Principles Of Tax Full Tuition - Session 1 PDF

Session 1 - Introduction Principles of Taxation Paper 2.6 (ICAG Level 2) MSL Business School Let’s enter into an agreement My Part (my role to play) 1 Your Part (your role to play) 2 Who is running this Tuition Program? Qualiﬁcations You can visit michaelsiawlarbi.com/awards or michaelsiawlarbi.com/education Who is running this Tuition Program? Experience You can visit michaelsiawlarbi.com/experience Conceptualising this paper How to Approach the Principles of Taxation paper Pure Knowledge Good Exam Technique 65% 35% The Law of Seven (7) Exam Sittings November 2023 July 2023 March 2023 December 2022 August 2022 April 2022 November 2021 May 2021 (bonus) Introducing the MSL Business School App The ICAG Principles of Taxation Paper 5 Questions - Answer ALL questions Ghanaian Tax Income Tax Corporate Tax Fiscal Policy - 5 marks Tax Administration System - 5 marks - 10 marks Liabilities - 20 marks Liabilities - 20 marks Basics of Taxation, GRA Individual and Partnership Assessments, Filing Company Income Tax, All Structure, Tax Residence, Income Tax (incl Capital Fiscal Policy, Public Debt, Returns, General concepts under Chargeable Tax Planning, Stamp Duty, Allowances), Employment, Grants & Local Government Compliance, Penalties, Income determination CST, VAT, Customs, Excise, Business, Investment Interest, Objection, Dispute Social Security Income Resolution, Refunds Taxation of Gains - Social Security & Value Added Tax Withholding Tax 5 marks Taxation of Gifts - 5 marks Pension Funds - (VAT) - 15 marks Admin - 10 marks Taxation of Gains and 5 marks Losses on realisation Scope, Registration, WHT on Goods, Works, Principles concerning (including shares and The 3-Tier System and Computation of VAT, Services, Investments, WHT taxation of gifts under Act securities) Computation, Compliance Compliance, VAT Exemptions, WHT Credit 896 Requirements and Filings Withholding, Customs Certiﬁcates, Compliance Duties, Excise Duties Requirements More than 50% of the marks is on THEORY/WRITTEN (not computational) questions (51, 56, 55, 63, 55 marks in recent past exams) - March 2023 was as high as 81 marks Ghanaian Tax System (part of 5 marks) MSL Business School THE GHANA REVENUE AUTHORITY Establishment of the GRA Reference & Further Reading The Ghana Revenue Authority (GRA) was established in 2009 as a merger of the three revenue agencies, the Customs, Excise and Preventive Service (CEPS), the Internal Section 1 & 2 of Act Revenue Service (IRS), the Value Added Tax Service (VATS); in addition to the then 791 Revenue Agencies Governing Board (RAGB) in accordance with the Ghana Revenue Authority Act 2009, (Act 791) Objects of the GRA The objects of the Authority are to provide a holistic approach to tax and customs administration reduce administrative and tax compliance cost and provide better service to taxpayers promote efficient collection of Revenue and the equitable distribution of tax burden and ensure greater transparency and integrity ensure greater accountability to Government for the professional management of tax administration THE GHANA REVENUE AUTHORITY (continued) Objects of the GRA Reference & Further Reading improve information linkage and sharing of information among the Divisions of the Authority Section 2 & 3 of Act provide a one-stop service for taxpayers for the submission of returns and payment of 791 taxes provide common tax procedures that enable tax payers to be governed by a single set of rules provide for other matters related to the improvement of Revenue administration Functions of the GRA To achieve the objects, the Authority shall assess and collect taxes, interest and penalties on taxes due to the Republic with optimum efficiency pay the amounts collected into the Consolidated Fund unless otherwise provided by this Act and other Acts promote tax compliance and tax education THE GHANA REVENUE AUTHORITY (continued) Functions of the GRA Reference & Further Reading combat tax fraud and evasion and co-operate to that effect with other competent law enforcement agencies and Revenue agencies in other countries Section 3 & 4 of Act advise District Assemblies on the assessment and collection of their Revenue 791 prepare and publish reports and statistics related to its Revenue collection make recommendations to the Minister on Revenue collection policy perform any other function in relation to revenue as directed by the Minister or assigned to it under any other enactment. Governing Body of the GRA The governing body of the Authority is a Board consisting of a chairperson the Commissioner-General of the Authority a representative of the Ministry not below the rank of a Director THE GHANA REVENUE AUTHORITY (continued) Governing Body of the GRA Reference & Further a representative of the Ministry of Trade and Industry not below the rank of