10 Jun Tax Exemption Regime in Ghana: The procedure for securing Special Tax Incentives for private businesses in Ghana
Introduction
Governments are charged with the maintenance and provision of social amenities, payment of employees and other related services to their citizens. In order to meet these responsibilities, governments must find creative ways to raise funds. Taxation and borrowing are generally the main sources of revenue for governments.[1] Taxes are known as the lifeblood of a government,[2] they are the price paid for a civilized society.[3] It can be argued that borrowing is a form of deferred taxation, in that both the principal and the interest on the loan are to be paid from revenue generated from taxation.[4]
Definition of Tax
A tax can be defined as a compulsory charge, imposed by a government on income, expenditure or capital assets, in order to raise revenue, for which the taxpayer receives nothing specific in return. It may also refer to “a government levy that is not in return for specific benefit and is not imposed by way of a fine or penalty, except in some cases where it corresponds to tax-related offences”.[5]
For the purpose of the collection and administration of tax in Ghana, “tax” means a duty, levy, charge, rate, fee, fine, interest, penalty or any other amount imposed by a tax law or to be collected by, or paid to, the Commissioner-General under a tax law.[6] A “tax law” on the other hand means a law that is to be administered by the Ghana Revenue Authority, a law listed in the First Schedule to the Ghana Revenue Authority Act, 2009 (Act 791); and an international arrangement.[7]
Definition of Tax Exemption
A tax exemption is a waiver or variation of a tax, levy, rate, duty, fee or charge provided for under an enactment.[8] It may also refer to a variation of the timing of the payment of a tax, levy, rate, duty, fee or charge which results in a reduction in the effective liability of the payer.[9]
The Tax Exemption Regime
Tax exemptions in Ghana are generally regulated by the Tax Exemptions Act, 2022 (Act 1083) and its Administrative Guidelines.
The object of Act 1083 is to rationalise the current exemptions regime on taxes, levies, fees and charges by varying, where necessary, and consolidating existing statutory provisions on tax and other exemptions and to provide for the administration of exemptions.[10]
To achieve the object of Act 1083, the Minister of Finance (“MoF”) has been empowered to issue administrative guidelines on the procedure for applying for tax exemptions and the modalities for assessing and granting these exemptions.[11]
It is worth noting that the Tax Exemptions Act, 2022 (Act 1083) has repealed any provision in any treaty, agreement or Convention, document, or legislation that provides for a tax exemption except provisions in the; Value Added Tax Act, 2013 (Act 870), the Income Tax Act, 2015 (Act 896), and the Excise Duty Act, 2014 (Act 878).[12] However, existing provisions of the Customs Act, 2015 (Act 891), that are not specifically repealed and make provision for the grant of an exemption shall continue to apply until the Customs Act is repealed.[13]
Despite the repeal of various exemption provisions by Act 1083, any exemption-related agreements signed between the Government and an individual, or exemption-related resolutions passed by Parliament before the passing of Act 1083, will remain valid for the duration specified in the original agreement or resolution.[14] Also, within six months after the coming into force of Act 1083, a person who is the holder of an existing exemption must apply to the MoF to continue to benefit from the exemption.[15]
The procedure involved in securing a tax exemption
The procedure for securing a tax exemption depends on the person or entity seeking the exemption. The various categories of tax exemption under Act 1083 include:
- Exemptions for Covered Entities and Other Related Entities[16];
- Exemptions for Privileged Persons[17];
- Exemptions for Private Businesses[18];
- Exemptions for Personal Effects, Foodstuffs and Equipment for Trial[19]; and
- Exemptions for Development Partner Projects.[20]
This blogpost sheds light on tax exemptions for private businesses, highlighting the special tax incentives available to them such as Free Zones enterprises,[21] General Tax Incentives,[22] and Special Tax Incentives.[23]
Special Tax Incentives
Special tax incentives are specially negotiated tax exemptions granted to a sector aimed at promoting strategic investment, in which the State takes a commensurate equity stake in the investment project.[24] Interestingly, an entity that cedes an equity stake to the State in return for a tax incentive has an unqualified right to buy back the equity stake of the State at the prevailing market price.[25]
Procedure for Securing Special Tax Incentives
The entity seeking a special tax incentive must satisfy the qualifying threshold of investment for strategic/major investment of a minimum of US$50 million or the Ghana Cedi equivalent.[26]
