It must also be understood that the commissioner general has the power to issue an additional assessment within three (3) years to any tax payer by amending an assessment issued previously when it become necessary by reason of tax fraud or failure to disclose full income or falsification of information.
The provisional assessment regime is gradually phasing out, if not completely phased out. It is self-assessment which is now gaining prominence.
With the self-assessment, the Company or an individual will prepare and file its own projections for the year before the end of the current year. Every company submit its projections with the computations of chargeable income and income tax payable to the commissioner.
The tax payable is divided into four (4) equal instalments and it is paid on quarterly basis.
The tax payer has the right to revise his own assessment either downwards or upwards depending upon changes in business trends before the end of the end of year.
Period of records
All taxpayers are under obligation to keep their records for a minimum of six (6) years before destroying them.
Permission from the commissioner general
If it become necessary that records needed to be destroyed before six (6) years, a written permission should be made to the commissioner general for an approval before such records could be destroyed.
Accounts and audits
All taxpayers are required by law to prepare audited financial statements and submit same to the Ghana Revenue Authority.
If the financial statements so submitted conforms to the general accounting and taxation standards and principles, the accounts will be examined and finalised. The final tax based on the accounts having being examined could be lower, higher or equal to the provisional assessment issued at the beginning of the year.
When it is established that you have overpaid your tax liabilities, the Ghana Revenue Authority would usually not credit your tax records or make a refund to you immediately until the tax audit unit conduct filed audit to confirm such overpayment. It is possible to record an overpayment through desk audit but this position could be different when the field audit is conducted.
Demand for tax liabilities
The Ghana Revenue Authority will communicate to you in writing your final tax position for a basis period after examining your financial statements
The Commissioner will serve you a letter and indicate when you should pay off your tax liabilities (if any).
In a situation where you disagree with the computations of your final tax liabilities, you have within thirty (30) days within which you can object to your final assessment.
if you fail to act within thirty (30) days you forfeit the right to object and therefore the assessment becomes final and conclusive.
Your Accountant or Tax Advisor is also copied or given the same letter which is served on you.
It is extremely important to see your Accountant as soon as you receive such letters because you may not fully understand certain technicalities.
Withholding taxes is a tax deducted at source from the income of a person by an authorised withholding agent and accounted later to the commissioner on due date.
The law stipulates that any company that buys goods or procure any services from any individual or company must withhold 7.5% of the gross value of the total amount.
Failure to subject payments to withholding tax, the withholding agent will be surcharge. Also, if the agent fails to account for such monies deducted at source to commissioner there will be surcharges of penalties and interest.
Tax credit certificate
Any person or company who suffers withholding tax payment is given tax credit certificate that can be used to reduce that person or the Company’s tax liabilities.
if you have suffered withholding tax, you must obtain your tax credit certificate from the withholding agent.
Persons or companies who suffer largely from withholding tax or whose business activities involve mainly payments which are always subjected to withholding taxes are not under any obligation to meet quarterly instalment payments.
It must be noted that individuals cannot withhold tax on any supply of goods or services which is less than five hundred cedis (GH¢ 500.00) do not suffer withholding. However, in the case of rent no matter the amount 15% will be withheld.
To qualify for avoiding payment of withholding taxes you must meet the following requirements:
a. Tax Returns: The Company must have submitted its returns up to date.
b. Audit: The Company must have been audited during the last three years. By audit it means Ghana Revenue Authority staff will visit your premises and verify all documents and records and convey their findings and any tax emanating from the audit.
c. Tax Position: The Company must have paid all its corporate tax due
d. Projection: The Company must have submitted its projection at the beginning of the year stating its turnover and net income.
e. Pay As You Earn: The Company must have paid its pay as you earn (workers tax) and other withholding taxes up to date.
f. Director’s Returns: The Company must have submitted returns on all its directors up to date and might have paid all the outstanding taxes
g. Dividend Tax (if any): All dividend taxes must have been paid up to date
h. Branch profit taxes: All branch profit taxes must have been paid up to date (if the company is a permanent establishment of non-resident company).
i. Capital Allowance Position: The Company must indicate how much capital allowance is carried forward to the next year and any capital allowance that has been exhausted.
j. Withholding tax Benefits: The Company must submit a schedule of withholding tax transactions covering the years of assessment.
Legitimate expenses that can reduce your tax liabilities are:
a. Interest: There shall be deducted any interest incurred during the basis period in respect of a borrowing employed by that person in production of the income. Many businessmen use bank loans to run their businesses.
