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HeadlineGhana

Putting Verdana Bold


back to work
Ghana 2018 budget commentary and
Tax highlights
November 2017
Preamble

Ghana’s Minister of Finance, Ken Ofori-Atta, presented the 2018 budget


statement and economic policy to Parliament on Wednesday, 15 November,
2017.

On the back of the previous year’s budget which emphasized improvement


in production and revenue generation, the 2018 budget has been themed
“Putting Ghana Back to Work”. Accordingly, the common theme across the
various proposals of the 2018 budget is reviving businesses with an aim to
“energize entrepreneurial spirit in every Ghanaian”.

The budget statement also includes a number of tax policy proposals


expected to enhance tax revenue generation which remains a key objective
of government. These proposals are expected to be submitted to Parliament
in 2018 for approval and subsequent amendment/enactment of legislations
to make them effective.

In this publication, we provide commentary on key policy initiatives for 2018


and highlights of the main tax proposals in the budget statement.
Contents

4 2018 Budget at a glance

5 Economy and sectoral outlook for 2018

9 A.A.P.E.T.

10 Tax policy proposals

Quick guide on the tax proposals


17
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Budget at a glance
Revenue – 2018 (GHS)
2018 Highlights 3.1bn
6.1%
Other revenue
Total
GHS51.bn
Macroeconomic targets for 2018 8.0bn
15.8%

Non Tax
revenue

39.9bn
6.2% 9.8% 78.1% Tax revenue

Tax revenue Non-tax revenue Other revenue


GDP Growth Inflation
Expenditure – 2018 (GHS)
Total
6.9bn
8.9% 5.4% 4.5% GDP 1.6% of GDP $3.5 mths
Capital GHS62bn
11%
Expenditure

32% 19.5bn
End period Non Oil GDP Fiscal deficit Primary balance Gross Employee
Inflation surplus international
reserves 16.2bn 27%
Compensation
Other
Expenditure
Key Growth sectors 2017/2018 6%
3.5bn
Services Goods and
24% Services
14.9bn
Industry Interest
Payments
Agriculture
Employee compensation goods and services Interest payments

0 5 10 15 20 Other expenditure Capital Expenditure

2018 2017 Deloitte: Ghana 2018 budget commentary and tax highlights r 4
Economy and sectoral outlook for 2018

Electricity tariff reductions

Residential 13% Non- Residential 13% Low Voltage 13% Medium Voltage 11% High Voltage 14% High Voltage Mines 14%

Energy Government will embark on the The Government launched the ‘Planting
Ministries, Departments and other for Food and Jobs Programme’ in 2017
One of the main highlights of the 2018
Agencies Solar Rooftop Programme to with the aim of increasing food security
budget was the proposal of an
reduce expenditure on utilities and and job creation for the youth. The
electricity tariff reform over a two-year
also the demand on the National 2018 budget highlights that the
period, subject to PURC’s acceptance.
Power Grid. programme will register 500,000
Once accepted, various categories of
customers are to benefit from average farmers as well as 2,700 extension
Even though solar power results in cost agents to support the programme. In a
tariff reductions of 11% to 21%.
savings, it is unclear how long it will bid to encourage large scale farming,
take for these cost savings to make up Government will also distribute 400
Under this reform, Ghanaians will not for the expensive installation cost. Also
tractors and 1000 power tillers and
only benefit from a reduction in utility the successful implementation of the
Rural Electrification Programme will walking tractors in 2018.
costs but a reduction in prices of
manufactured products since industries result in increased pressure on the
stand to benefit from reduction in their national grid. An additional benefit of this policy is to
cost of production. However, it is Agriculture reduce the reliance on importation of
unclear how the Government plans to food and improve the balance of trade.
fund this initiative since it is already However, this programme is dependent
indebted to power producers due to on the successful implementation of the
subsidies on electricity tariffs. ‘One-Village-One-Dam’ initiative which is
to reduce and ultimately end the
As part of the Government’s solution practice of rain fed agriculture in the
to the growing demand for electricity country and the ‘One-District-One-
in Ghana, Government will increase Warehouse’ programme under which
modern storage facilities will be
the installed generation capacity by
developed.
about 487MW in 2018. In addition,

