PricewaterhouseCoopers (Ghana) Limited October 2010 1 This edition of On Point, our abridged tax newsletter, focuses on recent amendments to the Ghanaian Tax Laws and general updates regarding tax issues in Ghana. Amendment to the Free Zones Act, 1995 (Act 504) The Parliament of the Republic of Ghana has passed an amendment to the Free Zones Act, 1995 (Act 504) by issuing a Legislative Instrument (L.I. 1963) to clarify the tax rate applicable to Free Zone Entities (FZE) after the expiration of the ten (10) year tax holiday. Prior to the introduction of L.I 1963, FZE were required to be subject to corporate income tax at a rate of up to 8% after the expiration of the 10 year tax holiday. This created some uncertainties on the applicable income tax rates for the FZE after the tax holiday. The L.I. 1963 FZE clarifies the uncertainties regarding the corporate income tax rates of FZEs after the tax holiday as follows: Company Rate Agro processing companies outside Regional Capitals 0% Agro processing companies in the Northern, Upper East and Upper West Regions 0% Agro processing companies in Regional Capital and Tema in the Greater Accra Regions except Northern, Upper East and Upper West Regions 4% Wood processing companies 8% Commercial companies 8% Service companies 8% Enclave developers 8% Manufacturing companies outside Regional Capital 5% Garment and textile manufacturing companies 4% Other manufacturing companies 6% The corporate income rates above are effective from 17 March 2010. This implies that from this date, FZEs falling within any of the above categories (after the expiration of the tax holiday) would be required to apply the corporate income tax rates as specified above. On Point Ghana Tax News in a snapshot October 2010
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PricewaterhouseCoopers (Ghana) Limited October 20101
This edition of On Point, our abridgedtax newsletter, focuses on recentamendments to the Ghanaian Tax Lawsand general updates regarding taxissues in Ghana.
Amendment to the Free Zones Act,1995 (Act 504)
The Parliament of the Republic ofGhana has passed an amendment tothe Free Zones Act, 1995 (Act 504) byissuing a Legislative Instrument (L.I.1963) to clarify the tax rate applicable toFree Zone Entities (FZE) after theexpiration of the ten (10) year taxholiday.
Prior to the introduction of L.I 1963, FZEwere required to be subject to corporateincome tax at a rate of up to 8% afterthe expiration of the 10 year tax holiday.This created some uncertainties on theapplicable income tax rates for the FZEafter the tax holiday.
The L.I. 1963 FZE clarifies theuncertainties regarding the corporateincome tax rates of FZEs after the taxholiday as follows:
Company RateAgro processing companiesoutside Regional Capitals
0%
Agro processing companies inthe Northern, Upper East andUpper West Regions
0%
Agro processing companies inRegional Capital and Tema inthe Greater Accra Regionsexcept Northern, Upper Eastand Upper West Regions
The corporate income rates above areeffective from 17 March 2010. Thisimplies that from this date, FZEs fallingwithin any of the above categories (afterthe expiration of the tax holiday) wouldbe required to apply the corporateincome tax rates as specified above.
On Point
Ghana Tax News in a snapshotOctober 2010
PricewaterhouseCoopers (Ghana) Limited October 20102
Focus on Mining:
Total Tax Contribution - Havingknowledge of all your taxcontributions could help facilitatedialogue with the tax authorities.
Corporate tax is usually given all theattention when it comes to taxes. Therecent results of PwCs 2008 Total TaxContribution (TTC) Global Study for theMining Sector shows that corporateincome tax accounts for 40% of totaltaxes borne by mining companies. Thismeans more than 50% of the taxes paidby mining firms are not reported on theface of the financial statement. Thesetaxes which are otherwise not reportedin the financial statements includeroyalties, employee taxes, irrecoverableVAT and other payments made to localauthorities (district or municipal).Because TTC measures cashpayments, it takes into account anysuch tax breaks, which reduce theamounts paid.
