A A & K CONSULTING SERVICES LIMITED

OUR SERVICES

COMPLIANCE
Corporate

ADVISORY
General Advisory Tax Planning

PAYROLL MANAGEMENT

Employee
Agency Obligations

TAX HEALTH CHECK

CONTEMPORARY TAX ISSUES

In 2010 two major tax policy initiatives were introduced:

Integration of Revenue Agencies

Tax Policy Initiatives in 2011 Budget

INTEGRATION OF REVENUE AGENCIES

Ghana Revenue Authority (GRA) Act 2009 [Act 791] merged: Internal Revenue Service (IRS) Act 592, VAT Service Act 546 and Customs Excise & Preventive Service (CEPS) [PNDC Law 330]

PRE MERGER
MINISTRY OF FINANCE & ECONOMIC PLANNING

[MOFEP]

BOARD OF DIRECTORS

IRS COMMISSIONER

CEPS COMMISSIONER

VAT SERVICE COMMISSIONER

POST MERGER
MINISTRY OF FINANCE & ECONOMIC PLANNING [MOFEP] BOARD OF DIRECTORS
GHANA REVENUE AUTHORITY COMMISSIONER-GENERAL [GRA]

DOMESTIC DIVISION COMMISSIONER

CUSTOMS DIVISION COMMISSIONER

GENERAL SERVICES COMMISSIONER

EFFECT OF INTEGRATION
All powers of pre-integration Commissioners are now vested in the Commissioner-General e.g.

Final Authority for Interpretation

Practice Notes Private Rulings

COMMENTARY ON TAX POLICY INITIATIVES IN THE 2011 BUDGET STATEMENT

SUMMARY OF MAJOR TAX INITIATIVES

Increases in tax rates and thresholds for withholding taxes and VAT

Domestic tax initiatives include:

Removal of Tax Holidays

Extension of National Fiscal Stabilization Levy Revision of personal tax rates Extension of coverage of Communications Service Tax Review of Exemptions and Zero-rated items under the VAT Act Review of Excise Duty Rates

COMMENTARY ON TAX POLICY INITIATIVES IN THE 2011 BUDGET STATEMENT

International tax initiatives include:
Increases in Duty rates

Review of operations of Bonded warehouses

Import tax on rice and poultry products

REVIEW OF WITHHOLDING TAX REGIME

Introduction

Withholding taxes on payments by residents to:

Non-residents for the supply of services Residents for supply of goods and services Other withholding taxes (Section 86 of Act 592)

PAYMENTS TO NON-RESIDENTS FOR SERVICES SUPPLIED TO GHANA

Current Position
Section 3 of Act 592 imposes a final withholding tax on the following payments Service Tax Rate (%) Dividend 8 Interest 8 Royalty 10 Endorsement Fees 15 Rent 10 Management & Technical Service Fees 15 No changes have been proposed in the 2011 fiscal policy statement Increase in withholding tax on Foreign Supplies of Services

PAYMENTS TO RESIDENTS FOR SUPPLY OF GOODS AND SERVICES BY RESIDENTS Current Position
A withholding tax of 5% applies where the contract sum exceeds GH50.00

Proposed amendment
The threshold raised from GH50.00 to GH500.00

Implication
The 5% withholding tax under Section 84 (2) of the Internal Revenue Act 2000 [Act 592] shall apply where the contract sum for the supply of goods and services exceed GH500.00

TAX HOLIDAYS
Real Estate Developers for sale or letting
5 year Holidays abolished except for
Developers in partnership with Ministry of Works and Housing to provide affordable housing

Issues
Fate of those enjoying holiday uncertain

Hotels and Hospitality Industry

GIPC Regulations, 2005 [LI 1817] providing exemptions for the industry repealed Desirable LI 1817 provisions to be incorporated in Act 592 and managed by GRA Amendment is not clear

APEX Bank
Tax Holiday extended to 2014

NATIONAL STABILIZATION LEVY [NSL]

Introduction NSL imposed on 2009 and 2010 profit before tax The tax rate of 5% of profit before tax The levy is not tax deductible Proposed Amendment The imposition of the levy is to be extended by one year

GIFT TAX
The Internal Revenue Act 2000 imposes a gift tax at the rate of 5% on taxable gifts exceeding Gh50.00

Proposed Amendment
The rate of tax imposed on taxable gifts is to be increased to 15%.

MINING ROYALTIES
Introduction Mineral royalties are paid by mining companies at the rate of 3% to 6% The royalty is paid quarterly Proposed Amendments
Mineral royalties to be accounted for on monthly basis by the 15th of the following month

CHANGES IN INDIVIDUAL TAX RATES AND RELIEFS

Proposed Amendment
Increase in tax free Chargeable Income from GH1,008.00 to GH1,104.00
Increases in amount granted as reliefs to individuals proposed Chargeable Income above GH20,280.00 (2010 GH16,200.00) to be taxed at 25%

INITIATIVES UNDER INDIRECT TAXES

OBJECTIVES
2 Types of VAT Schemes (i) VAT Invoice Scheme (VIS) Retailers with a minimum turnover of GH10,000.00 (ii) VAT Flat Rate Scheme (VFRS) Retailers under GH10,000.00 currently operate under VFRS. The tax rate is 3% on selling price No input tax credit is available for them.

