NOVEMBER 8, 2017
REPORT BY MASTER XXX TO CEO SWISSCOM LTD ON PROCEDURE FOR SUBMISSION OF RETURNS AND PAYMENT OF TAX (INCLUDING PENALTY) AND DISPUTE RESOLUTION PROCEDURES.
Procedure for submission of returns and payment of tax including penalties:

• The tax return shall be submitted to the Commissioner-General not later than the last working day of the month immediately following the month to which the return relates, whether or not tax is payable for the tax period.
• The payment of the tax due for a tax period shall be made to the Commissioner-General not later than the date the return prescribed is required to be submitted.
• The Commissioner-General may require a person, to submit to the Commissioner-General, whether on that person’s own behalf or as agent or trustee of another person, a further or other returns in the prescribed form as and when required by the Commissioner-General.
• Late filing of returns attracts a pecuniary penalty of two thousand Ghana cedis (GH¢2,000) and a further penalty of five hundred Ghana cedis (GH¢500.00) each day the return is not submitted.
• A service provider who fails to pay the tax due by the due date shall pay monthly interest on the tax due at 125% of Bank of Ghana statutory rate compounded, monthly.                      (1 mark for each point = 6 marks)
  

The Pension Act 2008 Act 766 allows the employees or and employers to contribute towards the 3rd tier with an approved fund managers as approved by National Pension Regulatory Authority which contribution should not go beyond 16.5%. This could be contributed by both the employer and the employee or either.
The law allows for withdrawal by the employee only after 10 years of savings.

Conclusion:
Any withdrawal before 10 years shall be subject to tax at the rate of 15% on both the principal and earnings (interest).

A transfer from income surplus account to stated capital is an arrangement that is deemed dividend in taxation.
The tax exposure on this arrangement are as follows:

• Withholding tax on dividend at the rate of 8%
• Stamp duty payment at the rate of 0.5%
  

• Location: Tax planning is possible for some persons on account of jurisdiction/location. Manufacturing companies have the following tax rates on the basis of the location at the following areas
  Accra/Tema                      25%
  Regional Capitals             18.75%
  Any other area                 12.5%
  The above rates and location serve as incentive to tax planning regarding where a manufacturing company should be situated.
• Activity
  The various activities do not have the same or uniform tax exposure and benefits and therefore some activities can help create tax planning.
  Example of activities and the years of temporary concessions.
  Cattle business                                     10 years
  Tree Crops                                           10 years
  Cash crops/other live stocks              5 years
  Agro –processing                                 5 years
  Rural Banks                                         10 years
• Time Horizon
  Time horizon for persons is not uniform and therefore can act to engender tax planning. The number of years that a person is interested in to have a tax benefit is largely dependent on the type of activity that is engaged. The time ranges from 5 years to 10 years. This allows persons that want to plan to determine the temporary concessions available and the number of years the person is interested. The number of years in effect dictates the activity.
• Entities
  Benefits of tax planning is not available to all persons evenly ie tax benefit to an individual is different from that available to a company. Individual running farming activities have friendly tax exposure during their temporary concessions as opposed to other areas like a company that is into farming activities.                                      (4 points for 4 marks)

Evaluation of investment on ICT-hard ware manufacturing versus mango plantation

Introduction
Following your request for evaluation of the above for an investment decision, I furnish as below to enable you take a decision on the type of investment you want to undertake and the consequent tax implication.
For clarity I would proceed to analyze the various activities and their tax implication under the heading as follows:

Locational Advantage
The laws of Ghana grant locational tax incentive for manufacturing companies operating in Ghana. Tax rates are: Accra/Tema 25%, Regional Capitals 18.75% with a rebate of 25% and any other area 12.50%, a rebate of 50%. The Nsawam in the Eastern Region of Ghana falls under any other area hence will enjoy a tax rebate of 50% on a corporate rate of 25%. In effect, the company will pay tax at the rate of 12.50%.
This will be available to the ICT-Hard Manufacturing but this will not be available to the Mango Plantation option.

Carry over of losses
Both ICT-Hard Ware Manufacturing and the Mango plantation shall be allowed to carry over their losses (tax losses) for a period of 5 years. The proposed losses of (GH¢20,000), (GH¢18,000) and (GH¢10,000) in the years 2018, 2019 and 2020 respectively shall be carried over and deducted in the years that profits are made. They are, however, granted in the order in which they occur but limited to 5 years upon occurrence.
That is the proposed loss of (GH¢20,000) in 2018 shall not go beyond 2023. If all is not recouped, it shall not be carried forward in year 2024.
Both fall under the priority area and are treated the same for tax purposes.

Capital Allowance
The proposed capital assets to be acquired shall be granted capital allowance which is a relief to the proposed company. This is granted to enable companies recoup cost incurred in the acquisition of capital assets and also using same in the generation of income. This is available to either investment decisions.

