PUBLIC LECTURE TOPIC: INCOME TAX ACT, 2015 (ACT 896); WHAT HAS - PDF document

3/23/2016 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 1 PUBLIC LECTURE TOPIC: INCOME TAX ACT, 2015 (ACT 896); WHAT HAS CHANGED 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 2 1

3/23/2016 INTRODUCTION  Income Tax Act,2015 (Act 896) is part of the process of the reorganization of the tax laws after the Integration of revenue agencies  Is the last of the tax laws which deal with the charging provisions. The others are:  Value Added Tax Act, 2013 (Act 870)  Excise Duty Act, 2014 (Act 878)  Customs Act , 2015 (Act 891) 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 3  Proposed Revenue Administration Bill underway to deal with common administrative provisions 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 4 2

3/23/2016 Objectives of Income Tax Act, 2015(Act 896)  To revise and consolidate the law relating to income tax  Simplify the provisions  Make tax more user friendly  Retain provisions that are peculiar to income tax administration  Enhance efficiency and facilitate compliance 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 5  Broadening the tax base  Remove the narrow and distorted tax base of the Internal Revenue Act, (Act 592)  Rationalize, streamline and restrict tax concessions  Tackle erosion of the tax base  Align domestic tax rules with current international tax rules 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 6 3

3/23/2016 Some salient changes in Act 896 Chargeable Income  The chargeable income shall be determined from each source separately. business investment employment (The concept of ring fencing of income is clearly stated) 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 7 BASIS OF ASSESSMENT  Resident Person Income of residents taxed on worldwide basis  Non- Resident Person Income of non-residents remains that of source.  Non- Resident Person having Ghanaian Permanent Establishment Income is taxed on worldwide basis 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 8 4

3/23/2016 Deductions (Sections 8-17) General deductibility principle applied Exceptions: Repairs and Improvements (Section 12)  Expenses for the repair or improvement of depreciable assets that are incurred in the production of income may be deducted irrespective of whether they are of a capital nature. Deductions rule: should not exceed five per cent of the written down (a) value of the pool at the end of the year and are allowed in the order in which the expenses are (b) incurred 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 9  Excess expense for which a deduction is not allowed as a result of the limitation is added to the depreciation basis of the pool to which it relates.  Need to keep separate accounts for each capital assets on repairs and improvements. 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 10 5

3/23/2016 Research and Development Expenses (Section 13) Research and development expenses may be deducted irrespective of whether or not they are of a capital nature. 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 11 Losses on Realisation of Assets and Liabilities ( Sections 15) A person may deduct ( a) Losses on the realisation of a capital asset of a business to the extent to which the asset was used in the production of income from the business; (b) Losses from the realisation of a liability of a business:  in the case of a liability that is a debt obligation incurred in borrowing money, the money was used or an asset purchased with the money was used in the production of income from the business; and 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 12 6

3/23/2016 Interest and Financial Cost  The Act separate Interest from Financial Cost  Financial cost are cost incurred with respect to:  A debt claim or debt obligation  A derivative instrument  A foreign currency instrument and  Any other instrument prescribed by Regulations 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 13 Limit on Deduction of Financial Costs (section 15) The amount of financial costs other than interest shall not exceed the sum of-  financial gains plus  50 percent of income of the person excluding financial gain or loss 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 14 7

3/23/2016  Financial costs for which a deduction is denied may be carried forward and treated as incurred during any of the following five years of assessment.  Draft PN is underway to explain. 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 15 Losses from a Business or Investment(Section 17) Losses carry forward apply to all person. a. Those in specified priority area for five years b. In any other area for three years 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 16 8

3/23/2016 Rules of losses carry forward  Ring fence the losses Example  losses from exempt income shall be applied to that income only  Losses from reduced rate will only be deducted at the same rate. 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 17  Business losses may be deducted in calculating income from an investment  Losses from an investment are deducted only in calculating income from an investment. 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 18 9

3/23/2016 Capital Allowance  5 classes instead 6  Assets in mineral and petroleum operations pool together.  1, 2, or 3 depreciable assets use the reducing balance method.  4 and 5 on straight line method. 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 19  Capital allowance granted shall not be deferred.  Unused capital allowance may treated as part of business loss 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 20 10

3/23/2016 Capital Gain/Gifts  Capital Gains and Gifts no longer separate chapters in the ITA  Modified and subsumed under employment, business or investment income and taxed accordingly.  Individuals may however elect to pay 15% tax on capital gains (now called “gain on realisation of an asset” 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 21 Compensation and Recovery Payments(Section 29)  Compensation and recovery payments to be included in calculating income of a person  taxability of judgment debts and other recoveries are now made clear in the income tax act 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 22 11

3/23/2016 Income from Business Include:  a gain from the realization of capital assets and liabilities of the business  a gift received in respect of the business 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 23 Income from Investment Include :  a gain from the realization of an investment asset  gift received in respect of the investment Note  winnings from lottery in now treated as an investment activity. (winning in excess of GHc 2,592 p.a is taxed at rate of 5% final WHT) 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 24 12

3/23/2016 Arm’s length standard and arrangements between associates (Section 31)  Apply to all related party transactions  Where an arrangement exists between persons who are in a controlled relationship, the persons shall calculate their income, and tax payable in accordance with the arm’s length standard. 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 25 Thin Capitalization rule(S33)  Debt-to-equity ratio is provided as 3:1 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 26 13

3/23/2016 Special Industries The Act has certain specific provisions for the following Industries:  Petroleum operations (S63 – S76)  Minerals and Mining Operations (S77-S86)  Financial Institutions (S87- S92) 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 27 SELF ASSESSMENT  Due date of Self Assessment Returns is by the date for payment of the first tax instalment.  Understating estimated tax payable by instalment Liable to pay interest at 125% of BOG discount rate of the tax unpaid for the period for which the tax is outstanding compounded monthly 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 28 14

3/23/2016 MODIFIED TAXATION Modified taxation is introduced for certain eligible resident individuals by- (a) imposing presumptive tax on individuals that only have income from certain types of business (b) applying a modified cash basis in calculating income from certain businesses 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 29 Other modification  Act 896 (S. 47) exempts from tax, gains made from realization of assets from merger, amalgamation or re- organisation where there is a continuity of at least 50% of the underlying ownership.  A Private Ruling binds on the CG and also binds on the applicant as far as the transaction in respect of which the ruling is given is concerned 23/03/2016 Presented by Edward A. Gyambrah( DC P&P GRA ) 30 15