a Director Reading the Governor of the Bank of Ghana or a representative of the Governor not below the Section 4 of Act 791 rank of a Deputy-Governor Article 70 of the 1992 four other persons from the private sector two of whom are women Constitution of Ghana Note: The President shall appoint the chairperson and members of the Board in accordance with Article 70 - (Appointments by President) of the Constitution. STRUCTURE OF THE GHANA REVENUE AUTHORITY Structure of the GRA Reference & Further Reading The Authority is headed by the Commissioner-General, with support from three Commissioners in charge of the following divisions; Domestic Tax Revenue Division (DTRD) Customs Division (CD) Support Services Division (SSD) Domestic Tax Revenue Division (DTRD) DTRD is responsible for the collection of both domestic direct and indirect taxes The Division’s core functions are to identify all taxpayers, assess the taxpayer for tax and levies, collect the taxes and levies and pay all amounts collected into the Consolidated Fund STRUCTURE OF THE GHANA REVENUE AUTHORITY Customs Division (CD) Reference & Further Reading The Customs Division is responsible for the collection of taxes at the ports, borders and entry points The Division also performs a preventive function by patrolling the country’s borders and other strategic locations The Customs Division also performs agency duties on behalf of Ministries, Departments and Agencies. These duties relate to enforcing laws on prohibitions and restrictions of imports and exports, facilitation of international trade, foreign exchange control, public health, security and safety among others Support Services Division (SSD) The Support Services Division (SSD) provides administrative and managerial support to DTRD and Customs Division to enable them perform their operational functions efficiently The Support Service Division includes departments such as Finance, Administration, Human Resource, Training and Information Technology STRUCTURE OF THE DOMESTIC TAX REVENUE DIVISION (DTRD) – OLD STRUCTURE Old DTRD Structure (effectively phased out in 2nd Half of 2020) Reference & Further Reading Under the old DTRD structure, taxpayers were categorised into: Large Taxpayers – These were large and complex organisations and businesses whose annual turnover is over GHS 5 million. These taxpayers were managed by the Large Taxpayer Office (LTO) Medium Taxpayers – These were businesses with an annual turnover of between GHS 5 million and GHS 200,000. These businesses were managed by Medium Taxpayer Offices (MTOs) spread across the country Small Taxpayers – These were small and micro businesses with annual turnover below GHS 200,000. There were Small Taxpayer Offices (STOs) spread across the country that catered for the special needs of these businesses to ensure that they complied with tax laws at minimal cost STRUCTURE OF THE DOMESTIC TAX REVENUE DIVISION (DTRD) – NEW STRUCTURE New DTRD Structure (introduced in 2nd Half of 2020) Reference & Further Reading Under the new DTRD structure, we have: Large Taxpayer Office (LTO) Area Offices Taxpayer Service Centres (TSCs) Large Taxpayer Office (LTO) To focus on large corporate businesses, public institutions and high net worth individuals The LTO located in Accra will serve all large taxpayers across Ghana An LTO desk will be located in selected Taxpayer Service Centres outside the Greater Accra Region, where there is a concentration of large taxpayers STRUCTURE OF THE DOMESTIC TAX REVENUE DIVISION (DTRD) – NEW STRUCTURE (continued) New DTRD Structure (introduced in 2nd Half of 2020) Reference & Further Reading Area Offices Ten area offices will provide technical and administrative support in the management of the TSCs including centralised Audit and Enforcement functions Taxpayer Service Centres (TSCs) These will serve taxpayers within their area of operation (both small and medium taxpayers) The TSCs will carry out registration, receiving of returns, complaints, enquiries and payments, compliance, debt management and tax education THE CONCEPT OF THE PERSON Person Reference & Further Means any of the following: Reading Individual; or Section 133 of Act 896 An entity YEAR OF ASSESSMENT & BASIS PERIOD Year of Assessment Reference & Further Reading The year of assessment for a person is the calendar year (January to December). Section 18 of Act 896 Basis Period The basis period of a person is, Individuals & Partnerships = the calendar year Companies & Trusts = the accounting year of the company or the trust YEAR OF ASSESSMENT & BASIS PERIOD Change of Accounting Year Reference & Further Reading The Commissioner-General may, on application by a trust or company, approve a change of the accounting year of the trust or company on the terms and conditions Section 18 of Act 896 that the Commissioner-General may approve. Revocation of Approval