Taxation of resident person(s) in Ghana

Introduction

Tax is a compulsory charge imposed by a State on a person in a jurisdiction for the provision of public goods and services. The International Tax glossary defines a tax as “a government levy that is not in return for specific benefit and is not imposed by way of a fine or penalty (e.g. for non-compliance with the law, except in some cases where it corresponds to tax-related offences). Despite tax being a com­pulsory levy, it can only be charged when a law provides as such. Tax therefore is a creature of statute and no tax can be paid without a law, this principle is evident in Article 174(1) of the 1992 Constitution which states that, “No taxation shall be imposed otherwise than by or under the authority of an Act of Parliament”.

1.Historical Antecedents

Tax systems across the globe are usually classified into either territori­al or worldwide systems of taxation. Despite this classification, most scholars argue that in practice, there is no unadulterated version of either tax system since the tax systems of many countries are a fusion of both systems.

In Ghana, there have been vari­ous laws which has shaped taxation over the period starting from the Income Tax Ordinance No. 27 of 1943, Income Tax Decree of 1966 (NLCD 78), Income Tax Decree of 1975 (SMCD 5), the Internal Revenue Act, 2000 (Act 592), to presently, the Income Tax Act, 2015, (Act 896) and their accom­panying Regulations. NLCD 78, SMCD 5 and Act 592 have all been repealed by Act 896, hence same have no effect of law in Ghana effective 2015.

2.1 The Scope of Income Tax Laws in Ghana (Historical An­tecedent)

Prior to the enactment of Act 896, other repealed income tax stat­utes of Ghana applied only to the territorial area of Ghana. Broadly all income arising within the territo­rial area is liable to Ghana income tax regardless of the nationality or residence of the recipient. Foreign income is assessable to tax only if the recipient is resident in Ghana or the law deems such income as taxable notwithstanding its source.

1.2 Taxation of Resident

Persons in Ghana

The taxation of resident persons in Ghana under the repealed laws, ie. NLCD 78, SMCD 5 and Act 592 was based primarily on territorial concept of taxation. Therefore, the paper will focus on the provisions of Act 592 in comparison to Act 896 regarding taxation of resident persons.

2.2.1 Taxation of Resident Persons under Internal Revenue Act, 2000 (Act 592)

Generally, under the territorial concept of taxation, the income de­rived by both resident and non-res­ident person from sources within a country is subjected to tax by the source country.

Under the repealed income tax legislation, specifically, Act 592, Ghana’s income tax jurisdiction was principally based on the territo­rial (source) concept as indicated above. This meant that tax was only imposed on income which had a source in Ghana. Thus, the foreign source income of a resident person was taxable in Ghana only if the income was brought into or trans­mitted into Ghana or applied in whole or partial satisfaction of any debt incurred in Ghana or used to purchase a movable property which is brought into Ghana. Hence, the taxation of all foreign sourced in­come of resident persons under Act 592 was deferred until such time that that income was brought into or received in Ghana.

2.2.2 Taxation of Resident

Person under Act 896

The strict application of the con­cept of territorial (source) taxation in Ghana prior to the enactment of Act 896, was shrouded with number of complexities over years, due to globalisation and digitisation. Some examples of the complexities include difficulty in taxing foreign source income of residents, etc. To avoid the complexities in taxing resident persons based on territorial concept only, to meet the changing international tax landscape and oth­er socio-economic factors, caused Ghana to enact Act 896.

Under Act 896, the territorial principle of taxation only applies to the taxation of person who are non-resident in Ghana for tax purposes. This means that, Act 896 taxes the income of a resident per­son from all sources (domestic and foreign) including situation where the source(s) of the said income has ceased.

Act 896 introduced the world­wide or global system by impos­ing taxes on the total income of resident persons irrespective of the source of the income. (See sections 3, 103 and 111 of Act 896).

2.Who is a Resident Person for Tax Purposes in Ghana?

The definition of a “Resident Person” for tax purposes is gener­ally specified in the taxation laws of every country. In generality, a resident person may include an individual, a company, a trust, a partnership, or any other persons, who according to the laws of that country is liable to tax therein by reason of that person’s domicile, residence, place of incorporation, place of management or any other condition of that nature.

