person; or
•has not submitted regular and reliable tax returns required under Act 870.

Where a registration is cancelled, it takes effect from the end of the tax period in
which the registration is cancelled, or from any other date determined by the CG.
A taxable person whose registration is cancelled is regarded as having made a
taxable supply of the goods on hand, including capital goods, at the time the
registration is cancelled. Except where the taxable person was denied input tax
deduction on the acquisition of those goods. All applicable returns have to be filed
in respect of goods liable to VAT at the date of cancellation.
The Commissioner-General shall serve notice in writing on a person of the
decision to cancel or refuse to cancel a registration within thirty days after making
the decision; or after receipt of the application.
Where registration is cancelled, the person shall return to the Commissioner-
General, the Value Added Tax certificate and any unused Value Added Tax
invoices, and the Commissioner-General shall remove the personal particulars of
that person from the register.
A person registered for voluntary registration for Value Added Tax may apply for
cancellation of the registration only after the expiration of two years after the date
the registration took effect.

Section 20: Supply of goods or services

A supply of goods means any arrangement under which the owner of the goods
parts with or will part with possession of the goods including provision of goods
by sale, barter, lease, transfer, exchange, gift or similar disposition.

A supply of services means any supply which is not a supply of goods or money
and includes:
 the performance of services for another person;
 the making available of any facility or advantage; or
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Lecture note: Richard Nana Adu Akyeanfo

 tolerating any situation or refraining from the doing of any activity.

The disposal of a taxable activity; or part of a taxable activity that is capable of

being operated separately as a going concern is a supply of goods made in the
course or furtherance of the taxable activity.
A taxable activity or part of a taxable activity that is capable of being operated
separately is disposed of as a going concern where;
o the goods or services necessary for the continued operation of that
taxable activity or that part of the taxable activity are supplied to the transferee;
and
o the transferor carries on or is carrying on, that taxable activity or that
part of a taxable activity up to the time of its transfer to the transferee.
A supply of goods for goods or services is a supply of goods; and
A supply of services for services or goods is a supply of services. This is a case of
barter trade.

Section 24: Activities that do not constitute supply of goods or

services
A supply of services by an employee to an employer by reason of the
employment of that employee is not a supply of services for Value Added Tax
purposes.

The transfer of goods to a person acting in a representative capacity to the

transferor is not a supply of goods.
There are only a number of transactions that are not supplies of goods, even if
possession of the goods is transferred. For example, the transfer of goods as
security for a loan is not a supply of goods if the pledgee does not have the right to
sell or otherwise exercise ownership over the goods unless the pledger defaults on
the loan. Likewise, a transfer of goods on consignment or similar terms is not a
supply of goods if the consignee does not have any legal obligation to pay for the
goods that the consignee does not sell and can return some or all of the goods to
the consignor.

Section 25: Effect of denial of input tax

Where a taxable person supplies goods or services and a deduction for input tax
paid on the acquisition of the goods or services was denied, the supply of the
goods or services by the taxable person is a supply of goods or services other than
in the course or furtherance of a taxable activity, hence no VAT is to be charged on
such a supply. For example, if a taxable person acquires a motor vehicle for his or
her business operations and was denied the input VAT on the purchase, where the
motor vehicle is later disposed off by the business no VAT is due on the
transaction, meaning output VAT is not chargeable on the disposal. As already
discussed, in section 1, VAT is chargeable on taxable supply of goods made in the
course of or in furtherance of the taxable activity on that person. From the
foregoing, it can be noted that were the supply in not made in the course of or in
furtherance of the taxable activity of the, the supply cannot be deemed to be
taxable supply, thus not VAT is chargeable thereon.

Section 21: Repossession of goods as supply of goods

Where goods are reposed under a credit agreement, the repossession is a supply
of the goods by the debtor under the credit agreement to the person exercising the
right of repossession and, where the debtor is a registered person, the supply is

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made in the course or furtherance of the taxable activity of the debtor, unless the
goods did not form part of the assets held or used by the debtor in connection
with the taxable activity.

Section 22: Lay-away agreement and betting as supply of services

Lay-away is a purchasing method that allows a consumer to put a product on

hold by placing a deposit on the item. Layaway allows the customer to make
smaller payments on the product until the purchase price is paid in full, rather
than paying for the item with credit and adding interest to the cost. A layaway
plan ensures that the chosen merchandise will be in stock and ready for pick-up
when the final payment is made.
Where a lay away agreement is terminated or cancelled and the seller retains an
amount paid by purchaser or recovers an amount the purchaser owes under the
agreement, the cancellation or termination is a supply of services by the seller in
respect of the agreement.

The placing of a bet by a person with another person operating a game of chance
is a supply of services by that other person operating the game of chance to the
person.

Section 23: Separate Supply

o This is a supply of goods and services which are a combination of items
some of which are taxable at the standard rate of 15% as well as items which are
exempt or zero-rated. The supplier is expected to account for tax separately except
where it is difficult to do so, especially where the items involved are of composite
nature.

Section 26: Payment of deposit and receipt of claims as supply of

goods or services

The payment of a sum of money as a deposit, other than on a returnable

container, is treated as a supply when the deposit is forfeited
For the purpose of section 20 to 26, a deposit is an amount of money or property
received from a prospective purchaser to secure performance of the agreement
that is the subject of the deposit, to be applied to the purchase price or returned if
the depositor performs and ordinarily, is forfeited if the purchaser defaults.

Section 31: Mixed Supply

Mixed supply include where a supply of:

o •services incidental to a supply of goods is part of the supply of goods;
o •goods incidental to a supply of services is part of the supply of services;
and
 services incidental to an import of goods is part of the import of the
goods.

Notwithstanding the above provisions, a supply of real property does not include
the supply of services incidental to that supply or the import of services incidental
to that supply.

Section 32: Supply by agent or auctioneer

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 A supply of goods or services made by a person as an agent for another

person who is the principal is a supply by the principal. This does not apply to the
supply of services of an agent as agent to the principal.
 A supply of goods by auction is for the purposes of Act 870 is treated as a
supply of goods by the auctioneer for consideration in the course or furtherance of
a taxable activity carried on by the auctioneer.

Section 33: Taxable Supply

A taxable supply is a supply of goods or services made by a taxable person for

consideration, other than an exempt supply, in the course of, or as part of taxable
activity carried on by that taxable person.

Section 35: Exempt Supply

This refers to a supply of goods or services that is not subject to tax. VAT is thus
not charged on the sale of exempt supplies but at the same time no credit may be
allowed to the business making exempt sales for the VAT paid on purchases or
expenses. This means that businesses which make only exempt supplies cannot
register for VAT, since they are outside the scope of VAT.
An import of goods is exempt import if the goods are exempt under the First
Schedule or classified as an exempt import in conformity with the Customs Tariffs
Schedule also known as the Harmonised System.

Some Examples of Exempt supply

1. A supply of the following agricultural and aquatic food products in a
raw state produced in the country
 maize;
 sorghum;
 millet;
 tubers;
 guinea corn;
 rice;
 fish, other than ornamental fish;
 crustaceans;
 mollusks;
 vegetables and fruits;
 nuts;
 coffee;
 cocoa;
 shea butter; and
 edible meat and offal of the animals listed in item 4, provided that the
processing is restricted to salting, smoking or similar processes, but excluding pate,
fatty livers of geese and ducks, and similar products.
The agricultural and aquatic food products shall be considered to be in
their raw state, even if they have undergone simple preparation or preservation,
including freezing, chilling, drying, salting, smoking, stripping or polishing.

2. A supply of the following live animals bred or raised in this country:

 c
attle;
 s
heep;
 g
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oat;
 s
wine; and
 p
oultry.

3. A supply of the following agricultural inputs

 seeds, bulbs, rooting, and other forms of propagation of edible fruits,
nuts, cereal crops, tubers and vegetables, including the seedlings and
cuttings; and
 fertilizers, acaricides, insecticides, fungicides, nematicides,
herbicides, growth regulators, pesticides, veterinary drugs and vaccines,
feed and feed ingredients other than food, drugs and vaccines for
domesticated animals generally held as pets.

4. (a) A supply of gear designed exclusively for fishing, including boats,

nets, floats, T wines, and hooks; and
(b) An import and supply of raw material for use in the production of nets and

twines and goods produced for fishing.

5. A supply of water, excluding water commonly supplied in bottles or other

packaging suitable for supply to consumers.

6. A supply to a dwelling of electricity up to a maximum consumption level

specified for block charges for lifeline units.

7. (a) A supply of textbooks and supplementary readers on the
Ministry of Education approved list, newspapers, atlases, charts, maps
and music; and
(b) The exemption in paragraph (a) does not apply to imported newspapers,

architectural and similar plans, and drawings, scientific and technical works,

periodicals, magazines, trade catalogues, price lists, greeting cards, almanacs,

calendars, diaries and stationery.

8. A supply of education services.

9. A supply of laboratory and library equipment for use in rendering
educational services.
10. A supply of medical services and medical supplies.
11. A supply of pharmaceuticals listed under Chapter 30 of the
Harmonized Systems Commodities Classification Code, 2012, if the
pharmaceutical is supplied by retail in Ghana;

12. Supply of domestic transportation of passengers by road, rail, water, but

not including the supply of haulage or the rental or hiring of passenger and
other vehicles.

13. A supply of machinery and parts of machinery specifically designed for use
in the following activities:
 agriculture, veterinary practice, fishing and horticulture;
 mining as specified in the mining list;
 manufacturing;
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 railway and tramway;

 upstream petroleum operations as specified in the petroleum list; and
 dredging.
14. A supply of the following crude oil and hydrocarbon products:
 petrol;
 diesel;
 liquefied petroleum gas;
 natural petroleum gas; and
 kerosene.
17. A supply of the following:
 immovable property, including land, attributable to a dwelling, but
excluding the sale of immovable property by an estate developer;
 accommodation in a dwelling;
 land used or to be used for agricultural purposes; and
 Civil engineering public works, including roads and bridges.

16. A supply of f inancial services, life insurance and reinsurance, whether or

not endered for a fee, commission or a similar charge.
17. A supply of goods designed exclusively for use by persons with

disability.
19. A supply of postage stamps issued by the Ghana Post, other than for
expedited services or for philatelist purposes.
20. A supply of salt for human consumption, including table salt.

21. A supply of mosquito nets, whether or not impregnated with

chemicals.

Section 36: Zero-rated Supply

This refer to the supply of goods and services whose output tax shall be zero.
This means the rate of VAT is 0%. A taxable supply is taxable at a zero rate if the
supply is specified in the Second Schedule of Act 870.

2. SUPPLY OF GOODS

(1) A supply of goods where the supplier has entered the goods for export
pursuant to the Customs Excise and Preventive Service (Management) Act, 1993
(P.N.D.C.L. 330), and the goods have been exported from the country by the
supplier.
(2) A supply of goods where the Commissioner-General is satisfied that the
goods have been exported from the country by the supplier without having been
used in the country after the supply was entered, except as necessary for or
incidental to, the export of the goods.
(3) A supply of goods under a rental agreement, charter party or agreement for
chartering, where the goods are used exclusively in an export country.
(4) Subject to item 4 of this Schedule, a supply of goods shipped as stores on
foreign-going vessels or foreign-going aircraft leaving the territories of Ghana and
going to a destination in an export country.
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(5) A supply to a free zone developer or free zone enterprise, provided that the
developer or enterprise provides satisfactory documentation that its operations
and the procedure for acquisition of the supply satisfy the requirements of the
Free Zone Act, 1995 (Act 504).
(6) A supply of goods as part of the transfer of a taxable activity as a going
concern by one taxable person to another taxable person, but only if all the
conditions of transferring business as going concern are satisfied and the notices,
including the details of the transaction, required by regulations are provided to
the Commissioner-General.
7. The minister may be regulations, provide for the zero-rating of exports of
goods by tourists and similar persons, under such terms and conditions as the
Minister shall specify.
(8) A supply of goods shall not be considered to be exported from this country
unless
(a) Immediately before being put on board the conveyance for export, the goods
are produced to the Commissioner of Customs for examination;
(b) on demand by the Commissioner of Customs, the exporter provides samples
of the goods as the Commissioner may require for testing or in any other purpose;
(c) the person in charge of the conveyance for the export or any other person
that the person in charge may authorise for the purpose, certifies on the
document on which the goods are entered that the goods have been received on
board; and
(d) particulars of the goods are included in the cargo manifest of the conveyance.
(9) A supply of goods shall not be considered to be exported from this country if
the supply has been or will be re-imported to this country by the suppliers.

3. SUPPLY OF SERVICES
(1) A supply of services directly in connection with land or any improvement to
land situated outside the country.
(2) A supply of services directly in respect of personal property situated
outside the country at the time the services are rendered.
(3) A supply of services to the extent that the services are consumed elsewhere
than in the country.
(4) A supply of services comprising the filing, prosecution, granting,
maintenance, transfer, assignment, licensing or enforcement of any intellectual
property rights for use outside the country.
(5) A supply of freight and insurance directly attributable to the export of goods.

Section 38: Relief Supply

It should be noted that, to relieve the burden of VAT on certain categories of
business and consumers, the Government provides VAT relief on the supply of
taxable supplies which would otherwise be subject to VAT. In this instance,
businesses which provide taxable supplies which fall within the relief conditions
are not required to impose and collect VAT on the relevant supplies.
Any taxable supply made to the following individuals, organisations and
business are relief from VAT;

1. The President of the Republic.

2. Subject to item 4, a supply for the official use of any Commonwealth or
Foreign Embassy, Mission or Consulate.

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3. Subject to item 4, a supply for the use of a permanent member of the

Diplomatic Service of any Commonwealth or foreign country that is
exempted by Parliament from the payment of customs duties.