Granted The Commissioner-General may revoke an approval granted for a change of the accounting year if the trust or company fails to comply with a condition attached to the approval. Impact of Change on Tax Compliance A change in the accounting year of a trust or company alters the time at which the trust or company is required to pay tax by instalments and on assessment. IMPOSITION OF INCOME TAX Income tax is payable for each year of assessment by Reference & Further Reading a person who has chargeable income for the year; and a person who receives a final withholding payment during the year. Section 1 of Act 896 First Schedule of Act 896 Amount of Income Tax Payable for a Year of Assessment Second Schedule of Act 896 The total of the amounts payable above. Income Tax Payable (on chargeable income) Subject to special rules concerning modified taxation, the income tax payable by a person who has chargeable income for the year is calculated by applying the relevant rates of income tax to the chargeable income of that person; and deducting a foreign tax credit allowed to the person for the year. IMPOSITION OF INCOME TAX Income Tax Payable (for final withholding payments) Reference & Further Reading The income tax payable by a person who receives a final withholding payment during the year is calculated by Section 1 of Act 896 applying the relevant rate to each final withholding payment First Schedule of Act 896 Second Schedule of Income Tax Payable (Modified Taxation) Act 896 Income tax payable by an individual with respect to assessable income from a business may be subject to the modified taxation rules. THE CONCEPT OF TAX RESIDENCE Resident Individual Reference & Further An individual is resident in Ghana for a year of assessment if that individual is Reading Section 101 of Act 896 a citizen, other than a citizen who has a permanent home outside of Ghana and lives in that home for the whole of that year present in Ghana during that year for an aggregate period of 183 days or more in any 12-month period that commences or ends during that year an employee or an official of the Government of Ghana posted abroad during that year or a citizen who is temporarily absent from Ghana for a period of not more than 365 continuous days, where that citizen has a permanent home in Ghana THE CONCEPT OF TAX RESIDENCE Resident Partnership Reference & Further Reading A partnership is resident in Ghana for a year of assessment if any of the partners resided in Ghana at any time during that year Section 101 of Act 896 Resident Trust A trust is resident in Ghana for a year of assessment if that trust is established in Ghana a trustee of the trust is resident in Ghana at any time during that year or a person resident in Ghana directs or may direct senior managerial decisions of the trust at any time during the year, whether the directive is given ○ alone or jointly with other persons; or ○ directly or through one or more interposed entities. THE CONCEPT OF TAX RESIDENCE Resident Company Reference & Further A company is resident in Ghana for a year of assessment if Reading Section 101 of Act 896 that company is incorporated under the Companies Act, 2019 (Act 992) or the management and control of the affairs of that company are exercised in Ghana at any time during that year Non-Resident Person Any other person other than the above is a non-resident person ASSESSABLE INCOME Assessable Income Reference & Further Reading The assessable income of a person for each year of assessment is the income of that person from any employment, business or investment (EBI) Section 3 of Act 896 Assessable Income - Resident Person The assessable income of a resident person for a year of assessment from any employment, business or investment is 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 ASSESSABLE INCOME Assessable Income – Non-Resident Person Reference & Further Reading The assessable income of a non-resident person for a year of assessment from any employment, business or investment is Section 3 of Act 896 the income of that person from the employment, business or investment for the year, to the extent to which that income has a source in Ghana; and where the person has a Ghanaian permanent establishment, income for the year that is connected with the permanent establishment, irrespective of the source of the income Note: The income of a person from an employment, business or investment has a source in this country if the income accrues in or is derived from Ghana. Separate Determination Principle A person who is determining the assessable income of that person or of another person shall, determine the assessable income for each class of income separately. CHARGEABLE INCOME Chargeable Income Reference & Further Reading The chargeable income of a person for a year of assessment is the total of the assessable income of