In Ghana, Act 896, in section 133, defines a person to include an individual or entity. In furtherance of the general principle of describ­ing who a resident person is, section 101 of Act 896 provides criteria in determining the resident status of the following persons:

3.1 An Individual:

An individual is resident for tax purposes in Ghana for a year of assessment if that individual is:

(a) a citizen, other than a citizen who has a permanent home outside of Ghana and lives in that home for the whole of that year,

(b) present in Ghana during that year for an aggregate period of 183 days or more in any 12-month peri­od that commences or ends during that year,

(c) an employee or an official of the government of Ghana posted abroad during that year, or

(d) a citizen who is temporarily absent from Ghana for a period of not more than 365 continuous days, where that citizen has a permanent home in Ghana.

The concept of “home” referred to above implies that any form of home may be considered (eg. house or apartment belonging to or rented by the individual, rented furnished room or partially furnished) in the determination of that individual’s residence status for tax purposes.. But the “permanence of the home” is essential; this means that the individual has arranged to have the dwelling available to that individual at all times continuously, and not occasionally for the purposes of a stay which, owing to the reasons for it, it is necessarily of short duration (eg.travel for pleasure, business travel, educational travel, attending a course at a school, etc.)

2.2 Partnership:

A partnership is resident for tax purposes in Ghana for a year of assessment, if any of the Partners resided in Ghana at any time during that year.

2.3 Trust:

A trust is resident in Ghana for a year of assessment if

(a) that trust is established in Ghana;

(b) a trustee of the trust is res­ident in Ghana at any time during that year; or

(c) a person resident in Ghana directs or may direct senior mana­gerial decisions of the trust at any time during the year, whether the directive is given

(i) alone or jointly with other persons; or

(ii) directly or through one or more interposed entities.

2.4 A company:

A company is resident in Ghana for a year of assessment if

(a) that company is incorporated under the Companies Act, 2019 (Act 992); or

(b) the management and control of the affairs of that company are exercised in Ghana at any time during that year.

3.5 Generally, a citizen is resident for tax purposes in Ghana, so long as that citizen maintains a perma­nent home in Ghana. A citizen will cease to be resident for tax purpose only if that individual maintains a permanent home outside Ghana and lives in that home for the entire year of assessment. Furthermore, in section 101(1) (d) of Act 896, a citizen who maintains a permanent home in Ghana is resident for tax purposes even if that person is temporarily absent from Ghana for a period not exceeding three hun­dred and sixty-five (365) continuous days within a year of assessment. Examples include individuals who attend programme, under take short term consultancies abroad, etc. for less than a year.

3.6 Section 101(1)(c) provides that an employee or official of the Government of Ghana who is posted abroad during a year of assessment is resident for tax pur­poses in Ghana irrespective of the period the individual stays abroad. This covers the diplomats and other individuals engaged by Government of Ghana to work in any of the foreign missions or embassies or perform any other official business for government outside Ghana and the remuneration is borne by the Government of Ghana.

A non-citizen is resident for tax purposes if that individual is pres­ent in Ghana for a period or periods amounting in aggregate to 183 days or more in any 12-month period that commences or ends during the year of assessment

1. Chargeable Income of Person
2. The chargeable income of a resident person for a year of assessment is the total of the Assessable income of that person for the year from each employment, business or investment less the total amount of deduction allowed that person under the Act.
3. The chargeable income of a resident person is determined from each source separately.

• Assessable Income of a Person
• Assessable income is the income of a resident person from any employment, business or investment.
• A resident person’s assessable income is derived from each employment, business or investment whether or not the income source has ceased.
• A non-resident person’s assessable income is derived from each employment business or investment which has a source in Ghana.
• Where a non-resident person has a Ghanaian permanent establishment, its assessable income is income that is connected with the permanent establishment, irrespective of the source of the income.
• Income has its source in the country if the income  accrues in or is derived from Ghana.

• Source of Income and Quarantining of Foreign Losses

It must be noted further that income or losses of a resident person will be treated as follows:

• Income of a resident person employed with a source outside the country shall be calculated separately from one derived in the country.
• Business or investment income or loss with a source outside the country shall be calculated separately from one derived in the country.
• Income earned or loss incurred from an employment, business or investments has a source in the country if the amount included exceeds the amount deducted in computing that income or loss.
• Employment income derived from within the country shall be deducted from a person’s world-wide income.
• Business and investment income derived or loss incurred from within Ghana shall be calculated as part of a person’s world-wide income.

• Exclusion of Foreign Sourced Income of a Resident Person from Taxation 

As explained, the foreign income of a resident person is taxable under Act 896 except where;

• the employment income of the resident individual is from a foreign source and derived from a non-resident employer or
•  a resident person is an employer and the individual is present in a foreign country for at least 183 continuous days.

• Foreign Tax Credit

A resident person may be entitled to tax credit with respect to actual foreign taxes paid to another country. 

