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OUR SERVICES. COMPLIANCE. ADVISORY. PAYROLL MANAGEMENT. Corporate Employee Agency Obligations. General Advisory Tax Planning. TAX HEALTH CHECK. A A & K CONSULTING SERVICES LIMITED. CONTEMPORARY TAX ISSUES. Integration of Revenue Agencies

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a a k consulting services limited

OUR SERVICES

COMPLIANCE

ADVISORY

PAYROLL MANAGEMENT

  • Corporate
  • Employee
  • Agency Obligations
  • General Advisory
  • Tax Planning

TAX HEALTH CHECK

A A & K CONSULTING SERVICES LIMITED

contemporary tax issues

CONTEMPORARY TAX ISSUES

  • Integration of Revenue Agencies
  • Tax Policy Initiatives in 2011 Budget

In 2010 two major tax policy initiatives were introduced:

integration of revenue agencies
INTEGRATION OF REVENUE AGENCIES

Ghana Revenue Authority (GRA) Act 2009 [Act 791] merged:

  • Internal Revenue Service (IRS) Act 592,
  • VAT Service Act 546 and
  • Customs Excise & Preventive Service (CEPS) [PNDC Law 330]
pre merger

MINISTRY OF FINANCE & ECONOMIC PLANNING

[MOFEP]

BOARD OF DIRECTORS

IRS COMMISSIONER

VAT SERVICE COMMISSIONER

CEPS COMMISSIONER

PRE MERGER
post merger

MINISTRY OF FINANCE & ECONOMIC PLANNING

[MOFEP]

BOARD OF DIRECTORS

GHANA REVENUE AUTHORITY

COMMISSIONER-GENERAL

[GRA]

DOMESTIC DIVISION COMMISSIONER

CUSTOMS DIVISION COMMISSIONER

GENERAL SERVICES COMMISSIONER

POST MERGER
effect of integration
EFFECT OF INTEGRATION

All powers of pre-integration Commissioners are now vested in the Commissioner-General e.g.

  • Final Authority for Interpretation
  • Practice Notes
  • Private Rulings
commentary on tax policy initiatives in the 2011 budget statement
COMMENTARY ON TAX POLICY INITIATIVES IN THE 2011 BUDGET STATEMENT
  • SUMMARY OF MAJOR TAX INITIATIVES

Domestic tax initiatives include:

  • Increases in tax rates and thresholds for withholding taxes and VAT
  • Removal of Tax Holidays
  • Extension of National Fiscal Stabilization Levy
  • Revision of personal tax rates
  • Extension of coverage of Communications Service Tax
  • Review of Exemptions and Zero-rated items under the VAT Act
  • Review of Excise Duty Rates
commentary on tax policy initiatives in the 2011 budget statement8
COMMENTARY ON TAX POLICY INITIATIVES IN THE 2011 BUDGET STATEMENT

International tax initiatives include:

  • Increases in Duty rates
  • Review of operations of Bonded warehouses
  • Import tax on rice and poultry products
review of withholding tax regime
REVIEW OF WITHHOLDING TAX REGIME

Introduction

Withholding taxes on payments by residents to:

  • Non-residents for the supply of services
  • Residents for supply of goods and services
  • Other withholding taxes (Section 86 of Act 592)
payments to non residents for services supplied to ghana
PAYMENTS TO NON-RESIDENTS FOR SERVICES SUPPLIED TO GHANA
  • Current Position

Section 3 of Act 592 imposes a final withholding tax on the following payments

ServiceTax Rate (%)

Dividend 8

Interest 8

Royalty 10

Endorsement Fees 15

Rent 10

Management & Technical Service Fees 15

  • No changes have been proposed in the 2011 fiscal policy statement
  • Increase in withholding tax on Foreign Supplies of Services
payments to residents for supply of goods and services by residents
PAYMENTS TO RESIDENTS FOR SUPPLY OF GOODS AND SERVICES BY RESIDENTS
  • Current Position

A withholding tax of 5% applies where the contract sum exceeds GH¢50.00

  • Proposed amendment

The threshold raised from GH¢50.00 to GH¢500.00

  • Implication
    • The 5% withholding tax under Section 84 (2) of the Internal Revenue Act 2000 [Act 592] shall apply where the contract sum for the supply of goods and services exceed GH¢500.00
tax holidays
TAX HOLIDAYS
  • Real Estate Developers – for sale or letting
    • 5 year Holidays abolished except for
      • Developers in partnership with Ministry of Works and Housing to provide affordable housing
    • Issues
      • Fate of those enjoying holiday uncertain
  • Hotels and Hospitality Industry
    • GIPC Regulations, 2005 [LI 1817] providing exemptions for the industry repealed
    • Desirable LI 1817 provisions to be incorporated in Act 592 and managed by GRA
    • Amendment is not clear
  • APEX Bank
    • Tax Holiday extended to 2014
national stabilization levy nsl
NATIONAL STABILIZATION LEVY [NSL]