PROPOSED AMENDMENT
Existing Threshold - GH10,000 Proposed Threshold - GH90,000

Retailers with minimum of GH10,000 need to register

Retailers with minimum of GH90,000 need to register VAT taxpayers under GH90,000 to come under new scheme of combined VAT and Income Tax Assessment

COMMUNICATIONS SERVICE TAX (CST)

Introduction Introduced in 2008 - passage of the Communications Service Tax Act, 2008 (Act 754). The tax applied to Class1 Telecom Operators Class 1 License Telecom Operator authorized to provide public communication service National Communications regulations,2003 (LI 1719). Public communications service - service made available to the general public for a fee or charge without discrimination (LI 1719)

COMMUNICATIONS SERVICE TAX (CST) contd

Private communications service is a service established by an individual, a body corporate or other legal entity to satisfy its own communications needs.

LI 1719 defines communication service to include the following: Telecommunications services

Broadcasting services Cable services Satellite services Value added services Aeronautical services Maritime services

Communications services may be provided as public

PROPOSED AMENDMENT
CST coverage to extend to all companies and persons within the communication industry. 2011 budget statement does not clearly state whether the extension of the tax base of CST will include companies with their own private radio communications or other communications services. Details in relevant legislation to be passed.

RECLASSIFICATION OF DOMESTIC ZERO-RATED SUPPLIES

Locally produced items currently zero-rated Pharmaceutical Products Paper for the publishing industry Agricultural input like cutlasses Producers and wholesalers currently entitled to refund of input taxes incurred in the production.

RECLASSIFICATION OF ZERO-RATED SUPPLIES

Proposed Amendment Reclassification as exempt items under Act 546
Companies producing items no more entitled to refunds of input taxes incurred in the course of production. All input taxes incurred to be incorporated into cost build up.

DEFERRED PAYMENT OF VALUE ADDED TAX

Manufacturers permitted to defer payment of import VAT on imported raw materials. Practice is allowed to various manufacturers based AGI recommendations. Practice improved cash manufacturing companies. flow of the

DEFERRED PAYMENT OF VALUE ADDED TAX

Proposed Amendment
Reliefing manufacturers of import VAT/NHIL on imported raw materials to be abolished. No legislation is required. Cash flow implications for affected companies must be factored into current year budget.

INTERNATIONAL TAX INITIATIVES

Bonded Warehousing
Imported goods or locally manufactured goods may be stored under Customs control in a Government or private bonded warehouse. Deferral of payment of duty and taxes until the goods are needed for home consumption or for export. Bonded warehousing is allowed for both finished products and raw materials for manufacturing. The goods may be re-entered for warehousing after two years.

INTERNATIONAL TAX INITIATIVES

Proposed Amendment
Bonded warehousing facility to be restricted only to raw materials for manufacturing. Importers of finished goods will not be allowed to warehouse them for up to two years The proposed amendment is likely to define the maximum period that importers will be allowed to warehouse finished goods

IMPORT DUTY ON RICE AND POULTRY PRODUCTS

Existing
Milled Rice 20%

Proposed
Milled Rice 35%

Poultry Products 20% Poultry Products 35%

The revised rates will apply in Ghana upon ratification by ECOWAS.

OTHER TAX INITIATIVES

Exemptions from payment of import duty Energy saving lamps, LED lamps and

Raw materials for local companies producing energy saving bulbs

New taxes imposed An environment tax on plastic packaging materials and products

DOUBLE TAXATION AGREEMENT BETWEEN THE REPUBLIC OF GHANA AND THE FRENCH REPUBLIC
INTRODUCTION
What is Double Taxation?
Double Taxation has been defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter.

Negative Effects of Double Taxation

It results in multiplicity of taxes It inhibits the free flow of investment and trade activities

Purpose of Double Taxation Agreements

Due to the negative effects of Double Taxation, nations have deemed it expedient to enter into Double Taxation Treaties toward attainment of the following:

Removal of Tax Barriers to Trade and Investment Resolution of Tax Disputes Removal of uncertainties about a countrys Tax regime Promotion of Investment through the granting of Tax Incentives Reduction/Elimination of Tax Avoidance Schemes through the provision of a framework of co-operation between Tax Authorities

LEGAL AUTHORITY FOR GHANA TO ENTER INTO DOUBLE TAXATION ARRANGEMENTS

Provided for in Section 111 of the Internal Revenue Act 2000 (Act 592) Under Section 111 (1) of Act 592, the DTA prevail over the provisions of the Act

PROCESS OF RATIFICATION
Each contracting state has to ratify the convention and give notice to the other through diplomatic channels before the entry into force In Ghana the ratification is done by Parliament in accordance with Article 75 (2) of the 1992 Constitution of the Republic of Ghana

