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June 15, 2020 Ghana Revenue Authority issues Practice Notes on various tax issues Executive summary The Commissioner-General (CG) of the Ghana Revenue Authority (GRA), the officer responsible for the day-to-day administration of the GRA affairs and answerable to the Board for the performance of the functions of that office, has issued multiple practice notes on the interpretation of certain provisions in some tax laws pursuant to sections 100 and 101 of the Revenue Administration Act, 2016, Act 915 (RAA). This Alert highlights the key interpretations set forth in the practice notes. Detailed discussion Section 100 of the RAA empowers the CG to issue practice notes setting out the interpretation he places on certain provisions of the tax laws. Consequently, the CG has issued a number of practice notes covering the following:
These practice notes were issued in April 2020. The key points in the practice notes are: 1. Practice Note (DT/2020/001) on clothing allowance under the ITA This practice note was issued on 28 April 2020. Following the promulgation of the ITA in 2015, a controversy arose as to whether the clothing allowance provided to employees in certain sectors was taxable. The practice note clarifies and provides guidance on the tax treatment of the clothing allowance pursuant to sections 4(2)(a)(iii), 4(2)(b)(iii) and 130(1)(c) of the ITA. Personal allowances included in the ascertainment of the profits or gains of an individual from employment for a year of assessment or part of that year pursuant to section 4(2)(a)(iii) of the ITA, includes a clothing allowance. Section 130(1)(c) of the ITA provides that the expenditure incurred by an individual on him/herself in relation to clothing, except clothing not suitable for wearing outside of work, is recognized as a domestic expenditure. Domestic expenditure does not include a payment or benefit provided to the individual which is included in the calculation of the income of the individual, or where the employee provides consideration equal to the market value of the benefit, or where the amount of the expenditure is so small as to make it unreasonable or administratively impracticable to account for (Section 130(2) of ITA). What is considered as “clothing not suitable for wearing outside of work” is not specifically addressed by the ITA. Consequently, the CG has provided his interpretation of the following as clothing not suitable for wearing outside of work pursuant to section 130(1)(c):
The following examples are stated in the practice note as clothing not suitable for wearing outside of work. These are uniforms provided by the employer and worn by Police Officers, Army Officers, Fire Officers, Prison Officers, Customs Officers, Nurses, Pilots, Cabin Crew, Immigration Officers and such institution with prescribed uniforms and dress code such as gowns and wigs of Judges. According to the CG, official attire which may be worn off-duty cannot be considered as clothing not suitable for outside work unless the rules of the employer/organization restricts its usage outside of work or has duality of purpose. Taxpayers who prior to the issuance of this practice note have treated all clothing allowances including those suitable for wearing outside of work as non-taxable allowances should review their calculations and pay the applicable tax to the GRA. 2. Practice Note (RAA/2020/02) on extension of time for paying tax under the RAA This practice note was issued on 30 April 2020. It provides direction and guidance on the interpretation and application of section 47 of the RAA, which provides the processes of applying for extension of time for payment of tax liabilities, conditions for granting extension of time for payment of tax and circumstances under which an installment agreement will be revoked. This practice note mainly covers:
In accordance with section 47 of the RAA, a taxpayer may apply, in writing, to the CG for an extension of time to pay tax under the tax law. Upon receipt of the application, the CG may, where a good cause is shown, extend the date on which the tax is payable on the terms and conditions the CG considers appropriate including the payment of a security deposit, and notify the applicant of the decision. A person who intends to apply for extension of time for payment of tax liabilities should note and comply with the following conditions: a) Show good cause b) Terms and conditions for extension of time for paying tax c) Notification/Agreement d) Thresholds for the extension of time for paying tax e) Breach of installment agreement a) Show good cause The CG considers the following as factors to be considered in determining whether good cause is shown. These are:
b) Terms and conditions for extension of time for paying tax An applicant must comply with the following:
c) Notification/Agreement A taxpayer whose application is approved will be issued with Notification/Agreement and a schedule of payment forms containing the details of the agreement and the date of payments. d) Thresholds for the extension of time for paying tax The following individuals may provide certain thresholds for the extension of time to pay the tax.
