Applicable laws as at May 2014:
• Internal Revenue Act, 2000 592, as amended
• Internal Revenue Regulation, 2001 LI 1675 with amendments
• Internal Revenue (amendment) regulations, 2011, LI 1997
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1. WHAT IS INCOME and WHAT IS INCOME TAX
Before one can clearly identify what income is assessable to tax one should have an appreciation of what income means legally, and more specifically what it means in relation to tax law.
The ordinary or general understanding of income is what a person’s gains or profits from his endeavours.
• However, the legal view of income, particularly in tax matters, is notoriously hard to define. This is partly because the legal definition of income is much broader (including not only gains or profits from income but also capital gains, gifts, property etc).
• The definition is also made difficult because tax, unlike other areas of law, is purely a creature of statue – its imposition is only authorised by the clear and specific words of the taxing statute, there is, to quote the words of Rowlatt J “…..no room for any intendment, there is no equity about tax….nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”
• If ‘income’ was given a definition under the tax statues that failed to cover some potential and significant source of revenue the loss to government could be monumental, and would continue until the statute was properly amended by parliament. Thus, rather than be restricted by a definition – the tax statues tend to simply deem or state which activities constitute income.
• Bearing this in mind it is no surprise that when asked to define income tax, Lord McNaughten in LONDON CITY COUNCIL V AG replied: “income tax, if I may be permitted for saying so, is tax on income.
• In a nutshell, income for tax purposes is what the law says is income, and will tend to be assessable to tax UNLESS exempted under the law.
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2. WHAT INCOME DOES GHANA LAW STATE AS INCOME ASSESSABLE TO TAX
This is covered under Section 6, Act 592, as amended – and includes income from any business, employment or investment
• One part covers what income is taxable for a resident person
• Another part covers what income is taxable for a non – resident person
• Where a person is resident, any income that is made in Ghana, or brought into or received in Ghana is taxable (unless exempted by law).
• In the case of a non-resident person it is only income that is made in Ghana that is taxable. Thus, income brought into Ghana or received in Ghana by a non resident person is not taxable.
Case Study/ Example of how Section 6 (Liability to Income Tax) Operates:
Mr Lee is a Chinese national and businessman working in Ghana on a business project. He will only be in Ghana for 3 months (the length of the project), after which he will return to China. Mr Lee earns GHC 300 000 from the project whilst in Ghana. He also receives an amount of GHC 100 000 from his business partner in China in relation to a separate deal conducted in China.
Income Tax implication: Mr Lee will only be taxed on the amount of GHC 300 000, because he is a non resident person and that was the amount of income actually made or accruing in Ghana. The GHC 100 000 was not made in Ghana, only received in Ghana, and as a non-resident person he is not liable to pay tax on that receipt of income (unless it is income deemed to have been accrued in Ghana )
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WHEREAS
Mr Acheampong is a Ghanaian national and resident working in Ghana on a business project. Mr Acheampong also earns GHC 300 000 from his project. He also receives an amount of GHC 100 000 from a business venture entered into whilst he was in China.
Income Tax implication: Mr Acheampong will be taxed on both the GHC 300 000 made in Ghana and the GHC 100 000 received in Ghana. This is because as a resident person both income made in Ghana and money received in or brought into Ghana is taxable (unless exempted by law).
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3. WHAT THEN IS A RESIDENT PERSON
(includes individual, company, body of persons, Government of Ghana or a political subdivision of the GOG)
A resident individual is:
• A citizen of Ghana, other than a citizen who has a permanent home outside Ghana for the whole of the year of assessment (year of assessment is normally from 1st January to 31st December)
• A citizen who is temporarily out or absent from Ghana for less than 365 continuous days where the person has a permanent home in Ghana
• An individual who is present in Ghana for an aggregate of 183 days or more during the year of assessment
• An employee or official of the Government of Ghana posted abroad during the year of assessment
A resident Company is :
One which is incorporated in Ghana or has its management and control exercised in Ghana during the year of assessment
A resident Body of Persons is :
A body of persons established under the laws of Ghana or has a resident person as its manager or is controlled directly or indirectly by a resident person at any time during the year of assessment.