ENTRY INTO FORCE

Normally, the convention is entered into force on the day the latter of the notification is received
The provisions of the Convention normally have effect on the commencement of the fiscal year next following that in which the Convention was entered into force

BASIS FOR TAXING EACH REVENUE ITEM

Source of Revenue e.g. Directors Fees. Employment etc Residence of tax payer e.g. Business Profit, Air and Shipping Transport

Sharing e.g. Dividends, Interest, Royalties etc. shared between Treaty Partners

PERSONAL SCOPE
It indicates that the convention is applicable to persons who are residents of one or both of the contracting states

CONDITION PRECEDENT OR PROOF TO BE FURNISHED BY A RESIDENT OF THE OTHER CONTRACTING STATE SECTION 111 (4) OF ACT 592 To benefit from a reduction in the Ghanaian Rate of Tax or exemption from Ghanaian tax, a Resident of the other contracting state is required to provide the proof below to the Commissioner-General of the Ghana Revenue Authority.
- That no individual(s) resident outside the contracting state owns 50% or more of the underlying ownership of that persons business.

The essence of the proof is to prevent Treaty Shopping that is a situation where a resident of a non-contracting state tries to enjoy the benefits of a Double Taxation Agreement between two other states.

BASIS FOR TAXING REVENUE ITEM UNDER GHANA/FRANCE DOUBLE TAXATION AGREEMENT
TYPE OF INCOME 1. INCOME FROM IMMOVABLE PROPERTY 2. BUSINESS PROFITS OTHER THAN PROFITS OF A PERMANENT ESTABLISHMENT REFERENCE UNDER DTA Article 6 Article 7 BASIS OF TAXATION SOURCE RESIDENCE

3. SHIPPING AND AIR TRANSPORT

4. DIVIDENDS 5. INTEREST

Article 8
Article10 Article 11

RESIDENCE
SHARED BETWEEN RESIDENCE AND SOURCE SHARED BETWEEN RESIDENCE AND SOURCE

6. ROYALTIES
7. MANAGEMENT & TECHNICAL SERVICE FEES

Article 12
Article 13

SHARED BETWEEN RESIDENCE AND SOURCE

SHARED BETWEEN RESIDENCE AND SOURCE

BASIS FOR TAXING REVENUE ITEM UNDER GHANA/FRANCE DOUBLE TAXATION AGREEMENT
TYPE OF INCOME
8. CAPITAL GAINS IMMOVABLE PROPERTY 9. INDEPENDENT PERSONAL SERVICES (SELF EMPLOYED) 10.DEPENDENT PERSONAL SERVICES (EMPLOYMENT) 11.ARTISTES AND ATHLETES 12.STUDENTS AND BUSINESS APPRENTICES 13.VISITING PROFESSORS AND TEACHERS 14.OTHER INCOME NOT PROVIDED IN THE DTA

REFERENCE UNDER DTA

Article 14 Article 15

BASIS OF TAXATION
SOURCE SHARED BETWEEN RESIDENCE AND SOURCE SOURCE SOURCE EXEMPT FROM INCOME OUTSIDE EXEMPT FOR 2 YEARS SOURCE

Article 16 Article 18 Article 21 Article 22 Article 23

COMPARISON BETWEEN LOCAL RATES AND RATES UNDER GHANA/FRANCE DOUBLE TAXATION AGREEMENT
TYPE OF INCOME REFERENCE UNDER DTA
Article 10

REFERENCE UNDER ACT 592

Section 3

RATE OF TAX UNDER DTA

RATE OF TAX UNDER ACT 592

8%

REMARK

1. DIVIDENDS

a) Beneficial owner Resident in France 5% b) Beneficial owner Resident in Ghana 7.5% c) In all other cases - 15% a) Beneficial owner Resident in France 12.5% b) Beneficial Owner Resident in Ghana 10% a) Beneficial owner Resident in France 12.5% b) Beneficial Owner Resident in Ghana 10% a) Beneficial Owner Resident in France not exceeding 10% b) Beneficial owner in Ghana not exceeding 10%

a) DTA Rate shall apply b) The lower of the DTA and France Rate shall apply c) Act shall apply a) Act shall apply b) The Lower of DTA and France Rate shall apply a) The Act shall apply b) The Lower of DTA and France Rate shall apply a) The DTA shall apply b) The Lower of DTA and France shall apply

2. INTEREST

Article 11

Section 3

8%

3. ROYALTIES

Article 12

Section 3

10%

4. MANAGEMENT & TECHNICAL SERVICES FEES

Article 13

Section 3

15%

NOTE:

Under dividends in the DTA, the rates of 5% or 7.5% Are applicable where the beneficial owner has at least 10% Interest in the company paying the Dividend.

CONCLUSION
Double Taxation Treaties provide some tax incentives and exemptions that pave the way for the free flow of trade and investment activities. It is important for residents of the contracting states to acquaint themselves with the provisions of the relevant conventions so as to take full advantage of the opportunities therein.