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Economy and sectoral outlook for 2018

Industrialisation 1D 1F Regional spread for 2018 Entrepreneurship Policy and continue to


facilitate and support private sector
Under the ‘one district, one factory’
40 business entrepreneurial development.
programme (1D 1F), 191 district
enterprise projects covering 102 districts 35
have been selected for implementation. 30
The Government will allocate a minimum Entrepreneurship has been identified
of GHS 2million to each district
25 as a major tool to help create jobs
assembly for the implementation of 20 in the private sector.
1D1F, which is expected to generate Whereas the plan for 2018 is
15
about 250,000 direct and indirect jobs in expected to boost confidence among
2018.
10 local entrepreneurs and startups;
5 and create avenues for job creation
which is fundamental to the 2018
0
budget, it is unclear the extent to
which this will impact on job
creation. A robust plan is therefore
needed to address entrepreneurial
I District 1 Factory issues beyond trainings and
financing to sustainability and
Business Development expansion of business operations.
Major activities undertaken in 2017
This policy of the Government under this comprises the commencement of the Education
programme has been lauded by many construction of the largest Greenhouse
analysts since industrialisation is seen as estate in West Africa at Dawhenya The education sector grew by 9.1%
the engine of growth and development. made up of 75 units; launch of the (provisional) up from 8.3% in 2016
However, Post-Independence Ghana also following a slowdown in 2015. Growth
National Entrepreneurship and
had a number of industries, many of in 2018 is projected to slow to 8.1%
which have collapsed due to various
Innovation Plan (NEIP) and the
National Business Plan Competition largely due to stability in Government
factors including management
and the establishment of four zonal programmes.
inefficiencies, lack of raw materials and
foreign competition. For this programme NEIP operational offices in Tamale, In line with the goal to provide
to be a complete success, there should Kumasi, Takoradi, and Accra. equitable access and quality education
be a conscious effort to promote the In 2018, Government expects to in the Sustainable Development Goals
consumption of “made in Ghana goods” develop and implement a (SDG) 4, Government performed the
to create demand for these factories. comprehensive National following in 2017:

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Economy and sectoral outlook for 2018

• Doubling the Capitation Grant from psychiatric hospitals and half of health
GHS4.50 to GHS9.00; commodities were decentralized to
Access to free and quality education is
Regional Medical stores to minimize
globally regarded as a major contributor
• Implementation of the to growth and development. The move
risk associated with centralizing the
Complementary Basic Education by Government is expected to reduce the bulk of health commodities at the
(CBE) programme. The programme is cost of education, increase patronage of Central Medical Stores.
in the fourth cycle and runs across 43 education especially across the primary In 2018, Government will focus on
districts in three regions – Northern, and secondary levels and contribute to activities directed at reducing
Brong Ahafo and Ashanti regions; meeting the SDG4. However, sustainable mortality, especially maternal and
finance remains a baffling issue as neonatal, disability and improve the
• Commencement of the free SHS Government relies on oil revenue which quality of life through increasing
programme for public senior high still remains below USD100 per barrel.
access to quality health services and
Financing for these projects will mostly
schools, technical and vocational improving efficiency in governance and
likely double as most of these projects
institutions. An estimated 353,053 enter the second year. Government management of the health system.
students benefited from the needs to therefore establish alternative
programme; and and sustainable sources of financing for
these programmes.
• Restoration of the teachers’ trainee
allowances to cover over 49,000
trainees in 41 public colleges of Health
education. Health & social work slowed down in
2017 growing by 5.3% (provisional)
In 2018, Government expects to compared to 16.8% in 2016. The Health is a critical sector to the economy.
broaden the CBE to cover an additional sector is projected to recover in 2018 Continually improving the sector to boost
40,000 out-of-school children in 14 with an estimated growth of 5.7%. human capital therefore remains a major
districts, run the free SHS programme As part of activities in 2017, priority of the Government.
into its second year and broaden the Government lived up to its promise of Government’s plan to focus on activities
Teacher Trainee allowance to cover restoring the health trainee allowance to reduce maternal mortality is in line
52,000 trainees in the next academic to cover over 54,000 trainees in 77 with SDG3 which will in the long term
year. Further, Government plans to public health training institutions ensure a healthy population.
Further, reintroducing the health trainee
absorb 100% of BECE registration fees across the country. Additionally,
allowance was met with delight by
among students in public schools. Mental Health Coordinators were students in public health training
deployed at regional and district levels institutions.
to help decongest the national