that person for the year from each employment, business or investment less Section 2 of Act 896 the total amount of deduction allowed that person under the Income Tax Act. Separate Determination Principle A person who determines the chargeable income of that person or of another person shall, determine chargeable income from each source separately. METHOD OF ACCOUNTING General Principle Reference & Further Reading The timing of inclusions and deductions in calculating the income of a person during a basis period shall be made in accordance with Generally Accepted Accounting Section 19 of Act 896 Principles (GAAP). **Section 20 of Act 896 Income of Individual (from employment or investment) **Section 21 of Act For the purpose of ascertaining the income of an individual for income tax purposes from 896 an employment or investment, an individual shall account on a cash basis. Method of Accounting for a Company A company shall account for income tax purposes on an accrual basis. Adoption of Alternative Method of Accounting A person, other than a company, shall account for income tax purposes on either a cash or accrual basis, whichever most clearly reflects the income of that person. METHOD OF ACCOUNTING Adoption of Alternative Method of Accounting (continued) Reference & Further Reading Where the Commissioner-General is satisfied that a particular method of accounting reflects the income of a person, the Commissioner-General may, by written notice, Section 19 of Act 896 require that person to use a particular method of accounting; or **Section 20 of Act approve an application by a person to change the method of accounting of that person. 896 **Section 21 of Act Effect of Change in Accounting Method 896 Where the method of accounting of a person changes, an adjustment shall be made in the basis period following the change to ensure that an item is not omitted or taken, into account more than once. Withholding Tax (10 marks) MSL Business School Let’s revise the WHT rates - Resident Persons Visit taxlawgh.com/ghanataxrates for all tax rates Withholding Description Rate Dividends 8% Interest (excluding individuals and resident financial institutions) 8% Rent on properties ∙ Residential 8% ∙ Non-Residential 15% Natural resource payments and royalties 15% Fees or allowances, to a resident director, manager, trustee or board 20% member of a company or trust Fees for examiners, invigilators, supervisors of examination, or part 10% time teaching or lecturing Endorsement fee 10% Winnings from Lottery 10% Realisation of asset or liability 3% Let’s revise the WHT rates - Resident Persons Visit taxlawgh.com/ghanataxrates for all tax rates Commission to a resident lotto receiver or agent 10% Commission to a sales agent 10% Commission to a resident insurance sales or canvassing agent 10% Insurance premium with a source in Ghana to a non-resident person 5% Supply or use of goods exceeding GH₵ 2,000 per annum 3% Supply of any works exceeding GH₵ 2,000 per annum 5% Supply of services by an entity exceeding GH₵ 2,000 per annum 7.5% Payment for unprocessed precious minerals 1.5% Payment to petroleum subcontractor 7.5% Let’s revise the WHT rates - Non Resident Persons Visit taxlawgh.com/ghanataxrates for all tax rates Withholding Description Rate Income of non-resident individual from employment 25% Management, consulting and technical service fee 20% Dividend 8% Royalties, natural resources payments and rents 15% Endorsement Fees 20% Repatriated Branch after tax profits 8% Interest Income 8% Realisation of asset or liability 10% Let’s revise the WHT rates - Non Resident Persons Visit taxlawgh.com/ghanataxrates for all tax rates General insurance premium 5% Petroleum sub-contractor 15% Supply of goods, or works or the supply of any services where the 20% contract gives rise to income from Ghana Payments received by a person who conducts a relevant transport 15% business Payments received by a person who conducts a business of transmitting 15% or receiving messages by cable, radio, optical fibre or satellite or electronic communication Withholding by Employer - S.114 What is commonly referred to as PAYE An employer shall withhold tax from the payment of an amount to be included in ascertaining the income of an employee from the employment. The Minister may, by legislative instrument, make Regulations to prescribe the circumstances in which a resident employer shall withhold tax from a payment that is to be included in calculating the chargeable income of an employee. The obligation of an employer to withhold tax above is not reduced or extinguished because the employer has a right or is under an obligation to deduct and withhold any other amount from the payment; or any other law provides that the income of an employee from employment shall not be reduced or subject to attachment. Withholding from Investment