Major discussion on Income Tax Law slated for May 31
The Ministry of Finance started the implementation of the Income Tax Act, 2015 (Act 896) to replace Act 592, effective January 1, 2016.
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According to the sector minister, Mr Seth Terkper, the move was to simplify the provisions of the legislation and make it more user-friendly to enhance efficiency and compliance.
Coupled with other revised tax laws, the new tax regime also seeks to address revenue leakages resulting from illicit financial flows.
The Act 896, for instance, introduced sweeping changes in the country, including the abolishing of the exemption of taxes on interest paid to an individual. Such interests on earnings from mutual funds, unit trusts, investments in government treasury securities and other such money market or capital market investments are all to attract a one-per cent withholding tax, which would be regarded as a final tax.
Under withholding tax, Act 895 of the law states that “a resident person shall withhold tax at one per cent where that person pays interest to individuals.” It defines income from investment as a gain from the realisation of an investment asset; winnings from lottery (which is taxed at five per cent), and a gift received in respect of the investment.
The law also introduced a full worldwide basis of taxation for residents; abolished the practice of separately carrying forward unutilised capital allowances, with withholding tax on general residents on services moving up from five per cent to 15 per cent, with those on goods reducing from five per cent to three per cent.
The law also imposes taxes on employee allowances such as for clothing, as well as on retiring benefits.
The Customs Act, 2015 (Act 891) on the other hand, proposes the introduction of excise tax stamp to be affixed on all excisable goods, but implementation is still being perfected.
Although the 2016 Budget, which was presented to Parliament in November 2015, was not categorical on tax measures except to hint of the impending implementation of Act 896, the incidence of the taxes sent shock waves across almost all segments of the economy as many businesses and individuals were met with surprises about some harsh provisions which added to the burden of the already overtaxed formal sector.
Business concerns
In spite of these tax measures, businesses are having to grapple with the National Fiscal Stabilisation Levy which is five per cent of their pre-tax profit, while individuals cry out on the imposition of value added tax on certain services such as so-called non-core banking.
The President of the Ghanaian German Economic Association, Mr Stephen Antwi, said the association was concerned about how the new law would affect its members and the general business community.
Accounting and advisory firm, PriceWaterhouseCoopers (PwC), said the new tax laws as part of the reforms would impose additional tax incidence on businesses and individuals.
However, the discussions which erupted with the implementation of the taxes, have not subsided as the harsh impact of the taxes have become incurably unbearable.
Terkper defends, IMF agrees
But the International Monetary Fund (IMF), which is assisting Ghana to achieve fiscal consolidation, has supported the Finance Minister in defending the lithany of tax provisions.
The Deputy Managing Director of the IMF, Mr Min Zhu, described the initiative as a positive attempt to make the tax system more effective and modern.
With the slump in crude oil prices crushing revenue expectations from that sector, Mr Zhu said the government needed alternative revenue generation mechanism to augment the shortfall, one of which was the reduction of the energy sector levies.
Mr Terkper, for his part, said in doing fiscal correction you look at revenue and expenditure and in this case, tax revenue and tax expenditure, saying “in doing so, you look at taxes critically.”
“Secondly, the period of austerity coincided with the revision of all the tax laws. We started with the Value Added Tax (VAT) which was enacted in 1998.
In all these, we were just doing amendments prospective – the Income Tax Act, 1998 and the Customs Act, which is actually a 1985 law, a PNDC law.
When you revise an Act that was created in 1998, you bring in new things but it coincided with austerity and we did not revise the laws because of austerity; it was a programme that we started in 2009 with the enactment of the Ghana Revenue Authority Act,” he explained.
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For withholding taxes, Mr Terkper said “withholding is withholding. Those who file their returns get tax clearance certificates and so it is not every enactment which we made that was for correction. The tax clearance was to revive the old law and we also did transfer pricing regulation that we never had.”
The finance minister clarified that most taxes, especially indirect taxes, were expenditures; many businesses filed their returns so the governement do not claim them back, stressing “that has nothing to do so much with increases.”
The breakfast forum
It is in this light that the GRAPHIC BUSINESS has partnered Stanbic Bank, one of the first quartile universal banks in the country, to facilitate another round of discussions over the fiscal measures.
A high-powered team will lead the discussions on “The New Tax Law: Its Implications for the Economy and Businesses” at the first in the Graphic Business-Stanbic Bank Business Breakfast Series, slated for Tuesday, May 31, 2016 at the Labadi Beach Hotel.
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The speakers are the Finance Minister, Mr Seth Terkper, tax consultant and lawyer, Mr Abdallah Ali-Nakyea, and a Deputy Commissioner in charge of Policy and Programmes at the Ghana Revenue Authority (GRA), Mr Edward Gyamerah.
The Ministry of Finance has already tabled some memoranda to Parliament to amend some of the provisions in Act 896 which portend debilitating consequences, such as those on interest earned on managed assets, as well as the withholding tax thresholds.