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Economy and sectoral outlook for 2018

Financial Sector As part of the government’s plan to This programme will create at least
strengthen the financial sector, the 100,000 public sector jobs in public
following policies were announced: works projects, afforestation,
• The Launch of a National sanitation and community policing in
Development Bank, with the 2018.
capacity to mobilise private capital
towards agricultural and industrial
This initiative will create a win-win
transformation; situation for the Government and
• Restructure the Ghana graduates as the programme aims to
Infrastructure Investment Fund improve skills and employability of
(GIIF) with the capability to graduates, to work on projects such as
mobilise foreign private capital for national identification, revenue
critical infrastructure development mobilisation, ‘planting for food and jobs’
As part of the government’s plan to using a private sector model; and and ‘free SHS’. Attention must be given
expand access to housing, the Ministry to this programme since similar modules
• Enhance the capacity of Ghana Exim
ran by the “YEA’” has failed due to
of Finance will partner with financial Bank to support agriculture and
payroll fraud and alleged corruption.
institutions to develop local mortgage industrialisation for export.
and housing finance markets to offer
affordable mortgages at subsidised
interest rates beginning with public It is not yet clear how the mandate of this
sector workers. This is expected to bank would be different from the already
established Agricultural Development
contribute to the reduction of the
Bank (ADB) and the National Investment
housing deficit which stands at about
Bank (NIB), which are also state-owned
1.7 million. and set up for a similar purpose.

Prices of houses are extremely high and


this has contributed largely to the housing Nation Builders Corps (NBC)
deficit. This problem has been worsened
As part of efforts to address the
by the dollarization of the real estate
industry and it is not yet clear how the
unemployment problem in the country,
government intends to resolve this. Even the Government proposed a new jobs
though this initiative targets housing programme, the Nation Builders Corps,
finance, it is worth noting that Ghana is as a major government initiative to
yet to see the successful rollout of any of address livelihood empowerment and
the affordable housing projects under the graduate unemployment.
two previous government.
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The Akufo-Addo Programme for Economic Transformation (AAPET)
The 2018 budget set a three-pronged economic development programme that will focus on, integrate and
accelerate investment in agriculture, infrastructure development and industrialization as the primary
vehicles to fundamentally transform the economy.

01 06
Ramp up investments under Provide specific technical assistance
the Planting for Food and Jobs and tax incentives to support agro-
processing, packaging, and market
access

02 07
Abolish duties on some agricultural Launch a major pension scheme
produce processing equipment and for cocoa farmers
machinery

03 08
Support the development of Develop modern storage facilities
agribusiness start-ups through the through the “One District, One
establishment of a grant funding Warehouse” programme
facility

04 09
Establish a GH¢400 million fund to de- Launch the commodities
risk the agriculture and agribusiness exchange
sector through sustainable agriculture
financing and crop insurance schemes

05 10
Increase the pace of Open up key food basket zones
mechanization through road construction and
irrigation projects

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Tax Policy Proposals
Tax Policy Proposals
Major tax introductions for 2018

Tax Amnesty
in 2018

Tax holiday Corporate tax


for young relief for
entrepreneurs private
universities

NFSL:
National Fiscal
Stabilization Levy Extension of Introduction
NFSL and SIL of withholding
SIL: to 2019 VAT
Special Import
Levy

