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Christian Aid - Ghana

CASE STUDY: GHANA

International Tax Justice Academy30th Nov. – 6th December, 2014

Chibeze Ezekielcezekiel@christian-aid.org

TAX INCENTIVES

Introduction

Tax incentives are concessions, waivers, provisions and conditions made available to tax payers to serve as a means to reducing their tax liability enacted into law to boost investment into an economy.

Tax incentives are usually enacted into law and are aimed at attracting foreign direct investment into an economy as well as encouraging domestic investment in certain specific sectors of the economy or locations of a country

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1. Corporate Income Tax

Corporate income tax in the mining sector for instance was cut from as high as 45% in 1986 to 25% in 2011

At the same time initial capital allowances were increased from 25% to 80% within the same period, as well as a long mining list of exemptions and other expatriate employee tax incentives all in line with the attempt to attract investment thereby watering down tax rates.

The most significant corporate tax adjustment has been the reduction of the corporation tax rate of 32.5% in 2004 to 25% in 2006

Corporate Income Tax Continue…..

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In 2011, however, the corporate income tax rate for mining was revised upwards in response to civil society advocacy to 35%

Other concessionary low rates such as the 8% for the export of certain determined quantities of manufactured goods and agricultural products were broaden in scope to cover rural banking; non-traditional exports particularly processed agricultural products

Also the hospitality industry currently enjoys a reduced tax of 20% from a previous 22% and 25% in that order

2. Tax Holiday

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Companies are given time limits typically between 5 to 15 years from the start of their operations:

Tree crop farmers (mango, sheanuts, cashew, coffee, oil palm, rubber and coconut) enjoy 10years tax exemption from the date of first harvest;

Cash crop farmers (groundnuts, cassava, yam, rice, pineapples, maize, etc.) enjoy 5 years tax exemption from the date of commencement of farming

Commercial processors of cocoa by-products enjoy 5 years income tax exemption from the date of start of operation

Cattle ranchers have 10 years from date of start of businessPoultry and other livestock including fish farmers also have 5 years from

the start of business Agro-processing companies enjoy 5 years income tax exemption from the

day of start of business.Producers of canned, packaged or processed meat, fish and crop

products enjoy 3 years exemptions from the date of commencement of business.

Companies registered under Ghana Export Processing Zones (Free Zones) also enjoy tax holidays from 10 years from the start of operation

3. Location Incentives

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The Ghana Investment Promotion Centre Act 478 (now replaced by Act 865 of 2013)

With the exception of Accra (capital) and Tema (Industry City), all other regional capitals enjoy a tax rebate of 25%;

All other places in Ghana other than the ten (10) Regional Capitals and Tema enjoy a tax rebate of 50%;

Also, for agro-processing the emphasis is on value addition in the cocoa sub-sector where any processing with sub-standard cocoa beans, cocoa husks and other cocoa wastes as the predominant raw material qualifies for location incentive in the following ways:

- Regional Capitals other than Accra and Tema has a tax incentive rebate of 90% of the applicable corporate rate (25%);

- Any investment of the kind in Accra or Tema has a tax incentive rebate of 80% of the applicable corporate rate;

- Other locations outside the regional capitals and the entire Northern, Upper West and East Regions have a 100% incentive rebate on the applicable tax rate.

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4. Capital allowance - Internal Revenue Act, 2000 (Act 592) & the Minerals and Mining Act 2006 (Act 703)

CLASS OF ASSET

APPLICABLE RATE (%)

DESCRIPTION

1 40 Computers and data handling equipment

2 30 Automobiles, construction and earth moving equipment, heavy general purpose

3 80 Assets referred to in subparagraph (3) in respect of long term crop planting costs

4 20 Mineral and petroleum exploration and production right assets

5 10 Buildings, structures and works of a permanent nature 

6 Projected Life-Span

Railroad cars, locomotives, and equipment; vessels

5. Carry forward taxes - section 22 of the Act (592)

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For instance, with the exemption of the insurance sub-sector enjoying a limitless period of this incentive, other businesses have a fixed period, usually 5 years to carry forward losses.

These categories of businesses are therefore required to set-off their losses against their income in any accounting year for a maximum period of 5 years.

