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Ushering in a New Tax Regime

The Tax Exemptions Bill, now the Exemptions Act, 2022 is an interesting piece of legislation.

Overview/ Purpose of the new Exemptions Act, 2022 Ghana

The Tax Exemptions Bill, now the Exemptions Act, 2022 is an interesting piece of legislation.

According to its long title, this Act is meant to regulate the application of tax exemptions and other exemptions and to provide for other related matters. And as part of its regulatory function, this new Act provides for an exemptions regime, sets clear eligibility criteria for exemptions, provides a system for the administration of exemptions, and provides for the monitoring, evaluation, reporting, and enforcement of exemptions.[1]

On paper, this sounds like a very refreshing innovation, especially for lawyers who have had to advise their clients who operate in industries that may or may not entitle them to one or more tax exemptions.

It is a laudable attempt by Parliament to streamline the exemptions regime in Ghana, thus making it easier for persons to ascertain whether or not they are entitled to an exemption and the scope of their entitlement.

According to the Act, an exemption is “a waiver or variation of a tax, levy, fee or charge provided for under an enactment, OR a variation of the timing of the payment of a tax, levy, fee or charge which results in the reduction in the effective liability of the payer.”[2] Despite this definition, the Commissioner-General’s power to remit an assessed tax or to extend the date on which the tax in payable continues to apply.[3]

Scope of the new Exemptions Act, 2022

It is very interesting to note that the new Act has a very wide scope. Section 36 of the Exemptions Act, 2022 repeals exemptions provided for in treaties, agreements or conventions, documents, and other laws (excluding the Value Added Tax Act, 2013 (Act 870), the Income Tax Act, 2015 (Act 896), and the Excise Duty Act, 2014 (Act 878)). The scope and potential application of this are quite broad, and could have far-reaching consequences that Parliament may not have considered in its enactment of the law.

In terms of general responsibility[4] under this new regime, the Act categorically states that unless a person is entitled to an exemption under the Act, they shall not be granted that exemption. Further, only authorized persons have the power to grant exemptions under the Act. And any agreement to waive or vary a domestic indirect tax (like VAT) is prohibited unless such an agreement is provided for under the Act or the relevant tax law.

Obtaining a tax exemption under the Exemptions Act

Another important matter to note under this Act is the mandatory nature of the prior written approval of the Minister of Finance to the execution of an agreement that grants an exemption.[5] And where the exemption is contained in a contract that must be placed before Parliament for approval[6], such a contract is to be accompanied with[7]:

  1. A detailed assessment of the value of the anticipated exemptions contained in the contract
  2. A list of items and taxes to which the exemptions are applicable
  3. A limit on the total value of the exemptions to be granted under that contract
  4. A time limit on the exemption to ensure that the exemption does not exceed the duration of the contract
  5. The implications of the exemption on programmed revenue, and
  6. The details of the beneficial owners of the entities involved in the contract.

The Act also provides a relatively quick procedure for the granting of exemptions to Ministries, Departments, and Agencies, providing for a 14-day period after application for the exemption within which the Minister must make a positive recommendation to Cabinet for Cabinet’s approval.[8]

Further, the Act establishes the scope of the exemptions available to various privileged persons like the President, persons with disability, diplomats and diplomatic missions, religious organizations and donor and charity organizations.

Free Zones Enterprises for Free Zones Enterprises, the Act introduces an interesting innovation. For Free Zones companies that are registered in accordance with the Free Zones Act, 1995 (Act 504) but fail to meet the 70% export requirement, they will be required to pay 300% of all taxes due to the Ghana Revenue Authority.[9]

And each year, these Free Zones companies must submit an annual report to the Ministry of Finance detailing the number of employees, the taxes of their employees, their annual turnover, the percentage of goods exported with full export documentation and destination, and exemptions granted them during the period.

There are other interesting provisions in this new Act that many believe will revolutionize the tax space and make the revenue administration regime in Ghana a smoother, easy-to-understand process. And so hopefully, the implementation of the Act should contribute to this goal.

Our insightful investment guide for Ghana as a destination of choice for investment and doing business can be consulted here

Reach out to our team of lawyers and business advisors at Centurion Law Group. We seamlessly guide our clients through Africa’s abundant investment opportunities.

Leon Van Merwe –  [email protected]

Keseena Chengadu- [email protected]

Author: Yorm Ama Abledu, Senior International Attorney, Centurion Law Group, Ghana.