The investment must be made within a priority area.[27] For the purpose of granting special tax incentives and promoting major investments Cabinet is required to determine the priority areas of economic investments.[28] The Ghana Investment Promotion Centre (“GIPC”) is mandated, within thirty (30) days after the determination of the priority areas, to publish the priority areas in the Gazette, on its website, and in a daily newspaper of national circulation.[29] As of December 13, 2023, the priority areas published by the GIPC on its website are Manufacturing, Mineral and Mineral Processing, Mining Investment by Indigenous Ghanaians, Oil and Gas (Value Addition), Real Estate/Property Development and Road Infrastructure, Pharmaceutical, Agro-Processing, and Tourism.[30]
To qualify for a special tax incentive, the entity must be registered with the Office of the Registrar of Companies and the GIPC.[31]
Upon satisfying the above prerequisites, an investor that seeks to invest in a priority area may apply to the GIPC stating clearly the details relating to the cost of the investment and the exemptions required.[32] The application must be addressed to the Chief Executive Officer of GIPC, requesting for approval of Strategic/Major Investment Status, stating the incentive package being sought for.[33]
The request must be accompanied by twelve (12) hard copies and a softcopy of essential documents including a business plan or feasibility report on the project.[34] The report should include financial projections that cover a maximum of 10 years and a detailed explanation of the quantitative benefits of the project to the country, [35] including employee categories of employees, projected tax revenue for ten (10) years, and any relief or exemption sought.[36]
GIPC as part of the process, will consult the relevant covered entity to determine whether the investment is within the priority areas of economic investment. It will communicate its decision to the applicant within thirty days of application submission.[37]
Where the GIPC concludes that the investment seeking the tax exemptions is in a priority area of economic investment, the Chief Executive Officer of the GIPC will forward the application to the MoF within five (5) days accompanied by the necessary documents.[38]
The MoF will negotiate with the prospective investor to determine investment details, and the State’s equity stake in return for the revenue forgone. [39]
Once negotiations are successful MoF will seek the necessary approvals from the Cabinet and Parliament for the investment incentives agreement to be signed between the Ministry and the prospective investor.[40]
Parliament’s resolution will subsequently be communicated to the Ghana Revenue Authority for the set-up of the applicant on the CMS.[41]
Conclusion
In conclusion, tax exemptions play a vital role in supporting businesses. The process of securing these exemptions, particularly special tax incentives can be complex. Therefore, investors are advised to engage lawyers and tax experts to help streamline the process.
This publication may provide a summary of legal issues but is not intended to give specific legal advice. If you require legal advice, please speak to a qualified lawyer, which may include a qualified member of our legal team at B&P ASSOCIATES (info@bpaghana.com).
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AUTHOR:
Abdul-Razak Safianu (2024 Legal Intern)
[1] Benjamin Kumbour, Abdallah Ali Nakyea, William Kofi Owusu Demitia, Law of Taxation in Ghana, 5th Edition, page 7
[2] Cruz, J, Commissioner of Internal Revenue v Algue, Inc., and The Court of Tax Appeals, 58 SCRA 9 (1988) G.R. No. L-28896 February 17, 1988
[3] Justice Oliver Wendell Holmes, Compania General de Tabacos de Filipinas v. Collector of Internal Revenue, (1927), 275 U.S. 87
[4] Ibid
[5] J Rogers-Glabush, (ed) International Tax Glossary 7th rev edn (IBFD 2015) 464
[6] Revenue Administration Act, 2016 (Act 915), Section 9(i)
[7] Ibid, Section 108
[8] Tax Exemption Act, 2022 (Act 1083), Section 3(i)(a)
[9] Ibid, Section 3(i)(b)
[10] Ibid, Section 1
[11] Ibid, Section 5
[12] Ibid, Section 36(1)
[13] Ibid, Section 36(4)
[14] Ibid, Section 36(2)
[15] Ibid, Section 36(3)
[16] Ibid, Section 7
[17] Ibid, Section 8-12
[18] Ibid, Section 13-16
[19] Ibid, Section 17 -19
[20] Ibid, Section 20 – 24
[21] Ibid, Section 13
[22] Ibid, Section 14
[23] Ibid, Section 15
[24] Ibid, Section 15(1) &Tax Exemptions Act, 2022 (Act 1083) Administrative Guidelines, Paragraph 5.14
[25] Ibid Section 15(2)
[26] Tax Exemptions Act, 2022 (Act 1083) Administrative Guidelines, Paragraph 5.14.1, Step 1
[27] Ibid, Paragraph 5.14.1, Step 2
[28] Supra no.8, Section 16(1)
[29] Ibid, Section 16(2)
[30] https://www.gipc.gov.gh/priority-areas-for-investment/ last accessed 16/05/2024
[31] Supra no. 26, Paragraph 5.14.1, Step 3
[32] Supra no.8, Section 16(3)
[33] Supra no. 26, Paragraph 5.14.1, Step 4
[34] Ibid, Paragraph 5.14.1, Step 5
[35] Ibid.
[36] Ibid.
[37] Supra no. 8, Section 16(4) and Ibid, Paragraph 5.14.1, Step 6
[38] Ibid, Paragraph 5.14.1, Step 8
[39] Ibid, Section 16(6) and Paragraph 5.14.1, Step 10
[40] Ibid, Section 16(7) and Paragraph 5.14.1, Step 11
[41] Supra no. 26, Paragraph 5.14.1, Step 12