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Tax Policy Proposals

Business tax Personal tax financial institutions before their goods


Extension of National Fiscal Review of personal income tax are warehoused. Related to this, the
Stabilization Levy (NFSL) threshold Minister also announced that
modalities will be developed to require
The Minister has proposed to extend the The Minister has disclosed that there transit importers to pay import duties
application of NFSL to the end of 2019 will be a review of the current income in Ghana on goods consigned for other
to support government revenue tax threshold to peg the tax-free countries and then the duties
generation. threshold to the current minimum subsequently transferred to the
wage in order to preclude minimum destination countries.
wage income earners from paying
The NFSL is a 5% levy on the profit
personal income tax. The proposals for bond guarantees are
before tax of specific businesses- banks not new as under current customs
and non-bank financial institutions, procedures importers using bonded
insurance companies, telecommunication The current tax-free threshold on the warehouses or transiting imported goods
companies, breweries, inspection and individual graduated income tax schedule are already required to provide bond
valuation companies, mining support is GHS 2,592 annual income (GHS 216 guarantee usually in the form of
service providers, shipping lines, per month). The proposed increase in the insurance bond. It therefore not clear the
maritime and airport terminals. tax-free threshold will lead to an increase specific aspects the Government intends
in the income tax bands across the to review in this regard. It would
Application of the NFSL was scheduled to graduated income tax schedule thereby however appear that Government is
expire at the end of 2017 after an earlier increasing the net income in the hands of seeking a more secured guarantee in the
extension in 2015. The Minister has employees. form of LCs other than the insurance
however now proposed to extend the bond guarantees importers traditionally
levy to apply until end of 2019. Whiles it Indirect tax provide.
is clear that the government intends to In terms of the transit regime, the
support revenue generation with the Review of suspension regimes
Government is likely to be finding gaps in
NFSL for at least two more years, the the tracking of transit regime where
continuous extension of the levy, which The Government proposes to review
goods supposed to be in transit and
was initially intended to be temporary, is the customs duty suspension regimes therefore are not required to pay duties
likely to continue to place additional tax which allow importers to import goods
burden on the few specified businesses. without immediately paying duties
A downward review of the rate for NFSL until the goods are finally removed for
and widening of the coverage could
domestic use. The proposal is for
therefore be considered to reduce the
fiscal burden on the current specified
importers to be required to submit
businesses. Letters of Credit (LC), guarantees or
insurance cover from participating

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Tax Policy Proposals

registered entities that are yet to be Similar to the NFSL, the Minister
determined. announced plans to extend application
end up in the domestic market. While
there is still no significant detail on the
of the SIL to the end of 2019.
modalities to be used, this initiative will The withholding VAT will be a novel VAT
obviously require close collaboration with collection system which will extend the
the authorities of neighbouring countries underlying principles of withholding tax
and should also be balanced with the under income tax to VAT. If The SIL currently applies at 2% on all
need to keep Ghanaian ports attractive implemented, the system will assist the imports other than petroleum, fertilizer
as the trade gateway to the sub-region. Ghana Revenue Authority (GRA) to curb and machinery and equipment listed
VAT evasion and improve cash inflow by under chapters 84 and 85 of the
directly collecting VAT from the customer Harmonized System and Customs Tariff
Introduction of withholding VAT in a VAT transaction compared to the Schedule. The levy was also scheduled to
on taxable supplies customer paying the supplier before the expire at the end of 2017 after an earlier
supplier remits to the GRA. extension in 2015. The SIL will now be
levied on most imported goods for at
Businesses are however likely to be wary least two more years to 2019.
of the potential adverse cash flow impact
Withholding 7% this may have on their business
VAT Rate operations especially where withholding
VAT results in the business not having Tax incentives
enough cash output VAT against which to
offset input VAT claims.
Introduction of tax relief for
private universities
Extension of Special Import Levy
To improve compliance in the VAT The Government has proposed to
(SIL)
accounting and collection process, the provide relief to privately-owned and
Minister has proposed the introduction managed universities from corporate
of a withholding VAT regime where income tax to the extent that their
designated persons/entities will be profits are re-invested to expand or
appointed as “withholding VAT agents” maintain their facilities. The stated
to deduct VAT on payments for taxable objective of this proposal is to make
supplies. The Minister has proposed a Ghana the premier hub of higher
withholding VAT rate 7% to be education in the sub-region as well as
withheld on taxable supplies made to contributing to the long- term
zero-rated VAT suppliers, selected development of Ghana’s human capital
government agencies and other VAT base.