4. The relief provided in items 2 and 3 of this Schedule applies only if a similar
priviledge is accorded by the Commonwealth or foreign country to the Ghana
representative in that country.
5. A supply for the use of an international agency, or technical assistance
scheme where the terms of agreement made with the Government and approved
by Parliament include exemption from domestic indirect taxes.
6. Emergency relief items approved by Parliament.
7. VAT-registered manufacturers for raw materials at importation,
subject to the condition that:
(i) the manufacturer is a member in good standing of the Association of
Ghana
Industries;
(ii) the manufacturer has submitted all previous tax returns and paid the
tax, penalties and interest from previous tax periods if any;
(iii) the Commissioner-General is satisfied that the manufacturer has met
the conditions in subparagraphs (i) and (ii) of this paragraph and other
compliance requirements of this Act and has listed the manufacturer in a
register published by the Commissioner-General with a validity period of twelve
months effective from 1st January of each year;
(iv) the imported raw materials will be applied solely and
exclusively for the manufacturing operations of the relief beneficiary.

Section 38: Time of Supply

1. The general rule of determining the liability to tax is that VAT becomes
due on a supply of goods or services: Supply of goods or services occurs,

a) where the goods or services are applied to own use, on the date on which
the goods or services are first applied to own use;
b) where the goods or services are supplied by way of gift, on the date on
which ownership in the goods passes or the performance of the services is
completed;
c) in any other case, the earliest of the dates on which
 the goods are removed from the premises of the taxable person, or from
other premises where the goods are under the taxable person’s control;
 the goods are made available to the person to whom they are supplied;
 the performance of services is completed;
 receipt of payment is made; or
 a tax invoice or sales receipt is issued.
Where payment is received or a tax invoice or sales receipt is issued for part of
the supply, VAT is applicable on only that part of the supply represented by the
payment or the tax invoice

2. Where metered supplies are made on a continuous basis, the time of

supply is at each meter reading.

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3. The supply of goods under a hire purchase agreement or finance lease

occurs on the date the goods are made available under the agreement or lease.

4. Where goods are supplied under a rental agreement, or goods or services

are supplied under an agreement or law which provides for periodic payments,
the goods or services shall be considered as successively supplied for successive
parts of the period of the agreement or as determined by that law, and each
successive supply occurs on the date on which payment is due or received or that
the invoice is issued whichever date is earlier. Rental agreement mean any
agreement for the letting of goods other than a hire purchase agreement or
finance lease.

5. Where two or more payments are made or are to be made for a supply of
goods or services, other than a supply which paragraph 3 and 4 applies, each
payment shall be regarded as made for a separate supply to the extent of the
amount of the payment on the earlier of the dates that the payment is due or
received.

6. Where the supply of goods or services is incidental to another supply, the

time of the supply of the incidental supply shall be considered to be the same as
the time of supply for the main goods or services. The supply of goods in
accordance with lay-away agreement occurs when goods are delivered to the
purchaser.

7. A supply of goods that have been repossessed occurs when the goods are
repossessed; or where the debtor may under a law be reinstated with that debtor’s
right and obligations under the credit agreement.

8. A supply of goods made through a coin- operated machine occurs when

the supplier withhdrews the consideration from the coin-operated machine.

9. The forfeit of a deposit, other than a returnable container occurs when

the deposit is forfeited.

10. VAT is due on imports at the time of customs clearance, that is, when the
goods are entered for purposes of Custom, Excise and Preventive Service
(Management) Act, 993 (P.N.D.C.L.330). If the goods are moved to a warehouse
then the VAT is due at the time of removal for home use.

VAT RELIEF PURHASE ORDER (VRPO)

In situations where certain tax payers are waived from paying this tax. In that
situation, the tax payer who has been granted such waiver would be issued with
VAT Relief Purchase Order (VPROs), which constitutes a waiver of the
VAT/NHIL.

Section 41: Issue of tax invoice or sale receipt

A taxable person is required to issue a tax invoice when the taxable person
makes a taxable supply of goods or service. The taxable person must retain a copy
of the invoice in a sequential identifying number order. The C-G may authorised a
taxable person who makes a taxable supply to issue a sale receipt instead of a tax
invoices.

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The taxable person must make an application to the C-G to use sale receipt
instead of the VAT invoice.

Condition to satisfy before the approval by the C-G to use sale receipt
The Commissioner General may authorize for the issue of a sales receipt where –
 the taxpayer makes low value, high volume supplies;
 supplies are paid for in cash; and
 the taxable person uses an electronic device approved by the
Commissioner General for the issue of the sales receipt.

The sales receipt shall be printed in duplicate and shall contain the following
minimum information –
 the name and full address of the supplier;
 the TIN;
 the serial number of the receipt;
 either the gross amount of the transaction, including VAT or the amount
of the transaction and VAT; and
 the date of the transaction.

The authorization shall be for a period determined by the Commissioner General

and may be renewed. Upon a request by a purchaser who is registered for VAT,
the vendor shall issue a tax invoice showing all the relevant information required
to be include a tax invoice making reference to the serial number of the receipt
covering the transaction. A sales receipt does not qualify for input tax deduction.
A taxable person shall issue only one tax invoice or sales receipt for each taxable
supply. Where within thirty calendar days after the date of a supply, a recipient
who is a taxable person has not received a tax invoice, the recipient may request
the supplier, in writing, to provide a tax invoice in respect of the taxable supply.
Upon the request, the supplier shall comply with the request within fourteen
calendar days after its receipt. Where, within thirty calendar days after the date of
a supply, a recipient who is a taxable person claims to have lost the original tax
invoice for a taxable supply, the taxable person making the supply shall, on
recipient of a request in writing from the recipient, provide a certified copy clearly
marked copy to the recipient within fourteen calendar days of the after the
request.

Content of a tax Invoice

A tax invoice shall contain at minimum the following -
 the supplying taxable person’s name, address and TIN;
 the date and time of supply;
 the number of the invoice taken from a consecutive series;
 the customer’s name or business name and address and TIN if a taxable
person;
 description sufficient to identify the goods or services supplied including
the quantity of the goods or the extent of the services supplied;
 the type of transaction by reference to the following categories -
o sale;
o hire purchase, hire, lease or rental;
o exchange;
o goods and services supplied from the taxable person’s own supplies;
 the tax-exclusive charge for each description of goods or services
supplied;
 the rate of tax;
o the total charge on the invoice, exclusive of tax;
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Lecture note: Richard Nana Adu Akyeanfo

o the rate of any discount;

o the total tax charged; and
o the total charge inclusive of the tax.
Unless a registered person is authorized by the Commissioner General in writing
to print that person’s own invoice similar to the invoice prescribed by the
Commissioner General, the tax invoice issued by the registered person shall be the
invoice printed by the Commissioner General.
Section 42: Place of Supply

 The place of supply of goods is the place where the goods are
delivered or made available by the supplier or, if the delivery or making
available of the goods involves the goods being transported, the place where the
goods are when the transportation commences.

 A supply of thermal or electrical energy, heating, gas, refrigeration, air

conditioning, or water takes place where the supply is received.

 a supply of services takes place at the location of the place of business

of the supplier from which the services are supplied.
 The supply of the following services takes place where the recipient
uses the service, including:

• a transfer or assignment of a copyright, patent, licence, trademark, or

similar right;
• the service of a consultant, engineer, lawyer, architect, accountant
or other professionals;
• the processing of data or supplying information, or any similar service;
• an advertising service;
• the obligation to refrain from pursuing or exercising taxable activity,
employment, or a right described in this subsection;
• the supply of personnel;
• the service of an agent in procuring for the agent’s principal a service
described in this subsection; or
• the leasing of tangible personal property other than transport property.

 Unless the service is described in the above;

(b) the supply of
cultural, artistic, sporting, educational, or similar activities takes place where
the service is physically carried out; and
(c) the supply of
services connected with tangible personal property takes place where the
service is physically carried out.

 Unless the service is described in the above, the supply of services

connected with real property takes place where the property is located.

 a supply of services incidental to transport takes place where the

transportation occurs.

 The place of supply of a right to services is the same as the place for the

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supply of the services made by the supplier of the right to the recipient of the
right whether or not the right is exercised. A right to services includes any right,
option or priority with respect to the supply of services and an interest
derived from a right to services.

 In the case of telecommunications service described in section 16 (2)

(a), the place of supply is the place where the facility or instrument for the
emission, transmission or reception of the service in respect of which the invoice
for the supply is issued or is to be issued, is ordinarily situated.
 In the case of electronic commerce described in section 16 (2) (b),
the place of the supply is the place where the effective use and enjoyment
occurs.
 The place of supply of a recharge card or other similar mode of
recharging is the place where the product is supplied.

Section 43: Value of taxable Supply

1. The value of a taxable supply

(a) where the supply is for monetary consideration, is the amount of the
consideration with the addition of all duties and taxes excluding the tax; and
(b) where the supply is not for monetary consideration or is only partly for
monetary consideration, is the open market value of a similar supply excluding
the tax.
2. The open market value is the price, excluding VAT, which the customer
would have paid for the supply if money were the only thing received in
exchange. In determining the open market value, no special relationship should
exist between the buyer and seller in the transaction.

3. Where the open market value of a taxable supply cannot be determined

under this section, the open market value of the supply is the value determined
by the C-G having regard to all the circumstances of the supply or a similar
supply.
“similar supply,” in relation to a taxable supply, means a supply that is
identical to or closely or that substantially resembles the taxable supply,
having regard to the characteristics, quality, quantity supplied, functional
components, reputation of, and materials comprising the goods or services
which are the subject of the taxable supply.

4. The taxable value of

 a taxable supply of goods under a hire purchase agreement or finance
lease,
 a taxable supply of goods by way of an application to a different use,
 a taxable supply for reduced consideration, or
 a taxable supply in the case of cancellation of registration.

is the open market value of the goods or services at the time the supply is made,
excluding, in the case of a hire purchase agreement or finance lease, any
separately stated interest or finance charges.

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5. Where a taxable supply is made without a separate amount for the

consideration being identified as a payment of the tax, the taxable value of that
supply is the amount of the consideration paid excluding the tax.

6. Where a supply is made by a taxable person for no consideration or

for a consideration that is less than the open market value of that supply and
 the supplier and the recipient are related persons, or
 the recipient is an approved charitable organisation, the value of the supply
is the open market value of the supply.

7. The value of a supply of goods under a credit agreement is the cash

value of the supply.

8. Where under section 22 (1), a debtor makes a supply of goods as a

result of the repossession of those goods from the debtor by the creditor under
a credit agreement, the value of the supply is an amount equal to the balance of
the cash value of the supply of those goods to the debtor that has not been
recovered at the time of the supply. The balance of the cash value of the supply
is the amount that remains after deducting from the cash value so much of the
sum of the payments made by the debtor under the credit agreement as, on
the basis of an apportionment in accordance with the rights and obligations
of the parties to the agreement, may properly be regarded as having been
made in respect of the cash value of the supply.

9. Where the grant of a right to receive goods or services for a monetary

value stated on a token, voucher, gift certificate, or stamp is a supply the value
of the supply shall be an amount equal to the amount by which the
consideration exceeds the monetary value of the token, voucher, gift certificate,
or stamp.

10. Where the holder of a token, voucher, gift certificate, or stamp issued
by a taxable person who is the issuer for no consideration surrenders the
token, voucher, gift certificate, or stamp to a supplier of goods or services
other than the issuer in return for a price discount on a taxable supply, the
supplier shall include in the value of the supply of the goods or services the
monetary value stated on the token, voucher, gift certificate, or stamp, less the
tax fraction of the monetary value.

11. The value for determining the tax chargeable on taxable imports of
goods is the import value calculated in accordance with section 29 to 35 of
the Customs, Excise and Preventive Service (Management) Act, 1993
(P.N.D.C.L. 330), with the addition of
(a) the import duties and taxes other than the tax; and
(b) the cost of insurance and freight which is not included in the customs
value under this subsection.
12. The value of an import of services is the amount of the
consideration for the import.
13. The value of the import of services is the open market value of the
import of the services where
 an import of services is made for no consideration or for a consideration
that is less than the open market value of that import, and
 the supplier and the recipient are related persons.
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14. Where a portion of the price of an import of services represents tax

imposed by this Act that is not accounted for separately, the value of the
import is the price reduced by an amount equal to the tax fraction multiplied
by that price.

Discount and rebates

For the purpose of determining consideration in respect of the value for taxable
supply, any discount or rebate is acceptable if the discount or rebate is non-
discriminatory and available to every recipient of the supply

Section 45: Adjustments

1. This applies where in relation to a taxable supply by a taxable person

 the supply is cancelled;
 the nature of the supply has been fundamentally varied or altered;
 the previously agreed consideration for the supply has been altered by
agreement with the recipient of the supply, whether due to an offer of a
discount or for any other reason; or
 the goods or services or part have been returned to the supplier.

2. Addition, where the taxable person making the supply has

(a) given a tax invoice in relation to the supply and the amount shown on
the invoice as the tax charged on the supply is incorrect because of the
occurrence of any one or more of the above events: mentioned in subsection (1),
or
(b) filed a return for the period in which the supply was made and has
accounted for an incorrect amount of output tax on that supply because of the
occurrence of any one or more of the events mentioned ,The taxable person
making the supply shall make the below
3. Where the output tax properly chargeable in respect of the supply
exceeds the output tax actually accounted for by the taxable person making
the supply, the amount of the excess shall be regarded as tax charged by the
person in relation to a taxable supply made in the tax period in which the
events occurred.
4. For purposes of subsection (3), the taxable person making the supply
shall issue to the recipient of the supply a tax debit note containing the
applicable particulars specified in the Fourth Schedule and in the form specified
by the Commissioner-General.
5. Subject to subsection (6), where the output tax actually accounted
for exceeds the output tax properly chargeable in relation to that supply, the
taxable person making the supply shall be allowed a deductible input tax for the
amount of the excess in the tax period in which the events referred to in
subsection (1) occurred.
6. For purposes of subsection (5), the taxable person making the supply
shall issue to the recipient of the supply, a tax credit note containing the
particulars specified in the Fourth Schedule and in the form specified by the
Commissioner-General.
7. A deductible input tax is not allowed under subsection (5), where the
supply has been made to a person who is not a taxable person, unless the
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amount of the excess tax has been repaid by the taxable person to the
recipient, whether in cash or as a credit against an amount owed to the taxable
person by the recipient.