Returns - S.115 Subject to the below conditions, a resident person shall withhold tax at the specified rates where that person pays A. any dividend, winnings from lottery, interest, natural resource payment, rent or royalty to another person; or B. consideration to another person in respect of the realisation of an asset or a liability and the payment has a source in the country. The above does not apply to payments subject to withholding by employer; payments made by an individual, unless made in conducting a business; interest paid to a resident financial institution; or a payment that is an exempt amount. Withholding from Supply of Goods, Service Fees and Contract Payments - S.116 Subject to the below, a resident person shall withhold tax at the rate provided for where that person pays a service fee with a source in the country to a resident individual as fees or allowances, to a resident director, manager, trustee or board member of a company or trust; for examining, invigilating, supervising an examination, or part time teaching or lecturing; as an endorsement fee; as a commission to a resident lotto receiver or agent; as a commission to a sales agent; as a commission to a resident insurance sales or canvassing agent; for any other supply of services; or for any other matter prescribed by Regulations; or a resident person shall withhold tax where that person pays a service fee or an insurance premium with a source in the country to a non-resident person. Withholding from Consideration on Realisation of Assets & Liabilities - S.116A Where a resident person, other than an individual pays consideration to another person with respect to the realisation of an asset or a liability which does not fall under Section 115 (withholding from investment returns), the resident person shall withhold tax on the gross amount of the payment at the below rates: Resident Person: 3% Non-Resident Person: 10% Note: The withholding rate is applied on the consideration received Withholding from Supply of Goods, Service Fees and Contract Payments - S.116 A resident person, other than an individual, shall withhold tax on the gross amount of the payment at the rate specified when the person makes a payment to another resident person who does not fall within any of the above payments or under withholding by an employer for the supply or use of goods, the supply of any works, or the supply of services, in respect of a contract between the payee and the resident person. Threshold The above applies to a contract between the payee and a resident person, where the amount of the contract exceeds GHS 2,000. For the purpose of determining whether a contract qualifies for the GHS 2,000 threshold above, two or more contracts in respect of the same goods, works or services shall, be treated as a single contract. Withholding from Supply of Goods, Service Fees and Contract Payments (Exemptions) - S.116 Exemption The requirement to withhold on goods, works or services does not apply to a premium paid to a resident insurance company; to payments under a contract for the sale of goods which constitute trading stock of both the vendor and the purchaser; where the Commissioner-General, ▪ for a good cause shown, exempts in writing a person from deducting tax in respect of an institution or a specific contract entered into by an institution upon an application made by the institution; or ▪ is satisfied that a person has a satisfactory tax record and exempts in writing that person from the application of that subsection or exempts specific contracts entered into by that person from that application. Note A person who is granted an exemption above relating to trading stocks of both vendor and purchaser shall, at the end of every calendar quarter, submit a list of particulars of all payments which would have had to be withheld on but for the exemption. Taxation of Shareholders - s.71 Another example of Withholding Tax Exemption (speciﬁc to Dividends) Subject to the exception below, a resident company which pays a dividend to a shareholder shall withhold tax on the amount of the dividend. Exception: 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 25% of the voting power of the company which paid the dividend. The above exception 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 a dividend that is the result of recharacterisation under sections 31(5) [Arm’s length standard and arrangements between associates] and 32(2) [Income Splitting]. Taxation of Shareholders - s.71 Another example of Withholding Tax Exemption (speciﬁc to Dividends) The dividend exemption does not apply also to a dividend paid by a company that conducts petroleum operations or that has conducted petroleum operations; or is a partner in a partnership that conducts petroleum operations or that has conducted petroleum operations. is a resident company that conducts