On January 1, 2016, the much awaited Income Tax Act 2015 (Act 896) which seeks to consolidate income tax laws and regulations which relate to financial institutions, Insurance, Mining, and Petroleum came into force.

Even though this move will enhance tax administration by Ghana Revenue Authority, it also brought along a number of changes that will impact on business transactions for both resident and non-resident companies.

Some of the key changes are as follows:

Taxes on Corporate Income

  • There has been an introduction of carry forward of tax losses which ranges from between 3 to 5years depending on the type of business.
  • Capital gains resulting from the disposal of depreciable assets which preciously was computed separately and taxed at 15% is now added to the income of the business and taxed at the corporate rate of 25%.
  • Capital allowance granted for a particular year cannot be carried forward or deferred if not utilized in the same year.
  • Thin capitalisation has been enhanced from debt to equity of 2:1 to 3:1 and this is good news for companies which are highly leveraged.

Withholding Taxes

  • Payment to Residents

Withholding tax rates for the various types of payments had remain fairly stable with the exception of payment of fees or allowances to resident directors, managers or board members  and payment for goods, works and services.
With respect to fees to directors the rate has been moved from 10 to 20%.
For goods, works and services the rates are 3%, 5% and 7.5% respectively as compared to the flat rate of 5% in the previous Internal Revenue Act, 2000, ACT 592.

  • Payment to Non Residents

Description

Rate

Employment income

20%

Dividend

8%

Royalties, natural resource payment and rents

20%

Insurance premium

5%

Endorsement fee

20%

Management and technical services fees

20%

Goods, works and services (where the contract give rise to income from Ghana)

20%

Amendments

Since the inception of this new Act, there has been an expression of resentment from the business community about the increase in taxes and the haste with which the ACT was passed.

In furtherance of this, there have been a number of amendments which have affected about 18 sections of the Income Tax Act 2015, Act 896. In my next bulletin I will highlight on each of the amendments and other areas so that members can be guided accordingly.

Contributed by: Richard Dwumor of RDK Consulting Services, E: richdwumor@rdkconsulting.net, W: www.rdkconsulting.net