Section 46: Adjustment on account of bad debts

1. Where a taxable person issues a tax invoice for the supply of taxable
goods or services and the whole or part of the consideration for the supply was
not received by the taxable person, the taxable person may deduct input tax for
tax paid in respect of the taxable supply that is subsequently treated as a bad
debt.
2. Subject to subsection (5), the amount of the deduction allowed under
subsection (1), is the amount of the tax paid in respect of the taxable supply
which corresponds to the amount of the debt treated as a bad debt.
A deduction is allowed only if the taxable supply was made to a person other
than taxable person or the taxable supply was made to a taxable person and the
person claiming the deduction issued a tax credit note to the taxable purchaser
listing the amount claimed.
3. The deduction under subsection (2)

 becomes due on the date on which the bad debt was written off in the
accounts of the taxable person; and
 is available only if the taxable person satisfies the C-G that reasonable
efforts have been made to recover the amount due and payable.
Debt shall be considered irrecoverable where a taxable person satisfies the C-G
that the taxable person has undertaken action for recovery of the debt, the action
for the recovery has exhaustively proven futile; and the taxable person has made
all the necessary entries in the books of accounts.
4. Where an amount in respect of which a deduction has been allowed, as a
result of bad debt write off, is at any time wholly or partly recovered by the taxable
person, the taxable person is regarded as having charged tax in respect of a
taxable supply made during the tax period in which the bad debt is wholly or
partly recovered, with the amount of tax calculated according to the following
formula
A x B/C; where
A is the amount allowed as a deduction under paragraph 2
B is the amount of the bad debt recovered; and
C is the amount of the bad debt previously written off
Section 47: Tax payable for the tax period
Output VAT is the value added tax you calculate and charge on your own sales
of goods and services if you are registered in the VAT Register.
Input VAT is the value added tax added to the price when you purchase goods or
services liable to VAT. If the buyer is registered in the VAT.
Deductible Input VAT this is the amount of the input that can be deducted from
output.
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The tax payable by a taxable person for a tax period in respect of taxable supplies
is the total amount of output tax chargeable by the person in respect of the taxable
supplies made, or considered to have been made, by the person during the period,
less the total deductible input tax allowed to the person for the period. The
amount of VAT of a person is required to pay to the tax authority is net of the VAT
that the person is charged on goods and services the person procure to generate
revenue ( this is called input tax deductible) and the amount of tax the person
charge when the person sell or provide any services ( output VAT). It must be note
that not all VAT charged on the service/ goods procure to generate services are
deducted from the output VAT.
Where the total amount of deductible input tax allowed to a taxable person for a
tax period exceeds the total amount of output tax chargeable by that person for
that period, the amount of the excess tax shall be credited by the C-G to the
taxable person or will be refunded where certain conditions are met.
Section 48: Deductible Input tax
As you may be aware, not all input tax incurred by a taxable person are
deductible from the output tax due a tax period. For an input tax to be deductible
where the tax is on goods and services purchased in the country and goods
imported by that person and used wholly, exclusively and necessarily in the
course of the taxable activity of that person subject to the condition that

 The supply is a taxable supply

 In respect of purchases made in Ghana, the taxable person is in
possession of a tax invoice
 In respect of import or removal of goods from a bonded warehouse, the
taxable person is in possession of relevant customs entries indicating that tax was
paid.
An input tax deduction may not be allowed on purchases or imports in respect of
exempt supplies by the taxable person. This means that an input tax that is
incurred in making exempt supply cannot be deductible from any output tax for
any tax period.
An input tax deduction shall not be made;
 More than once; or
 after the expiration of a period of six months after the date the deduction
accrued.
 A taxable person does not qualify for deductible input tax in respect of a
taxable supply or import of a motor vehicle of motor vehicle or vehicle spare part
unless the taxable person is in the business of dealing in or hiring of motor vehicle
or selling of vehicle spare parts and the vehicle or spare parts are for use in that
business.

The above does not apply to a motor vehicle purchased or imported by a

taxable person who is in the business of dealing in or hiring of motor vehicle for
the purposes of the business;
A motor vehicle, other than a motor car, purchased or imported by a taxable
person wholly, exclusively and necessarily for use in the business.

For the purchase of Regulation 37, a motor car is any motor vehicle of a kind
normally used on public roads which has three or more wheels and
Is constructed or adapted solely or mainly for the carriage of passengers; or

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To the rear of the driver’s seat, has a roofed accommodation which is fitted
with side windows or which is constructed or adapted for the fitting of side
windows.
A motor car however does not include
o A vehicle capable of accommodating only one person or suitable for
carrying twelve or more persons
o A vehicle of not less than three tonnes unladen weight;
o An ambulance or a prison van; or
o A vehicle constructed for a special purpose other than the carriage of
persons and which does not have any other accommodation for carrying
persons that what is incidental to that purchase.

 A taxable person does not qualify for deductible input tax in respect of a
taxable supply relating to entertainment including restaurant, meals and hotel
expenses unless the taxable person is engaged in a taxable activity of providing
entertainment and the entertainment is for use in that taxable activity.

Entertainment expenses include;

o Food and other ingredients purchased in order to provide meals to staff,
clients and business associates and includes
o Year-end lunches and parties
o Hiring of venues for those functions
o Expense incurred for the provision of free meals at workplace canteens;
and complimentary staff refreshment in the nature of tea, coffee and other
beverages, or snacks provided to staff;
o Businesses lunches, gold days, other entertainment of customers and
clients in restaurants, theatres, night clubs or sporting events;
o goods and services acquired for providing employees with subsidized (or
free) meals if the direct and indirect costs of providing those benefits and facilities
are not covered by the price charged. For example, catering services, furniture,
equipment and utensils used in kitchens, canteens and dining rooms;
o beverages, meals, entertainment shows, amusements or other hospitality
supplied to customers and clients at product launches and promotional events;
and
o capital goods such as hospitality boxes, holiday houses, yachts, and
private aircraft, which are used for entertainment.

3. A taxable person does not qualify for deductible input tax on fees or
subscriptions paid by the person in respect of membership of a club,
association, or society of a sporting, social, or recreational nature by any
person.

4. Where a taxable supply to, or an import of goods by, a taxable person is

partly for use in a taxable activity and partly for personal or other use, the
amount of input tax allowed as a deductible input tax shall be restricted to
that part of the supply that relates to the use in connection with a taxable
activity.

5. Where goods for which an input tax deduction has been allowed
ceases to be applied to taxable transactions before the end of their life, the goods
shall be treated as sold at the time of the cessation for the open market value.

6. In the case of a taxable person who regularly resells used goods

purchased from consumers, the Commissioner-General may determine the
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Lecture note: Richard Nana Adu Akyeanfo

procedures for allowing that person input tax deductions.

7. Where a taxable person does not have a tax invoice that provides
evidence of the input tax paid, the Commissioner-General may allow a
deductible input tax in the tax period in which the deduction arises where the
Commissioner-General is satisfied that the
 taxable person took all reasonable steps to acquire a tax invoice;
 failure to acquire a tax invoice was not the fault of the taxable person;
and
 amount of deductible input tax claimed by the taxable person is correct.

8. A newly-registered taxable person may claim a deduction for allowable

input tax in the first tax period that registration is effective in the form
prescribed by the Commissioner- General, for
 goods acquired, by supply or import, within four months before the
effective day of registration and on hand on the effective date of registration; and
 capital goods acquired, by supply or import, within six months before the
effective date of registration and on hand on the effective date of registration.
Deductible input tax for mixed taxable and exempt supply

1. A taxable person who makes both taxable and exempt supplies may
deduct the input tax on the taxable purchases and taxable imports which can
be directly attributed only to the taxable supplies made.

2. Where a taxable person has made both taxable and exempt supplies, but
cannot directly attribute input tax to the taxable and exempt supplies, that
person may deduct as input tax on the taxable purchases and taxable imports,
an amount that bears the same ratio as the taxable supplies bear to the total
supplies, applying the apportionment formula specified in the Fifth Schedule.

A x B/C
A is the total amount of input tax for the period that is not directly attributable
to the taxable or exempt supplies
B is the total amount of taxable supplies made by the taxable person during the
period; and
C is the total amount of al supplies made by the taxable person during the
period.

3. For purposes of paragraph (1) and (2), if the ratio of taxable supplies to
total supplies for the tax period is less than five per cent, the taxable person is
not entitled to deduct any input tax for the tax period.
4. if the ratio of taxable supplies to total supplies for the tax period is
more than ninety-five per cent, the taxable person may deduct the entire
input tax allowable on the taxable purchase and taxable imports.

5. Where the C-G considers that the use of the above method will result in
an unreasonable calculation of the input tax which may be deducted, the
Commissioner-General may approve or direct alternative methods of
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apportioning input tax.

Refund or credit for excess tax paid

1. Where the amount of input tax which is deductible exceeds the

amount of output tax due in respect of the tax period,
a. the excess amount shall be credited by the Commissioner-General to
the taxable person. The credit shall be carried forward to the next tax period;
and
b. in the case of the portion of the excess attributable to exports, the
Commissioner- General may refund the excess credit to the taxable person
where that person’s exports exceed twenty-five per cent of the total supplies
within the tax period and the total export proceeds have been repatriated by
the importers’ banks to the taxable person’s authorised dealer banks in the
country.
2. A taxable person may apply for a refund under paragraph (1)(b)
where the credit for the excess amount remains outstanding for a continuous
period of three months or more, except that where the Commissioner-General
orders an audit of the claim for refund, the application shall be treated as
received on the date that the audit is concluded.

3. Where the amount of tax paid by a person, was in excess of the

amount properly subject to tax under the Act, the amount of the excess may be
refunded to the person. The person may apply in writing to the Commissioner-
General for a refund of the excess amount of tax, accompanied by documentary
proof of payment of the excess amounts. Where the Commissioner-General is
satisfied that a person who has made an application for refund of excess tax paid,
has overpaid tax, the Commissioner- General shall
a. first apply the amount of the excess against the liability of that person
for any tax, levy, interest or penalty administered by the Commissioner-General,
and
b. repay any amount remaining to the person within thirty days of being
satisfied that the person has overpaid tax.
It is worth noting that a claim for a refund shall be made within six months
after the date on which the excess arose. The Commissioner-General shall serve
on a person claiming a refund, a notice in writing of the decision in respect of
the claim.

4. Where the registration of a taxable person is cancelled and the

person has excess credits that were not recovered the excess credits may be
refunded by the GRA.

5. For the purpose of this section, a taxable person applying for a refund
shall submit to the Commissioner-General a completed Refund Claim Form
together with the relevant tax invoices or, in the case of imported goods, the
relevant customs document for tax paid. Where the Commissioner-General
rejects the claim for a refund, the Commissioner- General may recover in

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accordance with this Act any tax previously refunded. In addition to a Refund
Claim Form, the Commissioner-General may direct the claimant to submit
other documents.

6. A person who makes a claim for refund which that person is not
entitled to is liable to a penalty of double the original amount of the refund plus
interest.

Time for payment of refund

1. Where a taxable person is entitled to a refund, the Commissioner-

General shall pay the refund within thirty days after receipt of the application,
where
a. the previous returns have been submitted by the due dates with no
tax for any period outstanding, and
b. the amounts of tax, penalties and interest from previous tax periods
have been paid by the due dates.
2. Where
a. the conditions specified in paragraph (1) (a) of have not been fulfilled,
the Commissioner-General shall reject the claim for refund, and
b. the amounts specified in paragraph (1) (b) have not been paid, the
Commissioner-General shall offset any entitlement for a refund against the
amounts due, and
notify the applicant of the decision in writing within thirty days after receipt of
the application.
3. Where the Commissioner-General fails to pay a refund of tax
relating to an excess on time, the Commissioner-General is required to pay the
taxable person entitled to the refund an additional amount as interest at the
prevailing Bank of Ghana discount rate plus one quarter of that rate each
day, commencing on the day after the period within which the Commissioner-
General is required to pay the refund and ending on the date that the payment of
the refund is made.

Submission of tax return and date of payment of the tax

Unless otherwise directed in writing by the Commissioner-General, a taxable

person shall account for the tax on a tax return for each tax period. The tax
return shall be in a form and be filed in the manner prescribed by the
Commissioner-General and shall state the amount of tax payable by the person
for the period and any other matter that may be prescribed. The tax return shall
be submitted to the Commissioner-General not later than the last working day
of the month immediately following the month to which the return relates,
whether or not tax is payable for the tax period. The payment of the tax due
for a tax period shall be made to the Commissioner- General not later than
the date the return is required to be submitted. A taxable person directed to
make a tax return other than for each tax period shall be informed by the
Commissioner-General of the date by which the return and payment shall be
made.

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Payment of tax on import of services

1. Where tax is payable on an import of services, the person liable for the
tax is required to
c. furnish the Commissioner-General with a service import declaration, and
d. pay the tax due in respect of the import within twenty-one calendar
days after the tax period in which the services were imported.
(2) A service import declaration shall
(a) be in the form prescribed by the Commissioner-General,
(b) state the information necessary to calculate the tax payable in
respect of the import, and
(c) be furnished at the time and in the manner prescribed by the
Commissioner- General.

