Key pointers in the 2022 Income Tax Amendment (No. 2) bill and my take on the way forward

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Income Tax
Income Tax

Introduction

 

As the Budget Statement and Economic Policy of the government for 2023 was presented by the executive on 24th November 2022, it was the expectation that revenue generation bills were supposed to be tabled under a certificate of urgency for Parliament consideration. But from recent past, it has become eminent that not all tax bills presented to the current parliament receive a swift and unanimous approval. Some tax bills received quick approval whilst the passage of the other bills was deferred until 31st March 2023. 

Although the bills have been passed by Parliament, I wish to emphasise that at the time of press, the bills had not received Presidential assent and gazetted. This article is to touch on some key pointers in the Income Tax Amendment (No 2) Bill of 2022 and provide my opinion on the way forward. 

  • Key pointers in the 2022 Income Tax Amendment (No 2) bill   
  • Minimum chargeable income

Section 1 of the amendment bill seeks to amend the Income Tax Act, 2015 (Act 896), by the insertion after section 2, with section 2A as despite section 2, a person may be required to compute and pay tax on a minimum chargeable income of five per cent (5%) of turnover where the person has been declaring losses for the previous five years of assessment total income.

This requirement does not apply to a person within the first five years of commencement of operations or a person engaged in farming.

There are some phrases which require some clarity such as “has been declaring losses for the previous five years”. Does it mean for the rule to apply, the taxpayer must declare continues losses for each of the previous five years from the period the determination is being made? And the expression “may” instead of “shall” which was used makes it not mandatory, but determination is at the discretion of the Commissioner- General(CG).

On the matter of time of assessment and payment of the tax, it is my opinion that the rule may be exercise by the CG at his discretion when he realises during audit that the taxpayer continues to make losses for the prior five years. 

This amendment has the potential of affecting genuine businesses which are struggling to survive and the application of the rule may accelerate the collapse of such businesses. 

  • Unification of unrelieved loss

Section 3 of this amendment bill seeks to amend Section 17 of Act 896 by the substitution for subsection (1), with a person who is ascertaining the income of that person or of another person from a business for a year of assessment shall deduct an unrelieved loss of the person for any of the previous five years of assessment from the business. 

This amendment unifies the number of years a taxpayer can carry forward losses from the previous position which had five years for businesses in the priority sectors, and three years for other businesses in Act 896 to five years for every business. This is a welcoming news for taxpayers who were not in the priority sector since they can now carry forward their unrelieved losses for five years.  

  • Foreign currency exchange loss 

Section 4 of this amendment bill seeks to amend Section 25 of Act 896 by the addition after subsection (3), with subsection (4) as “for the purposes of ascertaining the income of a person for a basis period from any business, there shall be deducted any foreign currency exchange loss, other than a loss that is capital in nature, incurred in the production of income during the period in respect of a (a) debt claim, (b) debt obligation, or (c) foreign currency holding of that person”.

A summary of subsections 5 to 7 indicates that foreign exchange loss of a capital nature may be capitalised, and capital allowance may be granted but an unrealised foreign exchange loss and foreign exchange loss arising from a transaction between two resident persons shall not be allowed as a deduction.

This amendment has implications on the operations of resident taxpayers who transacts among themselves in foreign currencies which leads to foreign currency exchange losses, since such losses shall not be tax deductible. 

  • Submission of return for gains on realisation of assets and liabilities 

Section 5 of this amendment bill seeks to amend Section 39 of Act 896 by the insertion of section 39A  with a person who realises an asset, or a liability shall, within thirty days after the realisation of the asset or liability, submit to the CG a return in the· form determined by the CG.

  • A withdrawal from a provident fund or personal pension scheme

Section 6 of this amendment bill seeks to amend section 94 of Act 896 by the substitution for subsection (4), with a  withdrawal from a provident fund or personal pension scheme before the statutory retirement age by an employee due to loss of permanent employment, or a self-employed person from the personal savings account provided for under paragraph (a) of subsection (2) of section 109 of the National Pensions Act, 2008 (Act 766) due to the Novel Coronavirus (COVID-19) pandemic or the current economic hardship is exempt from income tax for 2023.

This is a welcoming news to ameliorate the plight of taxpayers in the mist of the economic hardship.   

  • Withholding of taxes on the realisation of an asset or a liability

Section 8 of this amendment bill seeks to amend section 115 of Act 896 by the substitution of subsection (1) as subject to subsection (2), a resident person shall withhold tax at the rate specified in paragraph 8 of the First Schedule where that person pays (a) any dividend, winnings from lottery, interest, natural resource payment, rent or royalty to another person, or (b) consideration to another person in respect of the realisation of an asset or a liability, and the payment has a source in the country.

Section 9 of this amendment bill seeks to amend section 116 of Act 896 by the insertion of section 116A after section 116, as where a resident person, other than an individual, pays consideration to another person with respect to the realisation of an asset or a liability which does not fall under section 115, the resident person shall withhold tax on the gross amount of the payment at the rate specified in paragraph 8 of the First Schedule.

  • Definition of “Persons in a controlled relationship”

Section 11 of this amendment bill seeks to amend section 128 of Act 896 by the substitution for section 128, with persons in a controlled relationship by maintaining section 128(1) of Act 896 and replacing subsections 2 to 4 of Act 896 with subsection 2 of the amendment bill as a person is an associate of an entity where 

(a) the person participates, directly or through one or more interposed entities, in the management or control of the entity; or

(b) the management or control of the person and the entity is, directly or through one or more interposed entities, exercised. by the same persons.