For businesses in the Tourism sector, they only qualify for this exemption if they are registered with the Ghana Tourist Board. Likewise for the ICT sub-sector, only software developers enjoy this incentive.

6. Export Processing Zones (Free Zones) - Free Zone Act, 1995 (Act 504).

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Exempt from the payment of all indirect taxes and duties. In addition FZ companies enjoy a tax holiday of 10 years from the payment of income tax on profits

After the expiration of the stated holiday period, a FZ company pays corporate tax on profits at the reduced rate of 8%, while shareholders are exempt from the payment of withholding taxes on dividends arising out of FZ investments

Enjoy relief from double taxation for foreign investors and employees where Ghana has a double taxation agreement with the country origin of the investors or employees

Double taxation agreement has been ratified with France and the Netherlands

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Companies are only required to produce 70% of the output for export, while the rest of the their business (30%) can be carried out within the domestic market upon the payment of relevant taxes

The fact that FZ company carry out plan of their activities on the domestic market creates opportunities for the abuse of the dispensation, especially where monitoring and regulation are known to be weak. This is a high risk of goods produced in the FZ enclave being smuggled to the domestic market.

Export Processing Zones (Free Zones) Continue...

6. Other exemptions

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Goods and services imports of the President of Ghana, the blind, deaf and dumb, churches and other religious bodies

Trade fairs and exhibitions, advertising matter, passengers’ personal baggage and effects, educational, cultural and scientific materials of a broad range of types and those imported by the United Nations or its Agencies, fishing floats and gear as approved by the Commissioner

Specific goods for specific uses such as: Volta Aluminum Company Ltd (VALCO); Volta River Authority (VRA); The British Council, infants’ foods; machinery; apparatus and spare parts for agricultural purpose; chemicals for agricultural purpose as certified by the Ministry of Agriculture.

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Latest development: 2015 Budget Statement

• Sliding Scale Excise Duty• Excise Duty on Tobacco• Tax Identification Number (TIN)• Amendment of National Health Insurance (NHIS) Act• Support to Local Industries (raw materials for exercise and text

books; HIV/AIDS drugs; specific locally produced pharmaceutical products; remove import duties on smart mobile phones etc)

Continue.. Review of exemptions

Review Free Zones Act to enhance the relevance of activities in the sector so that greater emphasis is placed on manufacturing and value addition.

The corporate tax rate of companies after the enjoyment of the ten years tax holiday will be increased from 8 percent to 15%.

Abolish the use of the VAT Relief Purchase Order (VRPO) in granting of relief.

The current VAT Refund Account, into which 5 percent of VAT revenue is paid, will be replaced with a General Refund Account into which up to 5 percent of GRA collection will be paid for tax and duty refunds

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Christian Aid – Work intervention

National

Local

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National Influencing tax policies – through Ghana Integrity Initiative (GII)

- Issued 3 Policy briefs (Tax Administration, Free Zones & Tax Incentives)

- Currently analysing the 2015 Budget Statement- Presented inputs from public engagement to the Ministry of

Finance towards the 2015 Budget Statement

Re-invigorating the Tax Justice Coalition – through Integrated Social Development Center (ISODEC). Working with Action Aid, Ghana and IBIS, Ghana

- Proposed quarterly meetings with Parliamentary Select Committees (1) Finance & Economic Planning and (2) Trade, Industry & Tourism

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Case Studies: “IMPROVE: Improving maternal health service delivery through participatory governance”

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50-year old Michael Awaana; married with 3 boys and 2 girls

Overall Project objective: contribute to the effective delivery of maternal health services in Ghana and progress towards the achievement of MDG 5 targets by 2015

A beneficiary of the tax sensitization training. He is the District Citizens Monitoring Committees (DCMCs) Focal Point.

Key outcome: Community Health Committee formed primarily to monitor and demand accountability from the District Assembly with regards to how revenues are expended.

Local

LEARN: Action for Local Employment, Accountability and Resource MobilisatioN

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Open governance Transparency Accountability

Revenue Chart Board Community-based Health Planning & Services (CHPS)

Key issues coming outPayment of tax on credit (e.g. cattle owners in Northern Ghana). An issue of trust

Churches to start paying tax?

Citizens willing to pay taxes when able to contribute and demand for accountability

Mainstreaming tax justice into other programme areas

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