VAT Flat Rate Scheme

A VAT Flat Rate Scheme (VFRS) is a VAT collection and accounting mechanism
under which a registered taxpayer who is a retailer or wholesaler of goods applies
a marginal VAT&NHIL rate of 3%, representing the net VAT payable on the value
of taxable goods supplied.
The VFRS is an alternative to the invoice-credit (or input-output) method of
VAT accounting.
Retailing and Wholesaling of Goods
“Retailing”
Retailing is the resale (sale without transformation) of new and used goods
mainly to the public for personal or household consumption or utilization. This
include retailing by shops, department stores, stalls, mail-order houses, door-to-
door sales persons, hawkers and peddlers, consumer cooperatives, auction houses
etc.
“Wholesaling”
Wholesale is the resale (sale without transformation) of new and used goods to
retailers, industrial, commercial, institutional or professional users, or to other
wholesalers. The major characteristics of wholesalers is that they physically
assemble, sort and grade goods in large lots, break bulk, repack and redistribute
in smaller quantities
Scope and Coverage of the Vat Flat Rate Scheme
The VFRS is restricted to wholesalers (including importers) and retailers of
taxable goods and does not cover manufacturers, service providers, etc. It covers
the supply of all taxable goods, except the supply of any form of power, heat,
refrigeration or ventilation (see section 1 (b) of VAT (amendment) Act, 2017 (Act
948).
VFRS operators are not entitled to input tax credit deduction in respect of a
supply of goods. as provided for in section 48(7A) of Act 870 as amended by VAT
Act 948 as follows:

“A taxable person to whom subsection (2) of section 3 applies does not qualify
for input tax deduction in respect of a supply of goods”.
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Some Features of the VFRS

The VFRS is differentiated from the standard VAT scheme by the under listed
features:
(i) It has a marginal tax rate of 3% applied to the value of taxable supply of
goods.
(ii) It does not allow input tax credit i.e. VFRS operators shall not be entitled
to input tax claims.
(iii) It is restricted to only wholesalers and retailers of taxable goods.
(iv) Taxpayers operating the VFRS shall issue a simplified VAT/NHIL
invoice .
The Mechanics of the VFRS

The VFRS applies a marginal tax percentage of 3% on the value of taxable goods
supplied. The marginal tax percentage represents the net VAT rate on the value of
the taxable goods supplied. The VFRS does not therefore allow recovery of input
tax.

Illustration 1

Computing the VAT payable under the VFRS

GH ¢
(a)Cost price of item - 100.00
(b) Input Tax (17.5%*100) - 17.50
© Value Added (10% *117.50)
(i.e. margin and other overheads) - 11.75
(d) Taxable Value (a+b+c) - 129.25
(e) Output tax @ 3% Flat Rate - 3.88
(f) VAT/NHIL payable (i.e. 3% Flat Rate) - 3.88
(g) Cost to Consumer (tax inclusive) (d+f) - 133.13

Illustration 2
Extracting the Tax from the Inclusive Amount

Normally, VAT registered taxpayers prefer to quote the final prices of their
wares (i.e. price to the consumer) at their tax inclusive values. It would therefore
not be uncommon for VFRS operators to do same.
To obtain the tax from the tax inclusive value of an item sold under the VFRS
therefore, the VFRS fraction (3/103) is applied to the tax inclusive amount.
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Therefore, for the VFRS tax inclusive amount of (GH¢133.13) above,

The tax = (= 3/103 x GH¢133.13)

= (= GH¢3.88)

Situations where a Taxpayer is Involved in Separate Supply of Goods and

Services

Taxpayers whose business operations span beyond one sector (wholesale, Retail,
Service or Manufacturing ) and whose supply of goods ( as retailer or wholesaler )
constitute a separate supply from supply are required to account and file returns
in respect of the retailing and wholesale of goods under the VFRS.
With respect to the service, the taxpayer is required to account for and file
returns under the SRS.
Illustration 1.
XYZ Motors sells (retails or wholesales) automobiles and also operates a motor
vehicle servicing and repair shop on the same premises.

The operations of the vehicle selling part of the business is separate and distinct
from the servicing and repairs .In other words no part of the supply (sale of
motor vehicle or servicing and repairs of automobiles is incidental to the other.
In that case, the retail and wholesale part of the business will be accounted for at
the flat rate of 3% whereas the servicing and repairs portion will be accounted for
under the SRS (17.5%).

ILLUSTRATION 1
The following information relates to the business of your client, RAK Enterprise
for the month ended August 2017.
GHS
Sales (excluding VAT) of taxable supplies 252,000
Input tax on total supplies 23,250
Sales of exempt supplies 100,000

What is the amount allowable as deductible input tax to RAK ENTERPRISE?

ILLUSTRATION 2
The purchases and supplies details of NAB Consult for the month of July 2017
showed the following

GHS
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Input tax on exempt supplies 4,500

Value of relief supplies 8,000
Input tax on taxable supplies 6,000
Input tax that is not attributed directly to any supplies 3,000
Value of exempt supplies 45,000
Value of taxable supplies (including VAT/NHIL) 101,250
You are required to compute Input Tax Claimable by NAB Consult.
ILLUSTRATION
The under-mentioned figures represent extracts from the books of
Nana Enterprise, a VAT registered trader, for the month of May 2017.
Calculate the amount of VAT payment or refunded (credit). Assuming
a VAT/NHIL of 17.5%
Expense Value (GHS)
Motor vehicle 60,000
Hotel Expense 30,000
Legal Expense 32,000
Accounting service 45,000
Office furniture 46,000
Staff cost 100,000

Sales

Consultancy fee 250,000

Advisory fee 100,500
Life Insurance 85,000
Premium

END OF CHAPTER QUESTIONS AND ANSWERS

QUESTION 1

“Any supply of goods and services attracts VAT, unless specifically excluded from the tax base
by law”.
 Explain the types of supply stipulated in the Value Added Tax Act, 2013 (Act 870)
indicating the applicable rates, where relevant. (10 marks)
 Explain the basic rule applied in determining the deductible tax for mixed taxable
and exempt supply. ( 10 marks)

SUGGUESTED SOLUTION

A). The types of supply stipulated in the Value Added Tax (VAT) Act, 2013 (Act 870)
are:
i. Taxable Supply
ii. Exempt Supply

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iii. Zero-rated Supply

iv. Relief Supply
v. Mixed Supply

i. Taxable Supply

A taxably supply generally takes the form of the supply of goods and services made by a
taxable person for a consideration in the course of or as a part of his/her business
activities. The applicable rate is the standard rate of 15%
ii. Exempt Supply

This refers to a supply of goods or services that is not subject to tax. VAT is thus not
charged on the sale of exempt supplies but at the same time no credit may be allowed to
the business making exempt sales for the VAT paid on purchases or expenses. This
means that businesses which make only exempt supplies cannot register for VAT, since
they are outside the scope of VAT.
iii. Zero-Rated Supply

This refers to the supply of goods and services whose output tax shall be zero. That is
the rate of VAT is 0%.
iv. Relief Supply

This is a supply which is taxable supply for which the VAT Act has provided a relief
from tax since it is a supply to specified individuals, organizations and business as
mentioned in Schedule 3 of Act 870.
v. Mixed Supply

This is a supply of goods and services which are a combination of items some of which
are taxable at the standard rate of 15% as well as items which are exempt. The supplier
is expected to account for tax separately except where it is difficult to do so, especially
where the items involved are of composite nature.

B). The basic rule is to allocate input tax to the class of supplies (taxable or exempt) on
which it was incurred.
Where a taxable person has made both taxable and exempt supplies but cannot directly
attribute the input tax to the taxable and exempt supplies, the formula below is applied
in the determination of input tax deductible: A X B/C
Where: A: is the total amount of input tax for the period

B: is the total amount of taxable supplies made by the taxable person during the
period (excluding VAT)
C: is the total amount of all supplies (i.e. taxable and exempt) made by the taxable
person during the period.

CUSTOMS TAX

Functions of customs

The Customs Division of the Ghana Revenue Authority is responsible for collection of Import
Duty, Import VAT, Export Duty, Petroleum Tax, Import Excise and other taxes.

The Customs Division also ensure the protection of revenue by preventing smuggling. This is
done by physically patrolling the borders and other strategic points, examination of goods, and
search of premises, as well as documents relating to the goods. As a frontline institution at the
country's borders, Customs Division also plays a key role in surmounting external aggression
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and maintains the territorial integrity of Ghana. Customs Division is part of the country’s
security network.

In addition to these functions, Customs Division performs agency duties on behalf of other
government organizations and Ministries by seeing to the enforcement of laws on import and
export restrictions and prohibitions.

Taxes and duties administer by Customs

The custom division is the responsible for the collection of

• Import duties on goods imported into Ghana
• Import VAT/NHIL on goods imported into Ghana
• Export Duties on goods exported from Ghana
• Excise Duties
• Vehicle Importation Tax
• Petroleum Tax
• ECOWAS levy;
• Export Development and Investment Fund Levy
• Inspection Fees
• Examination Fees
• Processing Fee; and among other.

IMPORT DUTIES:

This is the major tax collected by the customs division ( CEPS) of the GRA . It covers a broad
spectrum of imported goods and the tax rates are diverse. Import is defined to means to bring or
cause to be brought into Ghana.
Import duties are payable on almost all imports into Ghana except those specifically exempt.
Example of such exempted Items:
 Agriculture inputs
 Personal effects
 Industrial machinery, solar, wind, thermal energy and electrical generating set of 375
KVA and above, solar cell,
 panels and educational materials and among other

Goods imported into Ghana in transhipment or in transit through Ghana in accordance with laid
down regulations shall be exempt from the payment of import duties.

In addition, where any goods are lost or destroyed by accident:

 on board any aircraft or ship; or

 on any customs area or warehouse; or
 while being removed from, loading into or delivered at any custom area or warehouse,
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the CG may remit or refund the duty due or paid on them, if satisfied that the goods have not

been and will not be consumed in Ghana.

The standard import duty rate is currently range from 0% to 20%.

EXCISE DUTY
Excise duty is payable on all locally manufactured or produced goods, unless the goods are
exempt from the duty. It is calculated on the ex-factory prices of the goods produced locally. The
ex-factory price of a product is the factory cost of production plus the manufacturer’s profit
margin.
Excise duty becomes due and shall be paid by the
manufacturer to the CG before the goods are delivered from the manufacturer’s factory or from
a warehouse, if they are goods permitted by the CG to be warehoused without payment of
duties on the goods, or before the goods are used by the manufacturer in the factory or in a
warehouse for any purpose, or otherwise as specially provided by law. The CG may defer the
payment of duty on the terms as the CG may allow, if the manufacturer gives the security by
bond or otherwise as the CG may require.

IMPORT VALUE ADDED TAX/NATIONAL HEALTH INSURANCE LEVY

This form of VAT is assessed on imported goods and collected at the time of entry of such goods.
The NHIL is chargeable on imported goods. The VAT and NHIL is chargeable at a rate of 15%
and 2.5 respectively on the duty inclusive of the value of the imported item.

EXPORT DUTY

This is payable on goods exported.

The value of goods exported shall be the cost to the purchaser abroad including freight charges
incurred for transport up to the port or place of exportation, harbour dues, and loading charges
and all other costs, profits, charges, expenses and duties, accruing up to the point where the
goods are deposited on board the exporting vessel, aircraft or vehicle at the place of departure
from Ghana.

VEHICLE IMPORTATION TAX (VIT)

All vehicle imported into the country, unless specifically exempted, attract the following taxes:

 Vehicle purchase tax,

 import duty, and
 Import VAT/NHIL

EXPORT DEVELOPMENT AND INVESTMENT FUND LEVY AND

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ECOWAS LEVY

This is an import levy of 0.5% each of the Cost, Insurance and Freight (C.I.F) value on all non-
petroleum products imported in commercial quantities. That is, the EDIF levy is 0.5% and the
ECOWAS levy is also 0.5%. This is to be assessed on the dutiable value of the imported goods

The below is a summary of the various duty rates.

Tax Type Tax Rate (%) Tax Base

Import duty 0,5,10 and 20 Cost + Insurance + Freight
(CIF)
VAT 15% CIF +Import duty
NHIL 2.5 CIF +Import duty
EDIF 0.5 CIF
ECOWAS levy 0.5 CIF
Processing fee 1 CIF
Examination Fee (used vehicle) 1 CIF
Environmental Tax 20% CIF
Import Excise 25% CIF +Import duty + VAT
GCNet charge 0.4 FOB
Destination Inspection Fee 1 CIF
Withholding Tax IRS 1 CIF

EXEMPTIONS
Duties and taxes are not chargeable on exempt goods specified in the Harmonized System. The
below persons, organizations and institutions are exempt from the payment of duties and taxes.

 All goods purchased from a manufacturer for the use of the President of Ghana
 All goods purchased from a manufacturer by a person under contract to the
government where such exemption from excise duty forms part of the terms of the
contract
 All good purchased by a manufacturer licensed under the Excise duty, Act for the
purpose of manufacturing excisable goods.
 All goods purchased for the official use of any Commonwealth or foreign embassy,
mission of consulate
 All goods purchased for the use of a permanent member of a diplomatic services of
any common wealth or foreign country, exempted by the Minister responsible for
Foreign Affairs. For the above these exemptions similar privilege is accorded by the
Commonwealth or foreign country to the Ghana representative in that country.
 All goods purchased by personnel engaged by an International Agency or in a
Technical Assistance Scheme where the terms of the Agreement made with the
Government of Ghana Include exemption form excise duty and duly approved by
Parliament,

Computation of Duties And Taxes

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When computing duties on imported goods the following are to be taken into
consideration:
• The C..I.F value ( Cost, Insurance and Freight value)
• The rate of duty
• The quantity

Custom Tariff
The custom tariff contains rate of duty, charges and fees. Goods may be either dutiable
or free from duty.