Introduction

  • NSL imposed on 2009 and 2010 profit before tax
  • The tax rate of 5% of profit before tax
  • The levy is not tax deductible

Proposed Amendment

  • The imposition of the levy is to be extended by one year
gift tax
GIFT TAX
  • The Internal Revenue Act 2000 imposes a gift tax at the rate of 5% on taxable gifts exceeding Gh¢50.00

Proposed Amendment

The rate of tax imposed on taxable gifts is to be increased to 15%.

mining royalties
MINING ROYALTIES

Introduction

  • Mineral royalties are paid by mining companies at the rate of 3% to 6%
  • The royalty is paid quarterly

Proposed Amendments

  • Mineral royalties to be accounted for on monthly basis by the 15th of the following month
changes in individual tax rates and reliefs
CHANGES IN INDIVIDUAL TAX RATES AND RELIEFS

Proposed Amendment

  • Increase in tax free Chargeable Income from GH¢1,008.00 to GH¢1,104.00
  • Increases in amount granted as reliefs to individuals proposed
  • Chargeable Income above GH¢20,280.00 (2010 GH¢16,200.00) to be taxed at 25%
slide17

INITIATIVES UNDER INDIRECT TAXES

OBJECTIVES

2 Types of VAT Schemes

(i) VAT Invoice Scheme (VIS)

  • Retailers with a minimum turnover of GH¢10,000.00

(ii) VAT Flat Rate Scheme (VFRS)

  • Retailers under GH¢10,000.00 currently operate under VFRS.
  • The tax rate is 3% on selling price
  • No input tax credit is available for them.
slide19

COMMUNICATIONS SERVICE TAX (CST)

Introduction

  • Introduced in 2008 - passage of the Communications Service Tax Act, 2008 (Act 754).
  • The tax applied to Class1 Telecom Operators
  • Class 1 License Telecom Operator authorized to provide public communication service - National Communications regulations,2003 (LI 1719).
  • Public communications service - service made available to the general public for a fee or charge without discrimination (LI 1719)
slide20

COMMUNICATIONS SERVICE TAX (CST) cont’d

  • Private communications service is a service established by an individual, a body corporate or other legal entity to satisfy its own communications needs.
  • LI 1719 defines communication service to include the following:
      • Telecommunications services
      • Broadcasting services
      • Cable services
      • Satellite services
      • Value added services
      • Aeronautical services
      • Maritime services
  • Communications services may be provided as public or private services
slide21

PROPOSED AMENDMENT

  • CST coverage to extend to all companies and persons within the communication industry.
  • 2011 budget statement does not clearly state whether the extension of the tax base of CST will include companies with their own private radio communications or other communications services.
  • Details in relevant legislation to be passed.
slide22

RECLASSIFICATION OF DOMESTIC

ZERO-RATED SUPPLIES

  • Locally produced items currently zero-rated
      • Pharmaceutical Products
      • Paper for the publishing industry
      • Agricultural input like cutlasses
  • Producers and wholesalers currently entitled to refund of input taxes incurred in the production.
slide23

RECLASSIFICATION OF ZERO-RATED SUPPLIES

Proposed Amendment

  • Reclassification as exempt items under Act 546
  • Companies producing items no more entitled to refunds of input taxes incurred in the course of production.
  • All input taxes incurred to be incorporated into cost build up.
slide24

DEFERRED PAYMENT OF VALUE ADDED TAX

  • Manufacturers permitted to defer payment of import VAT on imported raw materials.
  • Practice is allowed to various manufacturers based AGI recommendations.
  • Practice improved cash flow of the manufacturing companies.
slide25

DEFERRED PAYMENT OF VALUE ADDED TAX

Proposed Amendment

  • ‘Reliefing’ manufacturers of import VAT/NHIL on imported raw materials to be abolished.
  • No legislation is required.
  • Cash flow implications for affected companies must be factored into current year budget.
slide26