This amendment is key in the application of the 2020 TP regulations (LI2412) which reference section 128 of Act 896 in its definition of persons in a controlled relationship.

  • Amendment of the First Schedule to Act 896

Section 13 of this amendment bill seeks to amend the first schedule of Act 896 by 

(a) the substitution for paragraph 1, of rates of income tax for individuals as subject to subparagraph (3) and the Second Schedule, the chargeable income of a resident individual for a year of assessment is taxed at the following rates:

NO CHARGEABLE INCOME RATE OF TAX
1 First GH¢ 4,824 Nil
2 Next GH¢ 1,320 5 per cent
3 Next GH¢ 1,560 10 per cent
4 Next GH¢ 36,000 17.5 per cent
5 Next GH¢ 196,740 25 per cent
6 Next GH¢ 359,556 30 per cent
7 Exceeding GH¢ 600,000 35 percent

(2) Subject to subparagraph (3), the chargeable income of a non- resident individual for a year of assessment is taxed at the rate of twenty-five per cent.

 

(3) Where the chargeable income of an individual includes a gain from the realisation of an investment asset, less any loss from the realisation of an investment asset not charged elsewhere, the individual may elect that the gain from the realisation of the investment asset, less any loss from the realisation of that asset is taxed at the rate of twenty-five per cent. ·

(4) Where an individual receives a gift other than a gift received in respect of business or employment, the individual may elect to pay tax at the rate of twenty-five per cent.

(5) The remainder of the chargeable income of the individual is taxed at the rate referred to in subparagraph (1) or (2) as the case requires;

(b) the substitution for subparagraph (1) of paragraph 3, of (1) the chargeable income of a company and income from goods and services provided to the domestic market by a free zone enterprise after the concessionary period other than a company principally engaged in the hotel industry for a year of assessment is taxed at the rate of twenty-five per cent;

(c) the substitution for paragraph 7, of Rate of tax on persons entitled to concessions in the Sixth Schedule 

  1. The income of a person entitled to a concession in the Sixth Schedule is subject to tax at the rate of five per cent of chargeable income;

(d) the insertion after paragraph 7, of “Rate of tax on income from lottery operations

7A. The income of a person from lottery operations is twenty per cent on the· gross gaming revenue;

(e) the addition after paragraph 8(1)(b)(ix), of

(x) in the case of winnings from lottery, ten per cent on gross winnings at the end of each game; 

(xi) in the case of realisation of an asset or a liability by a resident person, three per cent of the consideration received; and

(xii) in the case of realisation of an asset or a liability by a non-resident person, ten per cent of the consideration received;

(f) the addition after paragraph 8(1)(c)(ix), of 

(x) in the case of realisation of an asset or a liability by a resident person, three per cent of the consideration received; and 

(xi) in the case of realisation of an asset or a liability by a non-resident person, ten per cent of the consideration received.

 and

(g) the addition after paragraph 8(1)(c), of

“(d) a payment to which section 116A applies.”.

  • Amendment of the Fourth Schedule to Act 896 

Section 14 of this amendment bill seeks to amend the Fourth Schedule of Act 896 by the substitution for the table in paragraph 1, of

NO. BENEFIT RATE
1 Driver and vehicle with fuel 12.5 per cent of the total cash emoluments of the person up to a maximum of GH¢1,500.00 per month
2 Vehicle with fuel 10 per cent of the total cash emoluments
of the person up to a maximum of GH¢1,250.00 per month
3 Vehicle only 5 per cent of the total cash emoluments of the person up to a maximum of GH¢625.00 per month
4 Fuel only 5 per cent of the total cash emoluments of the person up to a maximum of GH¢625.00 per month

 

  • Conclusion

In conclusion, although the Government requires urgent revenue generation measures to enable it to raise enough funds to safe the economy, care must be taken since some of the tax measures in this amendment bill has the tendencies of pushing a lot of taxpayers out of business which will lead to untold hardship on the citizenry due to exacerbating accompanied unemployment. Employees are to embrace themselves for some level of increment in their monthly PAYE even though their income levels and their status may remain the same. Proper planning and sound judgement are the only solution that can assist employees to stick their head up of the waters and keep themselves afloat in the mist of this tax hikes, high inflation, loss of savings, and general economic meltdown.

  • Recommendations  

I recommend among the following for possible consideration:

  1. The same old words are what I can rehash again that policy makers and implementers are to enforce the existing tax laws to the later by identifying defaulters and bring them into the tax net for them to pay their part instead of introducing new tax measures on the same old people who have voted to do the right thing by  registering and paying taxes.
  1. From the resistance faced on the passage of these bills, I think it’s high time policy makers understands that engagements and wide consultations to build consensus are key in the success of formulation, and implementation of policies.

This article is not to spite and belittle the good work done by the Finance Ministry Staff but to extend my professional opinion as a tax practitioner in the discharge of my duties as a GHANAIAN CITIZEN who seeks the success of Ghana.  

Ibrahim Asare

ibasare@gmail.com; 0244 423 960

(The author is a Chartered Tax Practitioner- a Member of ICAG and a Member of the Chartered Institute of Taxation Ghana).

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