When goods attract duty, the rate of the duty may take one of the following forms

Specific and ad valorem customs duties

Customs duties can be designated in either specific or ad valorem terms or as a mix of
the two. In case of a specific duty, a concrete sum is charged for a quantitative
description of the good, for example USD 1 per item or per unit. The customs value of
the good does not need to be determined, as the duty is not based on the value of the
good but on other criteria. In this case, no rules on customs valuation are needed and
the Valuation Agreement does not apply. In contrast, an ad valorem duty depends on
the value of a good. Under this system, the customs valuation is multiplied by an ad
valorem rate of duty (e.g. 5 per cent) in order to arrive at the amount of duty payable on
an imported item.

Where the rate is Ad Valorem, the duty is calculated on the percentage of the C.I.F value
but where it is specific, the quantity upon which duty is to be calculated is to be
declared in addition to the C.I.F value.
Import VAT/NHIL and Special Tax are calculated by applying the rate of import
VAT/NHIL to the duty paid value, i.e. the sum of the C.I.F value and the amount of
duty.

DEFINITION OF IMPORTED VALUE ( that is the cost of an imported item)

Customs valuation
For customs purposes, “customs value” is the transaction value or the price actually paid or
payable for goods imported into this country, except in cases where provision is specifically made
for another method of determining customs value.

The price actually paid or payable is the total payment made or to be made by
the buyer to the seller, or the buyer to a third party for the benefit of the seller for the imported
goods, and includes all payments made or to be made as a condition of sale of the imported
goods.

The customs value shall be adjusted to include the following:

 the cost of transport for importing the goods into the country
 charges for loading, unloading and handling associated with the transport for importing
the goods into the country; and
 the rate of insurance calculated as provided by the relevant enactment, where the
importer fails to declare the insurance paid. Where the importer fails to declare the

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insurance paid, the rate of insurance shall be calculated at a rate of 1% of the cost and
freight value for air freight; and at a rate of 0.875% of the cost and freight value for sea
feight.

In determining the customs value, any additions made to the price paid or payable shall be added
for the following, where they are incurred by the buyer but are not already included in the price
actually paid or payable in respect of the goods:

 the cost of packing whether for labour or materials;

 commissions and brokerage except the buying commission;
 the cost of containers which are treated as being one for customs purposes with the goods
in question;
 the value, apportioned as appropriate, of the following goods and services where they are
supplied directly or indirectly by the buyer free of charge or at a reduced cost for use in
connection with the production or sale for export to this country of the goods imported
o materials, components and parts incorporated in the goods that are imported;
o tools, dies, and moulds;
o materials consumed in the production of the goods that are imported; and
o engineering, development, artwork, design work, and plans and sketches
undertaken outside the country that are necessary for the production of the goods
that are imported;
o royalties and license fees that the buyer shall pay as a condition of sale of the
goods; and
o proceeds of a subsequent resale, disposal, or use of the goods that are imported
goods and accrue directly or indirectly to the seller.

The following are excluded from the price, where the person shows that the goods are separate
from the price paid or payable:

 charges for the transport of goods after the arrival of the goods in the country;
 charges for construction, erection, assembly, maintenance, or technical assistance,
undertaken after importation; and
 duty payable in the country in connection with the goods that are imported.

RELATED PARTY TRANSACTIION

Where the buyer and seller are related, the importer shall prove that the relationship did not
influence the price, or that the price closely approximates one of the following:

 the transaction value in sales between unrelated buyers and sellers of identical or similar
goods for export from the country of origin; or
 the deductive or computed value of identical or similar goods,
 and the values used for comparison relate to goods imported into the country at or about
the same time as the goods being appraised.

In applying the comparison values to related party sales, the following shall be taken into
consideration:

 whether the sale occurred at or about the same time; and

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 differences between the cost incurred in sales in which the seller and the buyer are not
related and sales in which the seller and the buyer are related.

For the purposes of the above, persons are deemed to be related only if:

 they are officers or directors of one another’s business;

 they are legally recognised partners in business;
 they are employer and employee;
 any person who directly or indirectly owns, controls or holds five percent or more of the
outstanding voting stock or shares or both of them;
 one of them directly or indirectly controls the other;
 both of them are directly or indirectly controlled by a third person;
 together they directly or indirectly control a third person; or
 they are members of the same family.

Where customs value cannot be determined

Where the customs value of imported goods cannot be determined on the basis of transaction
value, the customs value shall be determined by proceeding sequentially through the following
secondary methods of valuation:

 the transaction value of identical goods sold for export to this country and exported
within three months of the date of export of the goods being valued
 the transaction value of similar goods sold for export to this country and exported within
three months of the date of export of the goods being valued;
 the deductive value which is the value based on the unit price at which the imported
goods, or identical or similar imported goods, are sold within the country in the greatest
aggregate quantity to persons not related to the seller at or about the date of importation
and reduced by the following deductions:
o commissions;
o additions for profit and general expenses;
o costs of international transportation and insurance;
o costs of transportation and insurance from the port of arrival in the country to
the place of delivery; and
o duties payable on importation; or
 the computed value, or
 the sum of the cost or value of materials and manufacture or other processing employed
in the production of the goods for import;

Where the customs value cannot be determined on the basis of transaction value or any of the
secondary methods of valuation, the customs value shall be determined on the basis of a value
derived from the transaction value or one of the secondary values and, adjust the customs value
using reasonable means consistent with the principles and general provisions of Article VII of
the General Agreement on Tariffs and Trade.

RATE OF EXCHANGE
Where the conversion of currency is necessary for the determination of the customs value, the
Commissioner-General shall use the current rate of exchange determined by the Bank of Ghana.

Illustrative Questions and Suggested Answers

Obiba JK Enterprise imports component parts from China and assemble them into
various forms
of office equipment. On 1 January 2016, components parts were imported with the
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following
details:

Cost of containers containing the goods $2,200.00

Cost of packing for labour and materials in China $550.00
Cost of materials used in China in the production incurred by Obiba JK
$15,600.00
Cost of Tools inserted in the components incurred by Obiba JK $3,750.00
Cost of Engineering development and Design paid by Obiba JK
$630.00 Royalties and licences paid by the Obiba JK
$330.00
Cost of labour and others in China (not included above) $7,400.00
Shipping and transport cost to the Tema Habour
GH¢16,200.00 Loading, unloading and handling charges up to Tema habour
GH¢5,400.00
Cost of marine insurance GH¢2,958.30
Assembling overhead cost incurred at Obiba JK’s factory
GH¢23,400.00
Fees for freight services by a shipping company up to Tema Harbour
GH¢3,700.00

Additional information
The Chinese exporter allows trade discount of 2% on the cost of the goods. (yet to be
accounted for)
Excise duty paid in China is $560.00 on the goods. (this is included in the cost of
labour and others)
Contingent discounts and rebates allowed by the Chinese company is 1% of the cost
of the
goods, before trade discount and excise duty. (this has been accounted for in the above
figures)
Technical assistance from the Chinese company for the assembly of the goods
amounted to
GH¢3,000.00 after the goods have arrived at Obiba JK’s factory.
Average exchange rate during the entry for the import was $1= GH¢3.11
Import duty is 20%

Required:
Compute the Cost, Insurance and Freight, clearly showing workings of each
component.
Compute the VAT/NHIL

SUGGESTED SOLUTION

i) Computation of Cost, Insurance and Freight GH¢ GH¢

Cost of Contrainers ($2,200 x GH¢3.11) 6,842.00
Cost of packing for labour and material ($550 x GH¢3.11) 1,710.50
Cost of materials used ($15,600 x GH¢3.11) 48,516.00
Cost of tools ($3,750 x GH¢3.11) 11,662.50
Development and design cost ($630 x GH¢3.11) 1,959.30
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Royalty and licence ($330 x GH¢ 3.11) 1,026.30

Labour and others ($7,400 x GH¢3.11) 23,014.00
94,730.60
Less : trade discount 2% x GH¢94,730.60 (1,894.61)
Excise duty paid in China ($560 x GH¢3.11) (1,741.60)
Add: Contingent discount (1% x GH¢94,730.60) 947.31 (2,688.9)
COST (C) 92,041.70
Insurance 2,958.30
COST AND INSURANCE (CI) 95,000.00
Shipping and transport cost 16,200.00
Loading, unloading and handling charges 5,400.00
Freight services 3,700.00
FREIGHT 25,300.00
COST INSURANCE AND FREIGHT 120,300.00

Import duty 20% x GH¢120,300 = GH¢24,060

VAT/NHIL 17.5% x (GH¢120,300 + GH¢24,060) = GH¢25,263

Motor vehicle tax

(1) A person who imports a motor vehicle into the country under the Custom Act or any other
enactment shall pay

 import duty; and

 any other imposts prescribed by law.

The above does not apply where the motor vehicle is exempted under the Act.

Forfeiture of overstayed motor vehicle

A person who imports a motor vehicle into the country and does not enter and clear the motor
vehicle within sixty days after final discharge of the ship or aircraft or in the case of a motor
vehicle imported over land the date on which it crossed the national borders into the country
shall forfeit the motor vehicle to the State. The Commissioner-General shall dispose of a motor
vehicle which is forfeited to the State or sell the motor vehicle on an “as is” basis. The price at
which a forfeited motor vehicle is disposed of, whether by auction sale, allocation, or any other
method shall include the duty and taxes eligible on the motor vehicle.

Valuation of used motor vehicle

The value of a used motor vehicle is the price of the motor vehicle as assessed with together
freight, insurance commission and any other costs, charges and expenses incidental to the
delivery of the motor vehicle at the port or place at which the vehicle first entered the country.

For the purposes of levying taxes the value of a vehicle shall be deemed to be the Home
Delivery Value depreciated as below plus the Freight and Insurance as stipulated below

NO TYPES OF MOTOR VEHICLE PENALTY

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1. Motor cars

(a) Where the age does not exceed ten (10) years. NIL

(b) Where the age exceeds ten (10) years but does not 5% of CIF value
exceed twelve (12) years.

(c) Where the age exceeds twelve (12) years but does 20% of the CIF value
not exceed fifteen (15) years.
(d) 50% of the CIF value
Where the age exceeds fifteen (15) years but does
not exceed twenty-five (25) years.
70% of the CIF value
(e)
Where the age exceeds twenty-five (25) years but
(f) does not exceed thirty-five (35) years. 100% of CIF value

Where the age exceeds thirty-five (35) years.

2.
(a) NIL
Commercial vehicle namely bus, coach or
(b) van 2.5% value of CIF
Where the age does not exceed ten (10) years.
(c) 10% value of CIF
Where the age exceeds ten (10) years but does not
(d) exceed twelve (12) years. 20% value of CIF
Where the age exceeds twelve (12) years but does
(e) not exceed fifteen (15) years. 50% value of CIF

Where the age exceeds fifteen (15) years but does

3. not exceed twenty (20) years.
Where the age exceeds twenty (20) years but does
(a) not exceed twenty-five (25) years. NIL

(b) 5% of CIF value

Commercial vehicle namely truck, lorry or
(c) tipper truck 10% of CIF value
Where the age does not exceed ten (10) years.

(d) Where the age exceeds ten (10) years but does not 30% of CIF value
exceed twelve (12) years.

Where the age exceeds twelve (12) years but does

not exceed twenty-two (22) years.

Where the age exceeds twenty-two (22) years.

Where a person disputes the age of a used motor vehicle assessed by the Commissioner-General
in accordance with the above, the onus of proof is on that person to prove the age of the vehicle
assessed, and unless the contrary is proved to the satisfaction of the Commissioner-General, the
assessment of the Commissioner-General shall prevail.
For the purpose of converting the first purchase price of a motor vehicle in Ghana currency, the
prevailing rate

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Example 1
Description Video Deck
C.I.F Value GHS 1,000
Rate of duty 20%
Import VAT 15%
NHIL 2.5%

Example 2
Description Gin
C.I.F Value GHS 1,000
Quantity 25 litres
Rate of duty GHS 50 per litre
Import VAT 15%
NHIL 2.5%

Payment of duty
A person shall pay duty in cash or by any other means permitted under the laws of Ghana.
A person responsible for the payment of duty under this Act may designate a third party to make
payment on behalf of that person.
The Commissioner-General may defer the payment of duty payable, where a person provides a
bank guarantee and that person is not liable to any accrued penalty.
The Commissioner-General shall not impose a duty on any person responsible for the payment
of duty under after the expiration of a period of six years from the date on which the liability was
incurred except as provided in any law governing revenue administration in the country.

The Commissioner-General shall consider a customs liability on importation or exportation

extinguished where

 the amount due is paid;

 the declaration that gave rise to the liability is invalidated;
 the goods liable to duty are abandoned to the Government or destroyed under the
supervision of the Authority;
 the goods liable to duty are destroyed or lost through no fault of the person liable to pay
the duty;
 the Commissioner-General is satisfied that the goods have not been used or consumed in
Ghana and that the goods have been exported from the country; or
 the goods are released for home use free of duty, or at a reduced rate of duty by virtue of
their end-use and have been properly used or have been exported with the permission of
the Commissioner-General.

The following constitute evidence of payment of duties with the appropriate bill of entry
number endorsed on the receipt:

 a customs computer generated receipt;

 a bank generated receipt; or
 an import official receipt.

Post clearance Audit (PCA)

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Post- clearance audit means audit- based Customs control performed subsequent to
the release of the cargo from Customs’ custody.

