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TAX INCENTIVES

THIS IS INTENDED TO SERVE AS AN INFORMATION GUIDE TO ANY INVESTOR IN THE GHANAIAN ECONOMY

What are Tax Incentives?

Tax incentives are concessions, provisions and conditions made available to taxpayers to serve as:

a. means of reducing the tax liability and lessening the tax burden on taxpayers;
b. motivation and encouragement
c. they are also meant to boost and sustain investment in the economy;
d. Others are also designed to encourage investments in rural areas to stem the tide of migration to the cities and towns.

In what sectors does the Internal Revenue Act, 2000 (Act 592) provide incentives?

The Act provides incentives in various sectors of the economy. These include agriculture, real estate, rural banking and the Ghana Stock Exchange.

TAX INCENTIVES BY INDUSTRY

1. AGRICULTURE

So, what are the tax incentives granted in the Agricultural Sector?

Tax Holiday
There are attractive tax holidays to serve as incentives for enterprises engaged in farming or processing of agricultural produce. The tax holidays are designed to suit different types of farming activities e.g. cash crops, tree crops, fish farming, and crop, fish and livestock processing.

a. Tree Crops -( e.g. coffee, oil palm, sheanut ,rubber and coconut-) These have tax holiday of 10yrs from date of first harvest
b. Cash Crops- (Cassava, yam, rice, pineapple, maize) These have a tax holiday of 5 years from date of commencement of farming enterprise
c. Livestock - (including poultry and fish farming) A tax holiday of 5 years from commencement of business
d. Cattle- 10 years from commencement of business

2. AGRO-PROCESSING

Is there any special treatment for companies engaged in agro-processing?

The business of converting crops, fish or livestock produced in Ghana into edible canned or other packaged products other than in their raw state enjoy a tax holiday of 3 years from commencement of commercial production.
Where a company is engaged in farming and processing it may choose which of the applicable holidays it will wish to enjoy.

2b.

i. Agro-Processing businesses established in Ghana after 1st January 2004 enjoy 5(five) years tax holidays from date of commencement.
ii. Companies producing cocoa by-products from cocoa waste also enjoy 5 years tax holiday from date of commercial products.

3. COCOA FARMING

Are there special tax incentives for the cocoa farmer?
The income from cocoa of a cocoa farmer is exempt from income tax.

4. CARRY OVER OF LOSSES

a. Am I liable to tax on my farming activity on declaring a loss?
The law permits farming losses to be carried forward for 5 years of assessment.

b. What benefits are derived by exporters of agricultural products?
Companies engaged in the export of non-traditional products enjoy a concessionary tax rate of 8%. The tax rate applies to income from non-traditional exports only.

Non-traditional goods means

i. horticultural products
ii. processed and raw agricultural products grown in Ghana, other than cocoa beans
iii. wood products, other than lumber and logs
iv. handicrafts and
v. Locally manufactured goods

5. REAL ESTATE INDUSTRY

Are there any exemptions for real estate developers?
The income of a real estate company engaged in the construction for sale or letting of residential premises is exempt from tax for 5 years from date of commencement.

6. RURAL BANKING

The income of a rural bank from a business of banking is exempt from tax for 10 years from date of commencement. Thereafter, tax is paid at the rate of 8%.

7. GHANA STOCK EXCHANGE

The income of the Ghana Stock Exchange is exempt from tax for 15 years from commencement

8. CAPITAL ALLOWANCES

a. What incentives do I get on my capital investment?

To help investors recover their capital expenditure, the law grants incentives in the form of Capital Allowances

The rates vary according to classification of the asset.

Class                            Rate
1.                                  40%
2.                                  30%
3.                                  80% of the cost base of assets added to the pool during the basis period and 50%
                                     of the balance of the pool, if any
4.                                  20%
5.                                  10% of cost base(buildings, structures and works of permanent nature)
6.                                  Intangible assets, Goodwill, Copyright, Trade mark (useful life)

b. What happens to unutilised capital allowances?
Unutilised capital allowances are allowed to be carried forward.

9. CARRY OVER LOSSES - GENERAL

Apart from farming, can losses be carried forward?
Yes, investors in manufacturing and mining business can also carry forward their losses incurred the next five years of assessment.

10. FOREIGN CURRENCY EXCHANGE LOSSES

What happens in case of foreign currency exchange losses?
The law permits the deduction of any foreign currency exchange loss other than a loss which is capital in nature incurred in the production of income in respect of any debt claim, debt obligation or foreign currency holding of that person. The Commissioner should first be informed about entering into the transaction involving the debt claim, debt obligation or foreign currency holiday by the date of filing of returns.

11. TAX RELIEFS - INDIVIDUALS

Are there any tax reliefs for individuals?
Tax reliefs are granted to individuals to lessen their tax burdens. A tax relief is an approved deductible allowance intended to reduce your taxable income and thereby lessen your tax burden. Some reliefs are now granted upfront. See IRS 05 'A Guide To Tax Reliefs' for details

12. OTHER TAX EXEMPTIONS - RENT ELEMENT

Employees living in accommodation provided by their employers carrying on a timber, mining, building, construction or farming business at any place or site where the field operation of the business is carried on are exempt from payment of income tax on the provision of such accommodation.

13. RESEARCH AND DEVELOPMENT EXPENDITURE

A research and development expenditure by a Manufacturing Company is fully deductible.

14. LOCATION INCENTIVES

Is there any incentive for locating businesses in rural areas?
Manufacturing businesses located outside Accra/Tema enjoy tax rebate as follows

Location                                      Rebate                    Rate Income Tax
Regional Capitals                          25%                                75%
Elsewhere in Ghana                      50%                                50%

Corporate income tax of agro-processing industries established on or after 1st January, 2004 enjoy location tax incentive as follows:

Location                                      Rebate                Rate of Income Tax
* Accra and Tema                          80%                             20%
* Other Regional Capitals
(except Upper West, Upper
East & Northern)                           90%                              10%
* Outside other Regional
Capitals including all of                100%                              Nil
Upper East, Upper West &
Northern)

15. TAX RATES
The general corporate tax rate has been progressively reduced to 32.5%. However, concessionary rates are enjoyed by some businesses.

The income tax rate applicable to a company engaged in the hotel industry is 25%.

Companies listed on the Ghana Stock Exchange are taxed at 30%.

Concessionary rate of 20% is enjoyed by Financial Institutions that derive their incomes from loans granted to farming enterprises and leasing companies.

These notes are for guidance only. For more information on tax matters, please visit the nearest Income Tax District Office. Their addresses are in the CONTACT section of this website


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