Assuming you took a loan of GH¢100,000.00 to run your business and the interest rate 25%, you will pay GH¢25,000.00 as interest at the end of the year (straight line method). You can deduct this from your profit provided you can produce all the supporting documents.
b. Rent: Any business premises or land that you rent to run your business, you can deduct it from your profit. You need to make sure that you have proper tenancy agreement and make sure you deduct 15% from the gross rent you are paying to the landlord/lady and pay same to Ghana Revenue Authority (Companies only). if you fail to withhold the 15% GRA will surcharge you but you can go to the landlord and reclaim it if you can.
c. Repairs and Maintenance: if you incur any cost in repairing or maintaining any premises, plan, machinery, fixture etc. you can charge the total amount to your profit. But the name of the game is evidence; if the repair is capital in nature, it is not allowable. Example, when you change a car engine, it cannot be said to be repairs.
d. Bad Debts: if you can genuinely proof that some debtors are not in position to honour their debt to your company, then the amount involved can be taken away from your profit. However, provision for bad debt is not allowable.
e. Research Development: if you embark on any research and development to improve the quality or efficiency of your product or services such expenses can be deducted from your profit. This excludes acquisition of assets.
f. Wages and Salaries: Wages and salaries you pay to your workers excluding your family members who do not work in the business can be taken away from your profit. You can also deduct 13% SSNIT from your profit (employers’ contribution).
g. Director’s Remuneration: Because Companies are by law seen as legal persons, anybody who work for is paid including directors. So, any amount paid is to the Directors can reduce your profit. However, if you are self-employed, it is good to pay yourself each month but that amount cannot be taken away from your profit.
h. Foreign Exchange Losses: If you are an importer or you have taken a loan abroad and because of the depreciation of the cedi you need more cedis than before to service the debt or to buy inputs, whichever loss you suffer can be deducted from your profit. To take advantage of this provision, the commissioner must know the existence of the debt in advance.
i. Capital Allowance: You can deduct capital allowance from your profit; depreciation in Financial Accounting is not accepted in taxation because of varying accounting policies with different rates. Section 23(1e) of Act 592 specifically disallows financial accounting depreciation. Capital allowances are granted instead of depreciation which is uniform for similar assets, business and sectors.
Depreciable assets are assets that re likely to lose value because of wear and tear, obsolescence (going out of use) or effluxion (flowing out of; waste) of time but does not include trading stock.
Government knows that whichever asset you use to generate your income, you cannot use it forever and that you will certainly need a replacement in future. Government therefore allows you to set aside part of your profit so that you can use it to buy new one.
Other deductions allowed
- Contribution by charity
Any contribution made by a person during the year to any charitable institution (e.g., children’s home) or any fund approved by government may be deducted from your profit before your tax is calculated. Make sure you obtain receipt from the Department of Social Welfare. Example, if you make a donation to Osu Children’s home and have a valid receipt from the Department of Social Welfare, you can take that amount from your profit before your tax is calculated.
If you contribute to any scholarship fund approved by government and obtain receipt from the Ministry of Education, such contribution can be deducted from your profit.
- Donations for Rural and urban development
Any donation made by a person or company during the year for the purpose of development of any rural or urban area and approved by government can have that amount deducted from his profit. You must obtain receipt from the Ministry of Local Government.
- Donations for sports and development
Any donation made by a person or a company during the year for the purpose of sports development or sports promotion and approved by government can be deducted from your profit. So, if Guinness Ghana supports the Black stars of Ghana and they get receipt from the Ministry of Youth and Sport, such amount can be deducted from their profit.
- Donation to Government for worthwhile causes
Any donation made by a person or a company during the year to government for a worthwhile cause (e.g., helping flood victims) and approved by the commissioner, you may be allowed to deduct from your profit.
Carry over losses
If you are in or intend to be in any of the companies below you can carry over your losses for a five (5) year period. What this means is, if you incur a loss for one year, you can carry it over to the following year. So losses this year can offset or cancel next year’s profit. Example, Company A made a loss of GH¢100,000.00 in 2011 and a profit of GH¢110,00.00 in 2012, the loss of GH¢100,000.00 will offset a profit of GH¢110,000.00. So, it will pay tax on only GH¢10,000.00. If the company also made losses in 2012, losses in 2011 and 2012 will be carried to 2013 and this will continue until five (5) years. Companies that enjoy this privilege are:
- Manufacturing business for export
- Agro-processing industries
- Tourism business registered with Ghana Tourist Board
- Information and Communication Technology (Business engaged in software development)
- Venture Capital
In conclusion, may the good Lord help you to identify more of your talents and give you the strength and knowledge to reach the ultimate.
Credit: Mr. Joseph Kyei Ankrah (Own your own Business)
Richmond is a chartered Tax Accountant and a certified Professional Forensic Auditor. He has worked extensively with Accounting Firms and Banking Institutions. His specialization are Tax Planning for Companies, Institutions and individuals. He is also specialized in Forensic Audit and Investigations. Contact: [email protected] – 0208438976