The purpose of such audits is to verify the accuracy and authenticity of declarations
and covers the control of traders’ commercial data, business systems, records, books.

What are the objectives of PCA?

The key objectives of PCA can be summarized as follows:

 To assure that Customs declarations have been completed in compliance with Customs
requirements, via examination of a trader’s systems, accounting records and premises;
 To verify that the amount of revenue legally due has been identified and paid;
 To facilitate international trade movements of the compliant trade sector;
 To ensure goods liable to specific import/export controls are properly declared, including
 prohibitions and restrictions, licenses, quota, etc.;
 To ensure conditions relating to specific approvals and authorizations are being observed,
e.g. pre-authenticated transit documents, preferential origin/movement certificates,
licenses, quota arrangements, Customs and excise warehouses and other simplified
procedure arrangements.

What are the Steps Needed to Complete a Post-Clearance Audit

Verification?

 The company is selected to verify compliance with audit programs.

 The notification letter is sent advising the company of the upcoming review.
 Company officials are contacted and the initial meeting date is agreed upon.
 First meeting takes place at the company’s premises or an agreed location.
 The systems review is performed and if necessary data files are requested.
 Samples will be requested. If necessary, additional samples may be requested.
 The review is performed.
 An interim report is issued.
 Response to the Interim Report is received from the company and incorporated into the
Final Report.
 The Final Report is issued.


What are the Benefits Derived from Post –Clearance Audit Verification?

 It helps companies to conduct business in International and domestic market by:

 Arranging for rulings on selected products upon request.
 Providing information on the full range of options and entitlements that may be
available.
 PCA helps companies to avoid reassessments and associated costs by identifying
weaknesses with company internal linkages and controls.
 PCA ensures and maintain a level playing field for businesses.

What are the Documents Required during Post- Clearance Audit?

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 Import and clearing Documents(Bill of lading, Bill of Entry, Suppliers’ invoices, Packing
lists, CCVR etc.)
 Purchase Day Book(Report)
 Production Day Book (Report)
 Inventory Book
 Deliveries (sales) Records for both local and export (invoices, waybill, Sales Day Book,
Debtors Ledgers etc.)
 Evidence of the landing out of Ghana.
 Correspondence File, Management Reports and Final (Audited) Accounts.
 Bank Statement and Bank Transfer Advices and any other relevant Books of Accounts
 Costing Records

Drawback

Drawback is a refund of all or part of duties in relation to goods that are exported or used
in a manner or for a prescribed purpose.
The Commissioner-General may pay a drawback of duty with respect to

 goods that are imported and subsequently exported in the same condition when the
goods were imported; or
 imported goods that are used for the manufacture of goods in the country and are
subsequently exported.

Goods are deemed to be exported for drawback purposes where the goods are

 placed in an area that is a free zone or a duty free shop;

 exported;
 designated as stores in accordance with the Act and supplied for use on board a ship or
aircraft outside the customs territory;
 used for equipment, repair or construction of a ship or an aircraft prescribed by
Regulations; or
 used or designated for use in any other manner that the Commissioner-General may
determine.

 A person shall apply for drawback within twelve months of the date of exportation of the
imported goods in question and in the prescribed form.
 The Commissioner-General shall grant a drawback where the person who applies for
drawback provides the documentary evidence in support of the application
 Where a person proves to the satisfaction of the Commissioner-General that goods after
having been placed on board a conveyance for exportation have been destroyed by
accident on board, the Commissioner-General shall pay the drawback payable on the
goods in the same manner as if the goods had been actually exported.
 The Commissioner-General shall pay a claim for a drawback within twelve months after
the Commissioner-General verifies the claim.

Re-importation in same state

Whenever goods are exported and re-imported into the country in the same state as the goods
were when exported, and are declared for home use, the goods shall be exempted from duty on

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re-importation if the Commissioner-General is satisfied that the goods exported were domestic
goods or, if the imported goods were, prior to exportation

 not subject to duties; or

 duties due were paid; and
 either no drawback of duties were paid on exportation or all drawback paid
on the exportation has been refunded.

 The period within which the goods are to be re-imported is twelve months from the
date of exportation. The time frame for re-importation may be extended by the
Commissioner-General on application by the importer for a period of not more than
twelve months.
 Re-importation in the same state shall be allowed even if only a part of the goods are
re-imported.
 Re-importation in the same state shall not be refused on the grounds that, while the
goods were abroad, the goods had undergone operations necessary for the
preservation or maintenance of the goods provided, however, that the value of the
goods at the time of exportation has not been enhanced by the operations.

Warehouse

 A person shall not use a building or place as a private bonded warehouse unless the
building or place has been duly licensed by the Commissioner-General (C-G)
 The keeper of the warehouse deposits the required bond; and the keeper of the warehouse
pays the prescribed fees
 The license shall be in an approved form and issued by the C-G.
 The C-G may revoke a licence issued under the Act where the licensee fail to comply with
the terms and conditions as may be prescribed by the C-G and a licensee shall not recover
part of the license fee paid unless the C- considers that it is unreasonable or may impose
hardship.
 Where the licence of a bonded warehouse is revoked, the person shall
o Pay the duty on all the goods warehoused
o Export the goods warehoused
o Remove the goods to another bonded warehouse within three months or any
other time as the C-G may direct.

A proper officer shall take goods not exported or removed to a state warehouse and the goods
may be sold or otherwise dealt with.

Deposit of goods in state warehouse

Where goods imported are not delivered from a customs-controlled area
Within seven days after final discharge, or within a further period as the C-G may in special
circumstances allow, a proper officer may deposit the goods is a state warehouse for a period
of not more than fourteen days. Goods deposited in a state warehouse shall attract rent and
other charges as prescribed.

Where goods deposited or required to be deposited in a state warehouse are of perishable

nature, the proper officer may sell the goods by public auction; or not of a perishable nature,
the proper officer may sell the goods by public auction in accordance with prescribed
directives

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Private bonded warehouse

The Minister may by notice in the Gazette or national newspapers of wide circulation declare the
kind of goods that may be warehoused upon first importation without payment of duty.

Where goods are to be warehoused, the goods shall be deposited in the packages in which the
goods were imported.
A person shall not alter

 the goods or the packages;

 the packaging of the goods; or
 the marks or numbers of the goods, after the goods have been deposited except with the
authorisation of the proper officer.

An importer, owner or a person who deposits goods shall pay any expenses incurred in respect
of the goods.
A person who deposits goods in a private bonded warehouse or a customs-controlled area is
subject to Regulations made under the Custom Act.

A person in charge of a private bonded warehouse shall provide office accommodation and other
facilities that the proper officer may require

 to examine and take-stock of the goods, and

 to audit the goods.

Records to be kept in bonded warehouse

A warehouse keeper shall keep at the warehouse books, records, and documents in relation to
the goods in bonded warehouse in the form and manner approved by the Commissioner-General.
The warehouse keeper shall make available the books, records, and documents for inspection at
all times by a proper officer and allow the proper officer to take an abstract from the books,
records or documents.

The Commissioner-General may revoke a licence granted in respect of a private bonded

warehouse where the warehouse keeper fails to

 keep the books, records, and documents in the manner approved by the Commissioner-
General; or
 produce the books, records and documents when required by a proper officer.

Question
With reference to the Custom Act, 2015, (Act 923) clearly outline the basis for determining the
customs value of imported goods into Ghana. (20 Marks)

ANSWER
DETERMINATION OF CUSTOMS VALUE OF IMPORTED GOODS

This consists of the transaction value, ie the price actually paid or payable for the imported goods
In addition, it may include the following:

i) Commission and brokerage except buying commissions.

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Lecture note: Richard Nana Adu Akyeanfo

ii) the cost of containers

iii) the cost of package whether for labour materials.
iv) materials, components, parts and similar items incorporated in the imported goods.
v) engineering, development, artwork, design work, plans and sketches undertaken
elsewhere other than in the country of importation and necessary for the production of
the imported goods.
vi) Royalties and license Fee
vii) The cost of transport of the imported goods to the part of place of importation.

viii) Loading unloading and handling charges with the transport of the imported goods to the
part of place of importation.
x) the cost of insurance

Central Beverages is a soft drink manufacturing company and had been distributing its products
on Ghana market. The company has just signed a 5-year contract to export its product to
a Swiss company starting from 1st March, 2007. As a result, the company had increased
its production capacity. The export to the Swiss company will amount to 90% of Central
Beverages total capacity. Central Beverages imports more than 75% of its raw materials
for production.

Required
Prepare a briefing note to the Chef Executive Officer of Central Beverages Ltd setting out clearly.

a) the meaning of duty drawback scheme (Give examples)

b) the conditions that qualify a person to claim duty drawback
c) the procedure for claiming duty drawback.
(24 marks)

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Lecture note: Richard Nana Adu Akyeanfo

EXCISE DUTY
Payment of excise duty

Excise duty is payable on the goods manufactured in the country; or imported into the country
at an applicable rate Schedule rates specified in the First Schedule of the excise duty Act

Exemptions

Excise duty is not payable on

1.

 All goods purchased from a manufacturer for the use of the President of Ghana
 All goods purchased from a manufacturer by a person under contract to the government
where such exemption from excise duty forms part of the terms of the contract
 All good purchased by a manufacturer licensed under the Excise duty, Act for the
purpose of manufacturing excisable goods.
 All goods purchased for the official use of any Commonwealth or foreign embassy,
mission of consulate
 All goods purchased for the use of a permanent member of a diplomatic services of any
common wealth or foreign country, exempted by the Minister responsible for Foreign
Affairs. For the above these exemptions similar privilege is accorded by the
Commonwealth or foreign country to the Ghana representative in that country.
 All goods purchased by personnel engaged by an International Agency or in a Technical
Assistance Scheme where the terms of the Agreement made with the Government of
Ghana Include exemption form excise duty and duly approved by Parliament,

2. goods that have not been entered for home use from the warehouse of a manufacturer
where the Commissioner-General is satisfied that the goods have been destroyed by
natural causes; or have deteriorated or have been damaged while stored in the
warehouse of a manufacturer, and have been securely disposed of in a manner
satisfactory to the Commissioner-General;

3. goods that are exported if the goods are entered for re-export or re-exported in the case
of imported goods; removed from a warehouse and immediately entered for export in
the case of goods manufactured in the country; or
4. delivered as ship stores on a ship or an aircraft proceeding to a place outside Ghana;
and
5. goods that are removed from a warehouse of a registered manufacturer to another
warehouse of the same manufacturer or to the warehouse of another registered
manufacturer.

Temporary importation of goods

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Lecture note: Richard Nana Adu Akyeanfo

The Commissioner-General may grant permission for a person to import excisable goods
without payment of excise duty where the Commissioner-General is satisfied that the goods

to be imported are for purposes of future processing or exhibition, and shall be re-exported
within three months from the grant of the permission.

A person granted permission shall provide a bond or security to cover an amount equal to the
excise duty payable on the goods as determined by the Commissioner-General. The
Commissioner-General shall retain the bond or security where goods imported are not re-
exported within the specified period. Where the goods are re-exported within the time
specified, the Commissioner-General shall cancel the bond or security provided.

Goods not accounted for

A manufacturer shall notify the Commissioner-General of a discrepancy in goods between the

actual and recorded inventory of the manufacturer within seven days of becoming aware of the
discrepancy. Where a manufacturer cannot account for a quantity of goods manufactured in a
warehouse to the satisfaction of the Commissioner-General, the manufacturer is liable to pay
excise duty as if the manufacturer entered those goods for home use from a warehouse during
the month in which the deficiency occurred.

Quantity and value of excisable goods

 Where a rate of excise duty is payable by reference to a unit of measurement other than
value and goods are imported or removed from a warehouse in a container intended for
sale of goods in a retail sale; and the container is marked, labelled or commonly sold as
containing a specific number of units of measure of the goods, the container shall be
taken to contain that specific number of units of measure.
 Where a rate of excise duty is payable by reference to the value of excisable goods, the
value of the goods is where;
o the goods are imported, the sum of the custom value of the goods determined
for the purpose of assessing import duty on the goods at ad valorem rate,
whether or not import duty is payable on the goods; and the amount of taxes,
duties, fees or other charges payable on the goods at the time of entry into the
country other than excise duty or value added tax.; or
o the consideration paid or payable in relation to the sale where the goods are
manufactured in the country and are sold at the time they are entered for home
use; or
o at the time the goods are entered for home use, considered to be open market
value of the goods
 where the goods are manufactured in the country and not sold at the time they are
entered for home use; or where the goods are sold but the seller, purchaser or any other
person concerned in the sale are related persons the value of the goods shall be at least
the ex-factory price.

The value determined does not include the amount of excise duty and value added tax
payable in relation to those goods.

Time for payment of excise duty

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Lecture note: Richard Nana Adu Akyeanfo

Excise duty becomes due and is payable to the Commissioner-General

 where goods are manufactured in the country at the time when the goods are entered
for home use by the manufacturer from whose warehouse the goods are removed;
 where goods are imported into the country by the person who enters the goods for
home use, or is required to enter the goods for home use; and
 where goods are manufactured in the country without the relevant registration, by the
person who manufactured the goods and at the time the goods were manufactured.

Payment of excise duty by manufacturers

Where excise duty is payable by a manufacturer

 in relation to excisable goods entered for home use from a warehouse by the
manufacturer during a calendar month, the excise duty shall be paid to the
Commissioner-General on or before the twenty-first day of the following calendar
month; and
 in relation to excisable goods manufactured in an unapproved warehouse, the excise
duty shall be paid to the Commissioner-General when the goods are manufactured.