or that has conducted a mineral operation, or is a resident company that is a partner in a partnership that conducts or that has conducted a mineral operation Withholding from Supply of Goods, Service Fees and Contract Payments - S.116 Subject to the below, the Minister may by legislative instrument, make Regulations to prescribe that a resident person shall withhold tax when the person makes a payment to a non-resident person of a type referred to in section 105 (g) or (h) in respect of land, sea or air transport or telecommunications services (S. 105 – Payments sourced from the country); and the rate at which the tax referred to above shall be withheld. All the above do not apply to a payment subject to withholding by an employer (under section 114); or a payment that is an exempt amount. Withholding from Supply of Goods, Service Fees and Contract Payments - S.116 A resident person shall withhold tax at the rate specified when the person makes a payment to a non-resident person for the rendering of management and technical services. A resident person shall withhold tax at the rate specified from a payment made under a contract with a non- resident person for the supply of goods or works, or the supply of any services where the contract gives rise to income from the country. Withholding from Supply of Goods, Service Fees and Contract Payments - S.116 Key Compliance (Notification) Requirement Where the above requirement relating to contracts for goods, works or services with a non-resident person applies, the resident person shall within 30 days of the date of entering into the contract, give notice to the Commissioner-General in writing of the nature of the contract; the likely duration of the contract; the name and postal address of the non-resident person to whom payments under the contract are to be made; and the total sum estimated to be payable under the contract to the non-resident person. The above requirement relating to contracts for goods, works or services with a non-resident person does not apply to other payments which are subject to final withholding tax applicable to non-residents under the Income Tax Act. Tax Compliance - Statement and Payment of Tax Withheld or Treated as Withheld - S.117 Tax Payment Requirement A withholding agent shall pay to the Commissioner-General within 15 days after the end of each calendar month a tax that has been withheld in accordance with the Income Tax Act during the month. Tax Return Filing Requirement A withholding agent shall file with the Commissioner- General within 15 days after the end of each calendar month a statement in the form prescribed, specifying ▪ payments made by the agent during the period that are subject to withholding under the Income Tax Act; ▪ the name, address and tax identification number of the withholdee; ▪ tax withheld from each payment; and ▪ any other information that the Commissioner-General may prescribe. Note: A withholding agent who fails to withhold tax in accordance with the Income Tax Act shall pay the tax that should have been withheld in the same manner and at the same time as tax that is withheld. Tax Compliance - Statement and Payment of Tax Withheld or Treated as Withheld - S.117 A withholding agent who withholds tax under the Income Tax Act and pays the tax to the Commissioner-General is treated as having paid the amount withheld to the withholdee for the purposes of any claim by the withholdee for payment of the amount withheld. A withholding agent who fails to withhold tax under the Income Tax Act but pays the tax that should have been withheld to the Commissioner-General in accordance with the above provisions is entitled to recover an equal amount from the withholdee. Subject to this Act and except where an agreement is ratified by Parliament a provision in an agreement which prohibits the deduction or withholding of a tax required to be deducted or withheld under the Income Tax Act or any other enactment administered by the Commissioner-General is void. 49 Tax Compliance - Withholding Certiﬁcate - S.118 A withholding agent shall prepare and serve on a withholdee a withholding certificate, in the prescribed form, ○ separately for each period referred to below; and ○ at the time specified below. A withholding certificate shall specify the amount of payments made to the withholdee during the period; and the tax withheld by the withholding agent from the payments under the Income Tax Act. Tax Compliance - Withholding Certiﬁcate - S.118 Subject to the below exception (for employers), a withholding certificate shall cover a calendar month and shall be served on the withholdee within 30 days after the end of the month. Where a tax is withheld under withholding by employer (section 114), a withholding certificate shall cover the part of the calendar year during which the employee is employed; and shall