Ghanaian Tax System PDF

Session 1 - Introduction Advanced Taxation Paper 3.3 (ICAG Level 3) MSL Business School The Ghanaian Tax System An essential recap MSL Business School  THE GHANA REVENUE AUTHORITY Establishment of the GRA...

Session 1 - Introduction Advanced Taxation Paper 3.3 (ICAG Level 3) MSL Business School The Ghanaian Tax System An essential recap 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.