A manufacturer shall not enter for home use excisable goods manufactured in the country
from an approved warehouse unless the manufacturer has entered into a bond or lodged
security with the Commissioner-General. A manufacturer shall not enter for home use
excisable goods from approved warehouse if the amount of excise duty payable by the
manufacturer on the entry exceeds the amount of security given, unless

 the Commissioner-General, on application in writing by the manufacturer, gives

 permission for the entry; and approval for the manufacturer to increase the amount of
security given prior to the entry; or
 in any other case, the manufacturer pays the excise duty payable on the goods before
the excisable goods are entered for home use

Payment of excise duty by importers

 The excise duty payable in relation to excisable goods imported into the country shall be
paid to the Commissioner-General at the time the goods are entered for home use.
 A passenger who imports baggage for which any entry is not required under the
Customs Act is considered to have entered the baggage for home use at the time the
baggage is delivered to the passenger in the country; and
 the addressee of goods imported by post for which an entry is not required under the
Customs Act, is considered to have entered the goods for home use at the time the
goods are delivered to the addressee.
 Where a person who imports excisable goods fails to enter the goods for home use
under the Customs Act, excise duty is payable at the time when import duties become
payable in relation to those goods, whether or not those goods are subject to import
duties.

Excise duty returns

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A manufacturer shall file an excise duty return for each calendar month not later than the
twenty-first day of the following calendar month whether or not an excise duty is payable for
the month to which the return relates.

An excise duty return shall

(a) be in a form approved by the Commissioner-General;

(b) be filed with the Commissioner-General;

(c) provide information in relation to excisable goods removed by the manufacturer during the
month to which the return relates; and

(d) contain any other information that may be required by the Commissioner-General.

Assessment of excise duty and correction of return

Where the Commissioner-General has reason to believe that

 a person shall become liable for the payment of an amount of excise duty but that
person is unlikely to pay the amount;
 a person, other than a manufacturer, enters for home use goods that are excisable and
represents that excise duty is charged on the goods entered;
 a manufacturer wrongly enters for export or home use excisable goods or applies the
excise duty rates;
 a manufacturer fails to submit a excise duty tax return;
 a return is incorrect or that a lawful excise duty has not been paid; or
 the person is compulsory registered

the Commissioner-General, based on any information available, may make an assessment

of the amount of excise duty payable by the person or of the amount of excise duty claimed
by the person as payable in respect of the supply.

The Commissioner-General may make the assessment for any period when the Commissioner-
General deems it necessary. In the absence of a supply or return, the Commissioner-General
may, based on the information available, estimate the excise duty payable by a person for the
purpose of making the assessment.

Correction of return submitted

A person who is not satisfied with a return submitted by that person may apply to the
Commissioner-General in writing for authority to make an amendment to the original return.

For purposes of the above, the applicant shall

 state in detail the grounds on which the application is made, and

 submit the application not more than three months after the submission of the original
return.

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The Commissioner-General may, after considering an application approve or refuse the

application; and make an assessment of the amount of the amount of excise duty payable
under this Act. Upon assessment by the Commissioner-General, a notice of the assessment
shall on the person assessed, and the notice shall state

 the excise duty payable;

 the date that the excise is duty due and payable;
 the place for payment of the excise duty; and
 the procedure for objecting to the assessment.

Credit and refund for excise duty paid on raw materials

A manufacturer who uses excisable goods on which excise duty has been duly paid as raw
materials in the manufacture of other excisable goods in the country, is subject to the
production of evidence of payment of excise duty, entitled to a credit for

 the excise duty paid by the manufacturer in respect of an entry of the raw materials for
home use, or
 an excise duty that the Commissioner-General is satisfied was paid, by the person from
whom the registered manufacturer acquired the raw materials or by any other person,
in respect of an entry for home use of those raw materials.

The entitlement to a credit arises when the manufacturer enters for home use or acquires the
excisable goods for use as raw materials in the manufacture of other excisable goods, and shall
be applied against the amount of excise duty payable for the calendar month in which the
entitlement to the credit arises.

Where a determination of a credit results in an excess credit for the calendar month, the
manufacturer shall carry that amount forward as a credit until no credit remains.

Where an excess credit is attributed to excisable goods manufactured for export, the
manufacturer is entitled to a refund of that amount if more than twenty-five percent of the
excisable goods entered by the manufacturer in that calendar month were entered for export
and the export proceeds have been repatriated by the bank of the buyer to the authorized
dealer bank of the exporter in the country.

Refund of the excise duty paid on imported excisable goods

A person is entitled to a refund of excise duty paid on imported excisable duty entered for
home use if the goods are in compliance with the conditions for drawback of import duties
under the Customs Act.

A person is entitled to a refund of the excise duty paid on the manufactured excisable goods
entered for home use and subsequently exported if the Commissioner-General is satisfied that
the goods were exported from the country in the state in which they were entered for home use.
An application for a refund shall be made within twelve months from the date on which the
goods are exported or put on board the ship or aircraft in which they are exported.

Application for refund of excise duty

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An application for a refund of excise duty shall be made to the Commissioner-General in the
prescribed form within twelve months after the month to which the refund relates and shall
contain any other information that the Commissioner-General may require.

Where a refund is payable to a person, the Commissioner-General may apply part or all of the
refund

 firstly, in reduction of an excise duty, interests or penalty payable by the person under
the excise duty Act; and
 subsequently, against any other taxes or duties that may be collected by the
Commissioner-General.

Where a person who is entitled to a refund makes an application for the refund within the
required time, the Commissioner-General shall pay the refund or the amount remaining within
sixty days from the date on which the application is filed.

Where a refund is paid to a person in error, the person shall repay the amount, within thirty
days after the person is notified by the Commissioner-General of the error. The amount
recoverable from a person shall be considered as excise duty payable under the Act.

Where a person is not entitled to a refund but makes a claim and receives the refund, that
person shall repay the amount within fourteen days and is liable to an administrative penalty of
twice the amount of the refund.

Registration of manufacturers

A person shall not carry on a business of manufacturing excisable goods in the country unless

 that person is registered under the Act;

 the excisable goods are manufactured in a warehouse; and
 that person has entered into a general bond or lodged a form of security with the
Commissioner-General.

A person who intends to register as a manufacturer shall, not later than thirty days before the
commencement of the business, apply in writing to the Commissioner-General (C-G). The
person must have a valid Taxpayer Identification Number. The C-G shall issue a certificate to
manufacture of excisable goods on the payment of the require fees determine in accordance
with the Fees and Charges (Miscellaneous Provision) Act, 2009 (Act 793). The certification is
subject to annual renewal.

Change in relevant events or goods

A registered manufacturer shall, notify the Commissioner-General in writing of the date and
details of a change in the name, address, place of business, constitution, or nature of the
principal activity of the manufacturer not later than fourteen days after the occurrence of the
change; and a change in the nature or quantity of excisable goods manufactured in the country
not later than fourteen days before making the change.

Cancellation of registration

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The Commissioner-General may, after giving notice in writing to a manufacturer, cancel the
registration of the manufacturer where

 the manufacturer does not comply with the terms, conditions or restrictions imposed
on the registration;
 the manufacturer is convicted of an offence under Excise duty Act Act or the Customs
Act, or
 the person is less than eighteen years.

The cancellation of the registration of a manufacturer does not affect an obligation or liability
of the manufacturer under the Act in respect of acts done by the manufacturer or omissions by
the manufacturer including the obligation to

 pay excise duty; and

 file excise duty returns while the manufacturer was registered.

Notice to Commissioner-General

A manufacturer who ceases to manufacturer excisable goods shall, within fourteen days of the
date of the cessation, notify the Commissioner-General in writing of

 the date on which the manufacturer ceased to manufacturer excisable goods;

 the date on which the manufacturer expects that no excisable goods will remain in the
warehouse of the manufacturer; and
 whether or not the manufacturer intends to recommence manufacturing excisable
goods within twelve months from the date provided under the second bulleted point.

Where the Commissioner-General receives a notification, the Commissioner-General

 shall carry out an audit of the warehouse of the manufacturer; and

 shall, by notice in writing, cancel the registration of the manufacturer with effect from
the first day on which excisable goods no longer remains in the warehouse of the
manufacturer, unless the Commissioner-General has reasonable grounds to believes
that the manufacturer will recommence manufacturing excisable goods within twelve
months from that date.
 Where excisable goods remain in the warehouse of a manufacturer immediately after
the cancellation of the registration of the manufacturer, the goods in the warehouse will
be considered to have been entered for home use on the preceding day.

A manufacturer who sells, as a going concern, a business of manufacturing excisable goods

for which the person is registered, shall notify the Commissioner-General, in writing, not
later than fourteen days before the earliest of the dates on which

 the sale occurs;

 the purchaser acquires any legal interest in the assets to be acquired; or
 the assets of the going concern are transferred, and
 the seller has transferred the entire business for which the seller is registered,

the Commissioner-General shall cancel the registration of the seller.

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Prohibition on warehousing of excisable goods

A manufacturer who is registered or required to be registered under the Act shall

 store excisable goods on which excise duty has not yet been paid only in an approved
warehouse;
 enter excisable goods for home use only from an approved warehouse; and
 complete, at the time of entry for home use, the relevant records, forms or documents
required by the Commissioner-General in relation to the entry.

Approval of premises as warehouse

A manufacturer shall apply to the Commissioner-General in a form determined by the

Commissioner-General for approval of premises as a warehouse for the purpose of

 depositing,
 keeping,
 manufacturing, or
 securing

Excisable goods.

The following requirements must be met in order for a warehouse to be approved by the
Commissioner-General:

The warehouse shall be controlled or operated by the applicant who is also making the
application to be a registered manufacturer.

The applicant shall state in the application the following:

 The nature of the goods to be manufactured or stored in the warehouse;

 The estimated value of goods likely to be stored in the warehouse, and the
manufacturer’s estimated excise duty liability in respect of a subsequent removal of
those goods from the warehouse; and
 the expected method of disposal of the goods by way of local sales, export sales, use in
the manufacture of other excisable goods, or other means of disposal, including an
estimate of the anticipated percentages of each type of disposal; and

Particulars of the application for a warehouse shall detailed out;

 Title deed or lease to the warehouse

 Written consent from landlord for the use of the premises
 A written description and plan of the warehouse including its secure perimeters;
 The location and physical details (size, materials of construction etc.) of the area to be
designated as the warehouse; and
 The warehouse’s external security (fences etc.) and internal security (entries, exits,
alarms, lights etc.

An approval to manufacture excisable goods shall authorize the manufacture of the goods in
one set of premises to be specified in the certificate and the whole of the premises must be

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adjoining and held together for the same purpose, provided that no certificate shall be deemed
to extend to any part of the premises not described in the written description and plans of the
warehouse.

The Commissioner-General may approve a part of particular premises as an approved

warehouse if that part is clearly delineated and secured to the satisfaction of the
Commissioner-General.

Where the Commissioner-General is satisfied that the premises met the necessary
requirements the Commissioner-General shall approve the application subject to such terms,
conditions or restrictions.

The Commissioner-General may station an officer in a warehouse to ensure compliance with

the Act. The manufacturer shall provide the officer with the appropriate office accommodation
at or within the warehouse to the satisfaction of the Commissioner-General.

Operation of an approved warehouse

A warehouse in which excisable goods with duty unpaid are stored shall only be
entered by the following persons:

Common provisions relating to offences and penalties

Where a person is liable to more than one penalty or fine under the excise Act in relation to the
same entry for home use of excisable goods manufactured in the country, the total penalty or
fine imposed on that person in relation to the excisable goods shall not exceed three times the
value of the goods.

Failure to register

(1) A person who carries on a business of manufacturing excisable goods in the country without
registering as a manufacturer commits an offence and is liable on summary conviction to excise
duty payable in relation to the excisable goods or to a term of imprisonment of not more than
one year or to both.

(2) In addition to the above penalty the person shall pay a penalty of not more than two times
the amount of excise duty payable in relation to the excisable goods; or an amount of not less
than five hundred currency points and not more than one thousand currency points, whichever
is higher; and

(b) the Commissioner-General may authorize the forfeiture of goods, raw materials, apparatus,
utensils and other materials which in the opinion of the Commissioner-General can be used in
the manufacture of excisable goods.

Manufacture outside a warehouse

A person who

(a) manufactures excisable goods in the county in premises that is not a warehouse, or

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(b) stores excisable goods on which excise duty has not been paid in premises that is not a
warehouse, or

(c)removes excisable goods on which excise duty has not been paid from premises that is not a
warehouse ,

shall pay an administrative penalty equal to two times the amount of duty payable in relation to
the excisable goods to the Commissioner-General; and in addition commits an offence and is
liable on summary conviction to a fine of not more than three times the amount of excise duty
payable in relation to those excisable goods or to a term of imprisonment of not more than one
year or to both.

Failure to enter into bond or lodge security

(1) A person who

(a) manufacturers excisable goods in the country or enters excisable goods for home use
without having entered into a bond or lodged a security with the Commissioner-General; or

(b) enters for home use excisable goods manufactured in the country commits an offence and is
liable on summary conviction to a fine of not more than two times the amount excise duty
referred to in paragraph (a) or (b) or to a term of imprisonment of not more than one year or to
both.

(2) In addition to the penalty provided under subsection (1) the person shall pay a penalty
equal to

(a) two times the amount of excise duty payable on the excisable goods entered for home use
during the time when the person did not enter into the bond or lodged a security as required;
or

(b) two times the amount of excise duty payable by the person on each non-compliant entry of
excisable goods for home use when paragraph (1) (b) applies.

Section 31 - Failure to submit a return

A manufacturer who fails to submit to the Commissioner-General an excise duty return by the
due date is liable to a penalty of five hundred currency points and a further penalty of ten
currency points each day that the failure continues.