be served on the employee by the 30th of January after the end of the year or, where the employee has ceased employment with the withholding agent during the year, not more than 30 days from the date on which the employment ceased. Final Withholding Payment - S.119 For the purposes of the Income Tax Act, the following are final withholding payments: dividends paid by a resident company; rent paid to a resident individual under a lease of land or a building, with or without associated fittings and fixtures, situate in the country, other than rent received by an individual in conducting a business, sale or letting; rent other than rent received in conducting a business of sale or letting, paid to a person other than an individual under a lease of land or a building situate in Ghana, with or without associated fittings and fixtures; payments made to non-resident persons that are subject to withholding under the Income Tax Act or would be subject to withholding if sections 115(2)(b) - payments made by an individual, unless made in conducting a business and 116(8)(b) - a payment that is an exempt amount were ignored, other than payments derived through a Ghanaian permanent establishment. payments made to a person under section 116 (1)(a)(ii) - for examining, invigilating, supervising an examination, or part time teaching or lecturing winnings from lottery Final Withholding Payment - S.119 The following satisfy the tax liability of a withholdee under section 1(1)(b) – remember Imposition of Tax for final withholding tax?: tax withheld from a final withholding payment under the Income Tax Act; and tax paid with respect to a final withholding payment in accordance with section 117(3) - A withholding agent who fails to withhold tax in accordance with this Division shall pay the tax that should have been withheld in the same manner and at the same time as tax that is withheld. Where a final payment is not subject to withholding, by reason of the fact that the payer is a non-resident, the tax liability of the recipient under section 1(1)(b) with respect to the payment is payable by way of instalment and assessment. For the purposes of applying Divisions III (Tax payable by instalment) and IV (Tax payable on assessment), the liability is treated as a liability under section 1(1)(a). Credit For Non-Final Withholding Tax A withholdee of a payment which is not a final withholding payment is treated as having paid the tax withheld from the payment under the Income Tax Act; or with respect to a payment in accordance with section 117(3) - A withholding agent who fails to withhold tax in accordance with this Division shall pay the tax that should have been withheld in the same manner and at the same time as tax that is withheld. A withholdee is entitled to a tax credit in an amount equal to the tax treated as paid above for the year of assessment in which the payment is derived. Social Security & Pension Funds (5 marks) MSL Business School The 3-Tier Pension Scheme Tier 1 - the Basic National Social Security Scheme for all workers in Ghana First Tier - it is a deﬁned beneﬁt scheme and mandatory for workers to have contributions made on their behalf NPA, 2008 (Act 766) - the contribution is managed by the Social Security and National Insurance Trust (SSNIT) BNSSS Regulations, 2011 (L.I. 1989) Tier 2 - a deﬁned contributory Occupational Pension Scheme - mandatory for workers with contribution made on behalf of members Tier 2 & Tier 3 - the contribution is managed privately by approved Trustees Tier 3 - includes all Provident Funds and all other Pension Funds outside Tiers I and II - it is a voluntary scheme - fully funded and privately managed provident and personal pension scheme Coverage - All employees in the formal sector, including but not limited to an establishment where an employer-employee relationship exists Coverage & - Workers who fall under the informal sector or the self-employed - Employees 50 years of age and below as at 1 January 2010 Exemptions - Optional for employees 50 years of age and above as at 1 January 2010 - Exemption - Oﬃcers and men of the Ghana Armed Forces and any other person who is expressly exempted by law Contribution Splits - Employer + Employee - The employer deducts 5.5% from the worker’s basic salary - and adds 13% of the worker’s basic salary (matching contribution) A total of 18.5% of the worker’s basic salary is paid as social security contributions for the worker Distribution of Contributions Out of the 18.5% total contribution - 13.5% is paid to SSNIT - 5% is paid to a private Fund manager of employer’s choice (2nd Tier) Out of the 13.5% paid to SSNIT - SSNIT pays 2.5% to the NHIA - The remaining 11% is managed by SSNIT to pay monthly pension Tier 1 - Detailed Mandatory for all employees in both the public and private sectors of the economy, (but optional for the