A resident Partnership is where any of the partners is a resident individual/person at any time during the year of assessment. Important to note is that partnerships are not taxed as whole, the individual partners’ proportion of income is taxed.
In summary, the general rule is: where a person falls outside of these residence categories they are non-resident and only that income accruing in or derived from Ghana is taxable (unless exempted by law). Whilst, if you are a resident person in addition to income accruing in and derived from Ghana any income brought into or received in Ghana is also taxable (unless exempted by law).
It is clear that the position in relation to resident persons can easily lead to double taxation, which is where the same type of tax is levied more than once on the same income. In order to mitigate this Ghana tax law has provisions for Foreign Tax Credits and International Double Taxation Relief. Notably, Ghana currently has double taxation treaties with the UK, Germany, France, Italy, Belgium, The Netherlands, Switzerland and South Africa.
Case Study/ Example: Ghanaian football players
If Ghanaian footballers who are resident in Ghana earn money in South Africa and are taxed on that income in South Africa, strictly, when that income is brought into Ghana it is also subject to tax, however, because of the double taxation treaty between Ghana and South Africa, the double taxation effect would be minimal or potentially zero .
It is also worth noting; that non residents are not completely absolved from paying income tax on income is not accrued in Ghana. Ghana tax law gives an extensive list of certain income deemed as accruing in or derived in Ghana irrespective of where the money is made or paid or whether the person is resident or non resident. Examples include: income from rental of property in Ghana, even where the owner of the property is non resident and rental income is not paid in Ghana, or insurance premiums for a risk in Ghana, even where the insurance company is non-resident.
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4. WHAT AMOUNTS TO BUSINESS
‘Business’ covers (trade, profession and vocation) but not employment.
As a result of this wide inclusion under ‘business’ – in Ghana, lawyers, fitters, hairdressers, taxi drivers all fall within the ‘business’ element of income that is taxable UNLESS, they are employed lawyers, hairdressers, taxi drivers etc. You can be employed whilst carrying out your trade or profession. Employment income is, of course, also taxable.
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5. EMPLOYMENT INCOME
• Tax on employment income is regulated by Section 8, Act 592, as amended – its effect is that not only monthly basic salary is assessable to tax
• All gains or profits from a person’s employment whether in cash or in kind, are to be added to monthly basic salary and taxed at the appropriate rate, except those expressly exempted , these include health insurance, dental and medical benefits, night duty allowance, severance pay, among others
• Payments made by an associate of an employer to an employee, are also taxable (for example, a payment from the employer’s subsidiary to an employee).
• Similarly, payments made to an associate of an employee (such as a relative) on behalf of the employer, are also taxable. For instance, if a company pays the school fees of an employee’s children, the school fee payment is to be added to that employee’s basic salary as part of income assessable to tax
• Payments made in respect of past, present or prospective employment are also taxable for example ‘golden handshakes’
• Bonuses are also taxable though not in the same manner or to the same extent as other gains or allowances
• Even Cash prizes or rewards are taxable, unless it can be established or argued that the cash prize or award was not given as a result of the individual’s office, but due to the personal skill of the individual
• Benefits in kind , such as accommodation and vehicles are also to be added to an employee’s basic salary as part of income assessable to tax
• All the aforementioned payments (and potentially others not expressly covered), where made by employers to employees, ought to be added to monthly basic salary – to get the true income that is assessable to tax.
Of particular and practical importance is the fact that that employees are entitled to tax reliefs where they have applied for and received a tax relief card from the Commissioner General , these reliefs reduce the tax burden of employees.
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6. CHARGEABLE INCOME
This is a person’s assessable income less allowable deductions and reliefs permitted under Act 592 AND under deductions relating to for corporate social responsibility . The balance remaining after all these permissible deductions and reliefs have been deducted is the income that is chargeable to tax at the applicable rate.