e) Breach of installment agreement Finally, default of the installment agreement by a taxpayer will result in the whole balance of the tax outstanding becoming payable immediately. 3. Practice Note (RAA/2020/06) on order of paying tax under the RAA This practice note was issued on 30 April 2020. It provides for uniformity in the application of order of payment by the taxpayer by way of:
Section 49 of the RAA requires the CG to determine the order of priority of payments where a taxpayer is liable to pay more than one type of tax under a tax law or several tax laws, and the payment made is less than the total amount of tax outstanding. Per the CG’s direction, a person with multiple tax liabilities is required to note and comply with the order of payment as follows:
4. Practice Note (RAA/2020/01) on extension of time within which to file a tax return under the RAA This practice note was issued on 30 April 2020. It provides guidance on granting extension of time within which to file a return under Section 30 of the RAA. According to section 30, a taxpayer may apply to the CG for an extension of time to file a return before the due date for filing of the return. The application must be in writing and state the reasons for which the extension is sought. In line with the above provision of the law, the CG has provided grounds upon which an extension may be approved or refused by the GRA as summarized below. a) Request for an extension of time to file a tax return A request for an extension of the period for filing a return must state the reasons for failure to file the return within the requisite timeframe. Failure by a taxpayer to give detailed reasons will result in the refusal of the extension application for the period concerned. An example of reasonable grounds is where the delay was caused by circumstances beyond the taxpayer’s control. However, office managers of the GRA are required to handle the request on a case-by-case basis. b) Refusal to grant an extension An application for a grant of extension of time to file a tax return may be refused due to any of the following reasons:
c) Procedure for applying for an extension The taxpayer is required to complete and submit the application form to the GRA. The application form must contain the following details of the applicant:
d) Limitation on the extension of time to file a tax return A taxpayer may be granted multiple extensions for the filing of a tax return not exceeding in total 60 days from the date the tax return was originally due to be filed. e) Granting of multiple extensions i. Multiple extension for a single tax return A taxpayer may apply for extension of time to file a tax return under the ITA (i.e., Personal Income Tax (PIT) return). The extension granted may be 20 days from the due date for the filing of the return. The taxpayer may apply for a further extension (i.e., when he or she is unable to file within the 20 days). The taxpayer may be granted a further extension of 30 days starting from the end of the 20 days. The taxpayer may again apply for a further extension of time to file the PIT return (when he or she is unable to file by the extended 30 days). The taxpayer may be allowed a further extension of another 10 days only starting from the end of the 50 days, resulting in a total extension of time not to exceed 60 days. II. Multiple extension for different tax returns A taxpayer may apply for extension of time to file a tax return under a tax law (e.g., VAT return). The taxpayer may be granted an extension of 35 days from the due date for filing the return. The taxpayer may apply for extension of time to file another tax return – the CIT return – and the taxpayer may be allowed an extension of 30 days. The taxpayer may again apply for extension of time to file an Excise tax return and he or she may be granted an extension of 40 days. This means the total extensions for each tax type should not exceed 60 days. f) Capacity of persons who may grant extension of time to file a tax return The granting of extension of time to file a return must be approved by the Head of the GRA tax office. 5. Practice Note (RAA/2020/05) on payment of tax refund under the RAA This practice note was issued on 30 April 2020. It provides direction and guidance on the interpretation and application of sections 66 to 68 of the RAA which provides for payment of tax refund. a) Payment of tax refund Where the CG is satisfied that a refund is due to a taxpayer, he shall:
b) Prescribed rules for payment of tax refund under the RAA
6. Practice Note (RAA/2020/03) on accepting security under the RAA This practice note was issued on 30 April 2020. It provides direction and guidance on the interpretation and application of section 8 of the RAA which provides for accepting securities for an obligation under the tax law on terms and conditions specified by the CG. a) Forms of securities and their meanings The security acceptable for an obligation under the RAA may take the following forms:
b) Conditions for accepting security When providing a security for an obligation under the RAA, the taxpayer shall comply with the following conditions:
c) Surety of security A surety under a bond or other securities taken for the purpose of tax obligation shall be jointly and severally liable with the principal of the bond. The CG may require a person to execute a new bond or any form of security required by the RAA, where for any reason, in the opinion of the CG the person is unable to satisfy the bond. d) Release and cancellation of security The conditions for release and cancellation of a security are set forth in the bond or security agreement. e) Validity of security The validity of a security shall be the same validity term set forth in the bond or security agreement. f) Enforceability of security The enforceability of a security shall be in accordance with the terms as set forth in the bond or security agreement. 7. Practice Note (DT/2020/002) on bad debts under the ITA This practice note was issued on 28 April 2020. It provides clarity and guidance on the tax treatment of bad debts as provided under sections 23(7) and 88 of the ITA to ensure consistency in the administration of the ITA. The guidance on the treatment of bad debts are divided into (a) bad debts for businesses other than banks, and (b) specific bad debts of a bank. Bad debts for businesses other than banking business a) Pursuant to section 23(7) of the ITA, a person shall not be allowed a deduction or debt claim as a bad debt unless the CG is satisfied that: i. Reasonable steps have been taken to pursue payment of the debt. ii. The bad debt claim or entitlement cannot be satisfied. Reasonable steps All reasonable steps based on sound and commercial considerations taken to recover the debt and satisfactory to the CG will include one or more of the following:
Circumstances when a debt can be considered bad after reasonable steps have been taken
Bad debts under banking business A bank means a body corporate which engages in the deposit-taking business and is issued with a banking license in accordance with the Banks and Specialised Deposit-Taking Institutions Act, 2016, Act 930. a) Specific bad debts Section 88 of the ITA provides that the CG shall allow a deduction of a bad debt in the calculation of a chargeable income where a person conducting a banking business makes a specific provision for a debt claim which was previously included in calculating income from the business and the CG is satisfied that the debt is bad. The taxpayer may deduct where the CG is satisfied that the debt is bad, and the debt claim constitutes the advance of a principal sum in the case where the cost of the debt claim is reduced by an equal amount. b) Conditions for deduction of a bad debt
In addition to the above, the CG shall be satisfied when the following reasonable steps are taken by a person:
c) Security for loans A loan may be a:
Effective date of deduction of approved write-off The effective date of deduction of an approved bad debt write-off is the date of approval by the Bank of Ghana on or before the due date for submission of the Annual Return of the relevant year of assessment. d) General bad debt provision General or specific impairment provided for under accounting standards (IFRS) are normally not tax deductible for tax purposes. Endnotes 1. In respect of third-party liabilities, priority should be given to a liability that does not relate to the person (i.e., Pay As You Earn (PAYE), VAT, Communication Service Tax (CST), Withholding Tax (WHT) before others e.g., Company Income Tax (CIT). 2. Bank deposit or banker’s draft means a document, ordering the payment of money, drawn by one person or bank on another. 3. Cash deposit means a sum of money lodged as a guarantee for the payment of tax or other sums as may become chargeable. 4. The equivalent of cash deposit means any financial instrument capable of being converted into cash immediately which is acceptable to the CG. 5. Bond means a written and signed promise to pay a certain sum of money on a certain date, or on fulfilment of a specified condition. It is an undertaking in due legal form by which a person binds himself to the CG to do or not to do some specific act. 6. A guarantee means a pledge on a part of a bank or any other financial institution to make a taxpayer’s debt good in the event that he or she cannot pay it. 7. Undertaking by an Authorised Economic Operator (AEO) as defined under section 108 of the RAA. 8. Charge means interest in property granted as security for a loan. 9. Lien means a right to keep possession of property belonging to another person until a debt owed by that person is discharged. A lien could also be a charge or encumbrances upon property for the satisfaction of a debt or other duty that is created by the agreement of the parties or especially by operation of law. 10. Mortgage means a lien against a property that is granted to secure an obligation (as a debt) and that is extinguished upon payment or performance according to stipulated terms. 11. Letters of credit are written undertaking by a bank (issuing bank) acting at the request and on the instructions of the taxpayer to make payment to the CG. 12. A combination of securities means where more than one security is accepted to secure an obligation under the tax law, the total security shall be equal to the tax liability. 13. This means the borrower uses an asset as security for the loan, but the value of the security is lower than the loan amount. The bank should have liquidated the security in settlement of the loan amount and any write-off would not be accepted as a deduction for tax purposes. 14. This means that the borrower uses an asset as security for the loan, but the value of the security is lower than the loan amount. The bank should have liquidated the security in settlement of the loan amount and any residual outstanding after the liquidation of the collateral, can then be written off if it satisfies the other conditions herein. 15. Where a loan was given without collateral, the bank should have taken steps to recover the loan. _____________________________________________________________________________________________________________ For additional information with respect to this Alert, please contact the following: Ernst & Young Advisory Services Limited, Accra
Ernst & Young Advisory Services (Pty) Ltd., Africa ITTS Leader, Johannesburg
Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP (United States), Pan African Tax Desk, New York
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