self-employed) and administered by the Social Security & National Insurance Trust (SSNIT) The Governing Board of SSNIT is a Board of Trustees with a balanced representation of Employers, Employees and Government Minimum age for membership is 15 years, and the maximum age is 45 years for new entrants The minimum contribution salary is based on the National Daily Minimum Wage, and a maximum salary (currently ﬁxed at GHS 42,000 per month - was GHS 35,000) to check abuse. BENEFITS Superannuation Pension: This is paid to a member who has met the minimum requirement of 180 months (15 years) contributions in aggregate AND they are 60 years of age (Full Pension) OR They are 55 years and above (Reduced Pension) Invalidity Pension: Paid to a member who is totally incapable of earning a living through working due to permanent physical or mental disability. They must have contributed for a minimum of 12 months within the last 36 months before the occurrence of the invalidity. They must be certiﬁed by a Medical Board as being incapable of any normal gainful employment Emigration Lump Sum: This is paid as a Lump Sum to Non-Ghanaian members who are leaving Ghana permanently. They must submit documents to prove that they are leaving Ghana for good Survivors Lump Sum: This is paid as a Lump Sum to nominated dependant(s) of a member upon his/her death while in service or on pension. No beneﬁt is paid to nominees when a pensioner dies after age 75 Superannuation Pension Calculation The amount of money earned as Pension at the end of every month is based on three key parameters; Age at Retirement (Early Retirement Reduction Factor) Earning/Salary on which contributions were paid (Average of Three Best Years’ Annual Salaries) Total number of months contributions made (Pension Right) Calculation Annual Pension = (Average of 3 Best Years’ Annual Salaries) x (Pension Right) x (Early Retirement Reduction Factor) Monthly Pension = Annual Pension / 12 Tier 2 - Detailed Accrued Beneﬁts Preserved until retirement age, or earlier withdrawal under certiﬁed condition of physical or mental disability Can be transferred to another Occupational Scheme during change of employment On retirement or earlier death, the beneﬁts are paid out in lump sum of money Early withdrawal of beneﬁts is permitted if the contributor is unemployed at a minimum age of 50 or on grounds of total and permanent disability Accrued lump sum can be used as collateral to secure mortgage for primary residence Contributions to the Scheme are exempt from tax, as well as the income accruing from investment of the Scheme Funds A non-Ghanaian citizen who does not satisfy the qualifying conditions but desires to emigrate permanently from the country may have access to the entire accrued beneﬁts in a lump sum On the death of a member, the whole of the member’s accrued beneﬁts shall be paid as a lump sum to the Member’s nominated beneﬁciaries Tier 3 - Detailed Accrued Beneﬁts It is supported by tax incentives up to a maximum of 16.5% of contributor’s salary, to provide additional funds for workers who want to make voluntary contributions to enhance their pension beneﬁts The minimum age for membership is 15 years, and is allowed for a contributor who is more than the statutory retirement age of 60 to be a Member A Member who has attained the retirement age is entitled to the accrued beneﬁts in a lump sum The beneﬁciaries of a deceased contributor may withdraw the accrued beneﬁts from the Scheme Investment income from the investment of Scheme Funds are exempt from tax A worker may join the Scheme if the worker is more than 15 years of age or more than the statutory retirement age A contributor who is self-employed in the informal sector who is not covered under the mandatory scheme shall have his/her contributions credited in agreed proportion, to two separate individual sub-accounts, namely; a personal savings account, and a retirement account. Tier 3 - Detailed Accrued Beneﬁts Persons in the informal sector who are not covered by the mandatory schemes shall have 35% of their declared income, exempt from tax for contribution purposes; whiles investment income from investment of Scheme Funds shall be tax-exempt A withdrawal of all or part of a contributor’s accrued beneﬁts on or after retirement shall be tax-exempt But shall be subject to the appropriate income tax (15% ﬁnal tax) for contributors in the formal sector before 10 years of contribution and before retirement, and 5 years will apply for contributors in the informal sector and before retirement The tax exemption status for beneﬁts applies for cases of incapacity or death. MSL Business School Connect with us - @taxlawgh Twitter @taxlawgh Facebook @taxlawgh TaxLawGH LinkedIn @taxlawgh Instagram @taxlawgh

Principles Of Tax Full Tuition - Session 1 PDF

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