Section 32 - Failure to pay tax on due date

A manufacturer who fails to make a payment required under this Act to the Commissioner-
General by the due date is liable to pay a penalty of fifteen percent of the amount due and an
interest of five percent of the amount due for each day that the failure continues.

Section 35 - Liquor

For purposes of this Act, liquor

(a) containing more than twenty-four and half percent of pure alcohol by volume shall not be
considered as wine, and liquor other than wine, containing more than ten percent of pure
alcohol by volume shall not be considered as ale, beer, cider, perry or stout; and

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(b) containing more than twenty-four and half per centum of pure alcohol by volume, liquor
other than wine, containing more than ten percent of pure alcohol by volume, and liquor other
than wine, ale, beer, cider, perry or stout containing more than one per centum of pure alcohol
by volume shall be considered as spirits.

“ex factory price” in relation to goods, means the sum of

(a) all costs to manufacture those goods, and

(b) all profits that a manufacturer takes or is expected to take in relation to those goods if and
when they are sold in comparable circumstances between unrelated parties in the open market,
as is considered appropriate by the Commissioner-General;

First Schedule – Goods liable to excise duty

Tariff Commodity Description Rate of Duty

No.
1. (a) Waters, including mineral 17.5 per centum of the ex-
water of all description. factory price

(b) Distilled, bottled water 17.5 per centum of the ex-

factory price

(c) Sachet water

0 per centum
2. Malt drink: Percentage use of
local raw material:

Less than 50 per centum of 17.5 per centum of the ex-

local raw material factory price

50 per centum to 70 per 10 per centum of the ex-factory

centum of local raw material price

Above 70 per centum of local

raw material
7.5 per centum of the ex-factory
price

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3. Beer stout other than

indigenous beer: Percentage
use of local raw material

Less than 50 per centum of the 47.5 per centum of the ex-
local raw material factory price

50 per centum to 70 per 32.5 per centum of the ex-

centum of local raw material factory price

Above 70 per centum of local 10 per centum of the ex-factory

raw material price

4. Wines including sparkling 22.5 per centum of ex-factory

wine price
5. Spirits, including
“Akpeteshie”:
25 per centum of the ex-factory
price
(a) Distilled or rectified
25 per centum of the ex-factory
(b) Blended or compounded price

0 per centum
(c) Other:

(i) For use solely in

laboratories or in
the compounding of drugs
10 per centum of the ex-factory
price

(ii) Denatured to the

satisfaction of the 20 per centum of the ex-factory
Commissioner-General price
(iii) “Alpeteshie”
6. Tobacco Products:

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(a) Cigarette 150 per centum of the ex-factory

price

(b) Cigars 150 per centum of the ex-factory

pric

¢12.00 per kg

(c) Negrohead

170.65 per centum of the ex-

factory price

(d) Snuff and other tobacco

7. Plastic and plastic products 10 per centum of the ex-factory
listed under Chapters 39 and price
63 of the Harmonized System
and Custom Tariff Schedules,
2012.
8. Other products:

0 per centum
(a) Textiles
0 per centum
(b) Pharmaceuticals
9. Cider beer 17.5 per centum of the ex-
factory price[Inserted by the
Excise Duty(Amendment)
(No.2) Act, 2015 (Act 903)]

[Inserted by the Excise

Duty(Amendment) (No.2) Act,
2015 (Act 903)]
1. The excise duty indicated in the third column in relation to the
goods listed under Commodity Description for Tariff No.7 shall
be
(a) computed on the Cost, Insurance and Freight (CIF) value of
the goods listed in the second
(b) paid at the point of entry
2. Not less than fifty percent of the revenue accruing under Tariff
No. 7 shall be paid into a refund designated as “Plastic Waste
Recycling Fund”.
3. For the avoidance of doubt, excise duty is computed on the
Cost, Insurance and Freight at the point of entry.

1) The Excise Duty Act, 2014 (Act 878) is amended in the First Schedule

(a) by substitution for the goods listed under Commodity Description and Rate of Duty
for Tariff No. 2 of
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“2 Malt drink: Percentage use of local

raw material:
17.5 per centum
Less than 50 per centum of local of the ex-factory
raw material price

10 per centum of
50 per centum to 70 per centum of the ex-factory
local raw material price

7.5 per centum of

Above 70 per centum of local raw the ex-factory
material price”

(b) by the substitution for the goods listed under Commodity Description and Rate of
Duty for Tariff No. 3 of
“3 Beer stout other than indigenous
beer: Percentage use of local raw
material

Less than 50 per centum of the 47.5 per centum

local raw material of the ex-factory
price

32.5 per centum

50 per centum to 70 per centum of of the ex-factory
local raw material price

Above 70 per centum of local raw 10 per centum of

material the ex-factory
price”

(c) by the insertion after Tariff No. 8 of

“9 Cider beer 17.5 per centum
of the ex-factory
price”

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TAX STAMP

The Excise Tax Stamp shall, in accordance with the Act, be affixed on

(a) The specified excisable goods which are

(i) manufactured in this country, or

(ii) imported into this country, or

(b) other goods prescribed by the Minister.

Section 2 - Goods to which Excise Tax Stamp is to be affixed

The Exercise Tax Stamp shall be affixed on the following class of goods:

(a) cigarettes and other tobacco products;

(b) alcoholic beverages whether bottled, canned, contained in kegs for sale or packaged in any
other form;

(c) non-alcoholic carbonated beverages whether bottled, canned or packaged in any other
form;

(d) bottled water; and

(e)any other excisable product prescribed by the Minister.

Section 4 - Registration

(1) A person who intends to manufacture or import goods for which an Excise Tax Stamp is
required to be affixed shall apply in writing to the Authority to be registered.
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(2) An applicant qualifies to be registered if the applicant is a manufacturer or trader with a

valid Tax Identification Number (TIN).

(3) A foreign manufacturer who supplies goods to an importer in this country shall apply in
writing as set out in Form A of the Schedule to the Authority to be registered if

(a) the goods require Excise Tax Stamps to be affixed to them;

(b) the importer gives notice to the Authority that the importer intends the foreign
manufacturer to affixed the Excise Tax Stamp at the point of origin of the goods; and

(c) the foreign manufacturer accepts to receive and affix the Exercise Tax Stamp to the goods
before they are exported.

(4) The Authority shall register a foreign manufacturer if the Authority is satisfied that that
foreign manufacturer will comply with this Act regarding affixing the Exercise Tax Stamp.

(5) The Authority shall cancel the registration of a registered foreign manufacturer that fails to
comply with this Act.

(6) An application for registration shall be

(a) in duplicate and as set out in Form A of the Schedule, or

(b) in any other manner determined by the Authority that provides the information required in
Form A of the Schedule.

Section 5 - Register
The Authority shall keep and maintain a register of manufacturers and importers of the
category of goods to which an Excise Tax Stamp is required to be affixed.

Section 6 - Procurement of Excise Tax Stamps

(1) An Excise Tax Stamps shall be purchased from the Authority on request.

(2) A request to purchase an Excise Tax Stamp shall be made through the Excise Tax Stamp
Portal to the Authority.

(3) The manufacturer or importer that requires the Stamp shall be responsible for the cost of
the Excise Tax Stamp but the cost may be subsidised as the Minister may determine.

(4) Payment for the supply of the Stamp shall be made to the Authority in the mode prescribed
by the Minister.

Section 8 - Affixing of Excise Tax Stamp

(1) An Excise Tax Stamp shall be affixed on each product unit.

(2) An Excise Tax Stamp shall be affixed on a product unit in a manner that ensures that the
Stamp will be broken or will be rendered unusable when the product unit is opened.

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Section 9 - Time and place of affixing the Excise Tax Stamp

(1) Imported goods that are required to have the Excise Tax Stamp affixed to them shall have
the Stamp affixed to them by the authorised manufacturer of the importer or at the point of
entry in a specified facility, or place or premises approved by the Commissioner-General.

(2) A registered foreign manufacturer shall affix an Excise Tax Stamp on each product unit of
goods that require the Excise Tax Stamp before the shipment to Ghana of the product unit
from the country of origin.

(3) A manufacturer in Ghana shall affix the Excise Tax Stamp on each product unit of goods
that require the Excise Tax Stamp before the product unit is delivered out of the factory.

Section 10 - Delivery of goods for home consumption

(1) Goods which require the Excise Tax Stamp to be affixed to them shall not be put on sale or
released into the channels of trade in the country unless the Excise Tax Stamp is affixed to the
goods.

(2) Overstayed or seized goods which require the Excise Tax Stamp to be affixed to them and
which are auctioned or disposed of by sale shall have the Excise Tax Stamp affixed to them.

(3) Goods which require the Excise Tax Stamp to be affixed to them which are purchased from
duty free shops for home consumption shall have the Excise Tax Stamp affixed to them.

ection 12 - Returns to be submitted

(1) A person who imports goods from a foreign manufacturer registered for the purposes of the
Excise Tax Stamp and a local manufacturer of goods which require an Excise Tax Stamp to be
affixed to them, shall submit to the Commissioner-General, not later than the twentieth day of
the month following the month to which the report relates, a monthly reconciliation statement
or returns in the manner prescribed by the Minister and that shows

(a) the Stamps in stock on the last day of the previous month and which have been brought
forward for use during the month;

(b) the summary of Stamps received during the month;

(c) the Stamps applied during the month;

(d) the stock balance of Stamps at the end of the month; and

(e) the Stamps spoiled or damaged during the process of affixing them.

(2) Where Excise Tax Stamps are spoiled or damaged in the process of being affixed, the
manufacturer shall keep the Stamps for inspection and certification by the Authority.

(3) A manufacturer who ceases production either temporarily or permanently shall submit a
record of unused Stamps to the Authority within a period of fifteen days after which the
Authority shall recover the unused stamps and take appropriate steps to reconcile the supply
and the use of the Stamps.
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Section 15 - Failure to affix Excise Tax Stamp

(1) A person shall not put on sale or release for the sale a product which requires an Excise Tax
Stamp to be affixed to the product, if that product does not have the Stamp affixed to it.

(2) The Authority shall seize a product required to have the Excise Tax Stamp affixed to it
which is put on sale or released for sale without the Stamp affixed to it.

(3) A person who sells a product or releases a product for sale contrary to subsection (1)
commits an offence and is liable on summary conviction to a fine of not more than three
hundred per cent of the duties and taxes involved or to a term imprisonment of not more than
five years or to both.

Section 19 - Interpretation

‘’Excisable goods’’ means goods of description liable to excise duty if delivered for
consumption in Ghana and includes spirits rectified or compounded in Ghana;

‘’Excise Duty’’ means any duty other than export duty of customs imposed on any goods
manufactured or produced in this country or similar goods imported into the country;

‘’manufacturer’’ means a person who by any means makes or produces or causes to be made
or produced any excisable goods;

‘’Minister’’ means the Minister responsible for Finance;

‘’products’’ include goods;

‘’product unit’’ means the smallest package in which the product is normally presented and
retailed except for cigarettes which shall be ‘the pack’; and

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OTHER MISCELLANEOUS TOPIC

PUBLIC DEBT
Other Source of Revenue to the Government
1. Public
Public debt is defined as how much a country owes to lenders outside of
itself. These can include individuals, businesses, and even other governments.
The term "public debt" is used interchangeably with the term sovereign debt.
Public debt is the accumulation of annual budget deficits. It's the result of years
of Government spending more than they take in via tax revenues. Public
debt includes Treasury bills, notes, and bonds, which are typically bought by
large investors.
In the short run, public debt is a good way for countries to get extra funds to invest
in their economic growth. Public debt is a safe way for foreigners to invest in a
country's growth by buying government bonds.
Public debt as an alternative to taxation and its effect on the economy
when public debt is used as an alternative to taxation

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  Public borrowing has an important advantage over taxation. Taxation beyond a
certain limit tends to affect economic activity adversely owing to its disincentive
effect. There is no such danger in public borrowing. It does not have any
unfavorable repercussions on economic activity by being disincentive, partly
because of its voluntary nature and partly because of expectation of return and
repayment.

 Public debts enable governments to facilitate growth take-offs by investing in a

critical mass of infrastructural projects and social sectors of the economy where
taxation capacity may be limited. Public d ebt for financing fruitful investment
produces supplementary, creative capability in the financial system which or else
would not have been achievable.

 Public Debt also facilitates tax smoothing and counter-cyclical fiscal policies,
essential for reducing output volatility; and it permits an equitable alignment of
benefits and costs for long-gestation projects by shifting taxation away from
current generations.

 Public debt is a safe way for foreigners to invest in a country's growth by buying
government bonds. This is much safer than foreign direct investment. That's when
foreigners purchase a percentage interest in the country's companies, businesses
or real estate. It's also less risky than investing in the country's public companies
via its stock market. Public debt is attractive to risk-averse investors since it
is backed by the government itself.

 When used correctly, public debt improves the standard of living in a country
whilst Taxation increase the cost of living of citizens. That's because it allows the
government to build new roads and bridges, improve education and job training,
and provide pensions. This spurs citizens to spend more now, instead of saving
for retirement, further boosting economic growth.

Consequences of Public Debt on the Economy

 Large public debt implies high interest payments and these are borne by tax
payers. Governments have virtually no means of repaying debt other than through
future taxation. While there is a multiplier effect to government spending, high
levels of government debt essentially saddle future generations with the
deadweight loss of higher taxation with no offsetting multiplier to the GDP from
government spending.
 Government borrowing increases the total demand for credit in the economy,
driving up the cost of borrowing in the process. Higher borrowing costs make it
more expensive to finance investment in equipment, stock and other capital goods in
the private sector. This increases the cost of doing business in the private sector.
 Currency collapse or currency depreciation when monies are printed to finance
public debts.
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LOCAL CONTENT