• A resident person other than a partnership may claim foreign tax credit in respect of tax paid to a foreign country.
• A person may relinquish a foreign tax credit and claim it as a deduction.

• International Taxation Journey in Ghana

The world has become globalized and as such individuals and entities are creating wealth and asset across the borders. The positive impact of globalization and digitalization has led to an increase in international trade and investments across the borders. Due to globalization and digitalization, resident persons are able to hide their income, asset and wealth outside their home jurisdictions to avoid or evade taxes. Additionally, some resident persons are able to hide their income, assets and other wealth through creation of various corporate entities and arrangement interposed activities, and through other non-financial instruments such as cryptos, making it difficult for tax authorities using their domestic laws to investigate and audit cross border tax planning and evasion activities.   

Ghana’s quest to tackle these menaces of cross border tax evasion, avoidance and planning activities as consequences of globalization and digitization, joined the Global Forum on Transparency and Exchange of Information for Tax Purposes of the Economic Cooperation and Development (OECD) and subsequently signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (“the MAC”) in 2012.

The MAC was developed jointly by the OECD and the Council of Europe in 1988 and amended by Protocol in 2010. The MAC is the most comprehensive multilateral instrument available for all forms of tax co-operation to tackle tax evasion and avoidance.

The MAC facilitates international co-operation for a better operation of national tax laws, while respecting the fundamental rights of taxpayers. It provides for all possible forms of administrative co-operation between states in the assessment and collection of taxes. This co-operation ranges from exchange of information, including automatic exchanges, to the recovery of revenue/tax claims, joint tax examinations abroad, simultaneous tax examinations abroad, spontaneous exchanges, among others.

Currently, 147 jurisdictions (141 jurisdictions have it in force)  participate in MAC, including all G20 countries (including the OECD), all BRICS, major financial centres and an increasing number of developing countries.

Ghana additionally ratified the Multilateral Competent Authority Agreement (MCAA) for Common Reporting Standard (CRS) to automatically exchange financial account information on reciprocal basis with other foreign jurisdictions in 2015. Ghana in 2018, enacted the Automatic Exchange of Financial Account Information Act, 2018 (Act 967) to effectively implement MCAA (crs).

The purpose of Act 967 is to implement the CRS to ensure an improved international tax compliance by imposing on financial institutions an obligation to report to the GRA, information regarding certain financial accounts of an individual or an entity.

• Why is International Tax Cooperation Important

International tax cooperation provides Ghana with the following advantages:

• Improving domestic tax transparency
• Coordinated global response to tackle tax evasion and avoidance activities
• Building peer networks with other jurisdictions to facilitate trade, investments while preventing tax evasion, avoidance and non-taxation 
• Deterrence to tax evaders
• Securing domestic revenue base through the implementation of international tax rules
• Assisting in the development of economy through collection of taxes from other jurisdictions and prevention of tax evasion and avoidance.

• Why the Need to Comply with Tax laws of Ghana

Considering the fact that GRA per Act 967, MCAA, MAC and Double Taxation Agreements cooperate and collaborate with other countries in order to exchange taxpayer information (such as financial account information, bank statements, addresses, taxes paid outside Ghana, tax resident status, etc.) concerning any tax resident person in Ghana, from other jurisdictions, resident persons may not be able to hide their wealth, asset and income from GRA. Therefore, the introduction of Voluntary Disclosure Programme (VDP) in accordance with section 74 of the Revenue Administration Act, 2016 (Act 915) as amended to afford resident person persons the opportunity to disclose all previously undisclosed income, asset and wealth held abroad to GRA without incurring any sanctions.

It is a good opportunity for resident persons to duly take advantage of this window.

It is important to emphasize that any resident person who fails to comply with the relevant tax laws including compliance with VDP may face sanctions such includes:  

• Criminal prosecution for a tax offence arising from non-disclosure;
• Penalties for making false or misleading statement as specified under section 74 of the Revenue Administration Act 2016 (Act 915);
• Administrative non-compliance penalty that was or may be imposed under a Tax Act.
• Any Penalty imposed under a Tax Act, including penalty for the late filing of a return

• Conclusion

Based on the above, “Resident Persons” are enjoined by the relevant tax laws to disclose all their incomes sourced in Ghana and abroad by filing their returns accordingly. Further, Resident Persons are encouraged to take due advantage of VDP under section 74 of Act 915 as amended in 2020 to regularize their tax affairs with the GRA to avoid imposition of sanctions.   

By Nana Mensah Otoo, GRA, Head of Treaties, International Agreements and Policy Unit