The Study was carried out using thePricewaterhouseCoopers’ TTCFramework which measures anorganization’s economic contribution intaxes, taking into account businesstaxes borne, as well as those collectedon behalf of government. Theframework provides a standardisedconsistent framework to quantify andhighlight taxes which otherwise mightwould not be visible to stakeholders.
Through TTC, we are able to computethe Total Tax Rate-which is the burdenfor all taxes borne by a company inrelation to profitability- which is all taxesabove and below the line. Therefore fora company which pays no corporate taxbecause it is in a loss position, it mighthave a positive Total Tax Rate if it ispaying other taxes in royalties (abovethe line) for example.
Due to the standardized nature of theframework, it can be used on a country,global or on an industry basis (foodsindustry, banking, oil companies etc.) tocollect tax data and benchmark theresults against other companies.
Highlights of the Study - Ghana
One company made a largecontribution to the government andpublic finances in Ghana in 2008totalling approx. $9 million. Of this,less than 1% is corporate tax withother taxes and contributions makingup more than 99% of the total;
Total contribution to government forAfrica averages 11.3% and aGhanaian average of 9.7%.
Taxes and contributions borne as apercentage of turnover, for Africa is7.5% and the Ghanaian average of7.2%. This is expected to go high withthe introduction of 5% stabilizationlevy and revision of royalty rates to 5%and the industry maturing.
The cost of taxes and contributionsborne measured in relation to profits –the Total Tax Rate – increased in these2008 results to 39.3%. The increaseover 2007 is due to the impact of thedownturn. Profit and corporate incometaxes fell, but other amounts did not andthus become relatively more expensive.
PricewaterhouseCoopers (Ghana) Limited October 20103
Benefits of taking part in a TTCSurvey:
Each company that takes part in ourstudies receives in return a report ontheir own company’s TTC. For most, thisis the first time they have seen thesefigures, and a total for what they pay. Inour experience, this is importantmanagement information that canincrease internal visibility over theimpact of all the different taxes andcontributions and can be used in anumber of ways, including informingdecisions on business investment, themanagement of all tax figures, and theuse of tax resource.
We also suggest companies considerthe benefits of including this TTCinformation in its external relations, suchas in its annual financial statements.
General Tax Updates
Pension Contributions of ExpatriateStaff in Ghana
The National Pensions Act, 2008 (Act766) (“NPA”) requires that employersmake contributions towards pensions(i.e. Social Security Fund) on behalf oftheir employees for each month. Thereis a total contribution is 18.5% of thebasic salaries of employees each month(i.e. 13% contribution by the employerand 5.5% by the employee). The NPAdoes not specifically preclude expatriateemployees/staff from makingcontributions toward the SSF.
However in practice, expatriate staff donot usually contribute towards the SSF.
SSNIT officials have recently indicatedthat expatriate employees/staff who donot expect to remain in Ghana for theminimum period required to enjoybenefits of making SSF contributions,would not strictly be required to
contribute toward the SSF, if and only ifthey can provide evidence to the factthat they make pension contributions intheir respective home countries.
Petroleum (Exploration andProduction) Bill, 2010
The Parliament of the Republic ofGhana through its Select Committee forMines and Energy has sent an invitationto the general public to makecontributions to the proposed Petroleum(Exploration and Production) Bill, 2010(“Bill”).
The bill which provides petroleumexploration and production, as well asrelated matters (including local content)will repeal the current Petroleum(Exploration and Production) Law, 1984,P.N.D.C.L 84.
It is widely expected that this new Billwhen finally passed into an Act(together with its LegislativeInstruments), would contribute tostrengthening the regulatory frameworkof Ghana’s upstream oil and gasindustry.
Available publications
Copies of the following publications areavailable to be sent to you uponrequest:
2010 Tax Facts and Figures; Top Ten Tax Issues in Ghana’s Oil
and Gas Sector; Tax Compliance Due Dates 2010
and 2011; and Quick Guide to Setting up in Ghana.
Please contact us further in relation tothis or any of the issues discussed inthis newsletter via our contact detailsbelow:
PricewaterhouseCoopers (Ghana) Limited October 20104
Contact us if you would like to discuss any aspects of this snapshot.
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