INTERNATIONAL TAX INITIATIVES

Bonded Warehousing

  • Imported goods or locally manufactured goods may be stored under Customs control in a Government or private bonded warehouse.
  • Deferral of payment of duty and taxes until the goods are needed for home consumption or for export.
  • Bonded warehousing is allowed for both finished products and raw materials for manufacturing.
  • The goods may be re-entered for warehousing after two years.
slide27

INTERNATIONAL TAX INITIATIVES

Proposed Amendment

  • Bonded warehousing facility to be restricted only to raw materials for manufacturing.
  • Importers of finished goods will not be allowed to warehouse them for up to two years
  • The proposed amendment is likely to define the maximum period that importers will be allowed to warehouse finished goods
slide28

IMPORT DUTY ON RICE AND POULTRY PRODUCTS

  • The revised rates will apply in Ghana upon ratification by ECOWAS.
slide29

OTHER TAX INITIATIVES

Exemptions from payment of import duty

  • Energy saving lamps, LED lamps and
  • Raw materials for local companies producing energy saving bulbs
  • New taxes imposed
  • An environment tax on plastic packaging materials and products
double taxation agreement between the republic of ghana and the french republic
DOUBLE TAXATION AGREEMENT BETWEEN THE REPUBLIC OF GHANA AND THE FRENCH REPUBLIC

INTRODUCTION

What is Double Taxation?

Double Taxation has been defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter.

Negative Effects of Double Taxation

It results in multiplicity of taxes

It inhibits the free flow of investment and trade activities

Purpose of Double Taxation Agreements

Due to the negative effects of Double Taxation, nations have deemed it expedient to enter into Double Taxation Treaties toward attainment of the following:

slide31
Removal of Tax Barriers to Trade and Investment
  • Resolution of Tax Disputes
  • Removal of uncertainties about a country’s Tax regime
  • Promotion of Investment through the granting of Tax Incentives
  • Reduction/Elimination of Tax Avoidance Schemes through the provision of a framework of co-operation between Tax Authorities

LEGAL AUTHORITY FOR GHANA TO ENTER INTO DOUBLE TAXATION ARRANGEMENTS

  • Provided for in Section 111 of the Internal Revenue Act 2000 (Act 592)
  • Under Section 111 (1) of Act 592, the DTA prevail over the provisions of the Act
process of ratification
PROCESS OF RATIFICATION
  • Each contracting state has to ratify the convention and give notice to the other through diplomatic channels before the entry into force
  • In Ghana the ratification is done by Parliament in accordance with Article 75 (2) of the 1992 Constitution of the Republic of Ghana

ENTRY INTO FORCE

  • Normally, the convention is entered into force on the day the latter of the notification is received
  • The provisions of the Convention normally have effect on the commencement of the fiscal year next following that in which the Convention was entered into force

BASIS FOR TAXING EACH REVENUE ITEM

Source of Revenue – e.g. Directors Fees. Employment etc

Residence of tax payer – e.g. Business Profit, Air and Shipping Transport

Sharing – e.g. Dividends, Interest, Royalties etc. shared between Treaty Partners

personal scope
PERSONAL SCOPE
  • It indicates that the convention is applicable to persons who are residents of one or both of the contracting states
slide34
CONDITION PRECEDENT OR PROOF TO BE FURNISHED BY A RESIDENT OF THE OTHER CONTRACTING STATE SECTION 111 (4) OF ACT 592

To benefit from a reduction in the Ghanaian Rate of Tax or exemption from Ghanaian tax, a Resident of the other contracting state is required to provide the proof below to the Commissioner-General of the Ghana Revenue Authority.

  • That no individual(s) resident outside the contracting state owns 50% or more of the underlying ownership of that person’s business.

The essence of the proof is to prevent ‘Treaty Shopping’ that is a situation where a resident of a non-contracting state tries to enjoy the benefits of a Double Taxation Agreement between two other states.

comparison between local rates and rates under ghana france double taxation agreement
COMPARISON BETWEEN LOCAL RATES AND RATES UNDERGHANA/FRANCE DOUBLE TAXATION AGREEMENT

NOTE:Under dividends in the DTA, the rates of 5% or 7.5% Are applicable where the beneficial owner has at least 10% Interest in the company paying the Dividend.

conclusion
CONCLUSION

Double Taxation Treaties provide some tax incentives and exemptions that pave the way for the free flow of trade and investment activities.

It is important for residents of the contracting states to acquaint themselves with the provisions of the relevant conventions so as to take full advantage of the opportunities therein.