Fresh graduate incentives
The tax laws allow companies which recruit fresh graduates from Ghanaian universities are granted incentives. The following is the categorization of the incentives:
Percentage of fresh graduates in workforce                       Additional deduction
Up to 1%                                                                                   10% of wages and salaries
Between 1% and 5%                                                                30% of wages and salaries
Above 5%                                                                                  50% of wages and salaries
The percent of wages and salaries shall be granted as additional allowable deduction for tax purposes. This would help reduce the chargeable income or increase the tax loss as the case may be.
This incentive is available to both investment decisions.

Thin capitalization
Section 33 of Act 2015 Act 896 provides that a resident entity which is not a financial institution in which 50% or more underlying ownership or control is held by an exempt person either directly or indirectly, the interest on loan that exceeds 3:1 shall be disallowed for tax purpose.
The loan from the associate shall be looked at from an angle of control of 50% or more either alone or together with other persons. And if that is met, the interest above the ratio shall be disallowed.
The percentage equity in the resident person by the USA Associate is critical in the determination of whether thin capitalization should apply or not. The facts and circumstances are not too clear for a definite position to be drawn on its applicability or non-applicability.

Additionally, interest payment shall be subject to withholding tax at the rate of 8% final. This exposure is the same to either option.

Temporary Concession
The tax laws allow persons in certain category to enjoy temporary concession that is pay tax at the rate of 1%. In the case of Mango plantation, it has 10 years after commencement of operations, temporary concession during which it will pay tax at the rate of 1%.
This incentive is not available to the ICT hard Ware Manufacturing option.

Recommendation/conclusion
It is hoped that the above would help you in your investment decision making on the best investment decision to make as either proposal has been looked at or analysed in the light of the activity intended to be undertaken.
(5 points @ 2 marks each =10 marks)

Note: The solution was based on the GRA’s practice notes. Others who factored the employer’s contribution as part of the Total Cash Emolument were considered in the scheme used.

• The person becomes bankrupt, is wound-up or goes into liquidation;
• The Commissioner-General believes on reasonable grounds that the person is about to leave Ghana indefinitely;
• The Commissioner-General believes on reasonable grounds that the person is otherwise about to cease activity in Ghana;
• The Commissioner-General believes on reasonable grounds that the person has committed an offence under a tax law; or
• The Commissioner-General otherwise considers it appropriate, including but not limited to where the person fails to maintain adequate documentation.                  (Any 3 points)
  

Unlawful attempt to minimize tax liability through fraudulent techniques to circumvent or frustrate tax laws, such as deliberate under-statement of taxable income or wilful non-payment of due taxes. Tax evasion schemes are plentiful, but all involve the misrepresentation of an individual’s or business’ income and/or assets when reporting to the Ghana Revenue Authority (GRA), in order to reduce the amount of taxes they owe.     (2 marks)

Ways by which companies evade tax include:

• Underreporting income
• Inflating deductions or expenses
• Hiding money
• Hiding interest in offshore accounts                                   (Any 3 points for 3 marks)
  

• Effects on Production
  Public debts are raised to finance productive enterprises of various kinds, e.g., steel works, cement, multipurpose projects, construction of ships, railway lines and highways, heavy electrical and engineering works, mining, oil refining,
• Effects on Consumption
  When people subscribe to government loans, they generally have to curtail consumption. Since investment of funds raised by borrowing raises the level of employment and as a result raises the level of consumption.
• Effects on Distribution of wealth
  Public loans transfer money from rich to government. The fiscal operations of the government are to benefit the poor primarily. The incomes of the poor increase directly through increased employment or it benefit them in directly through the enlargement of social services.
• Effects on the Level of Income and Employment
  In modern times, public borrowing is resorted to in order to raise funds for financing agriculture, industry, mining, transportation, communication, etc. It increases employment opportunities, the level of income and standard of living.
  (1 mark for each point= 4 marks)

• There are two main types of taxes: direct taxes and indirect taxes. A tax cut increases disposable income, and leads to added consumption spending. Income will increase by a multiple of the decrease in taxes.Taxation has been an important fiscal policy throughout history and will stay a crucial aspect in future politics since it creates the basis for the state to work.
• The primary function of a tax system is to raise revenue for the government for its public expenditure. So the first goal in the development strategy as regards taxation policy is to ensure that this function is discharged adequately
• Taxes are used to reduce inequalities through a policy of redistribution of income and wealth. Higher rates of income taxes, capital transfer taxes and wealth taxes are some means adopted for achieving these ends.
• For social proposes such as discouraging certain activities which are considered undesirable. The excise taxes on liquor and tobacco, the special excise duties on luxury goods, betting and Gaming Levy are examples of such taxes, which apart from being lucrative revenue sources have also goals.
• Taxes affect growth and development in two ways. First, by influencing the aggregate supply of the main factors of production by raising or lowering their net (after tax) returns; and
• Second, by influencing the efficiency of resource utilisation factor (total productivity).       (1 mark for each point =6 marks)