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Tax Policy Proposals

If implemented, this proposal should


The proposal is aimed towards supporting Given the Minister’s note of a low
encourage more investments into the
local business owners to grow their registered taxpayer population compared
private tertiary education sector which
business ventures by removing the to the estimated taxable population, it is
will go a long way to enhance the status
burden of corporate taxes in the early obvious that many business operations
of higher education and research in the
years of start-up businesses. It should including individuals in business continue
country. It however remains to be seen
also help to address the high to elude the tax system which is inimical
how the condition of profits being
unemployment levels among the youth in to government’s goal of boosting
ploughed back for re-investment will be
the country. It is however important that domestic revenue generation.
monitored as the proposal does not
the modalities for implementation provide Accordingly, we view the proposal for a
provide much detail in this regard.
clear guidelines for qualification and also tax amnesty as a good policy which has
target priority sectors such as ICT, agro- the potential to help rope in taxpayers
Introduction of tax incentives for operating outside the radar of the GRA as
business, farming and manufacturing.
young entrepreneurs The capping of the age limit of young well encourage voluntary disclosure by
entrepreneurs to age 35 may also registered taxpayers.
As part of efforts to enhance economic
automatically discourage certain
growth and to provide a system that enthusiastic young entrepreneurs who The amnesty will also provide a golden
supports young Ghanaian are above the age of 35 to take opportunity to taxpayers who may have
entrepreneurs, the Government advantage of initiative. defaulted in tax compliance to take
proposes to introduce a tax incentive advantage to file outstanding returns
program for young Ghanaian and/or pay overdue taxes without the
Tax administration added burden of interest and penalties.
entrepreneurs of age 35 and below.
The proposal is for such entrepreneurs Introduction of tax amnesty It is our recommendation that once the
in start-up or early-stage businesses to scheme is introduced, the GRA should
enjoy tax holidays for periods The Minister has proposed to introduce undertake comprehensive education of
determined based on the number of a tax amnesty scheme for taxpayers in taxpayers to ensure full dissemination of
persons employed and preferential tax 2018. The scheme will provide information on the scheme to small and
rates for 3 to 5 years after the tax defaulting taxpayers a window of medium enterprises and informal sector
holiday. opportunity to voluntarily regularize operators in particular so that the full
their tax compliance status with waiver benefits of the program would be
realized. Again, the GRA and Ministry of
of penalties and interests for late
Finance should consider carrying out a
payments or non-submission of post-implementation assessment of the
returns. The waiver will also cover effectiveness of the program to inform
exemption from prosecution for similar policy decisions in the future.
breaches of the tax laws.

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Tax Policy Proposals

Introduction of Voluntary Fiscal Electronic Devices (FED) to VAT Improvement in collection of


Disclosure Procedures registered businesses in 2018 to property tax
monitor VAT declaration of businesses.
The Minister proposed to introduce
Although this proposal featured in the The Minister also mentioned plans to
Voluntary Disclosure Procedures (VDP)
2017 budget, the draft bill has now improve the assessment and collection
under the Revenue Administration Act,
been laid in Parliament after of property taxes by local authorities
2016 (Act 915) to waive penalties for
stakeholder consultations and is by requesting the Ghana Revenue
taxpayers who voluntarily disclose and
expected to be passed into law for Authority to support the Metropolitan,
pay unreported or understated taxes.
implementation in 2018. Municipal, and District Assemblies
Taxpayers will also have the
(MMDAs) in the assessment and
opportunity to arrange payment terms
From a tax administration perspective, collection of property taxes.
with the Commissioner-General of the
Ghana Revenue Authority to settle this is a good initiative which leverages
outstanding taxes. technology to maximise revenue
collection, minimise the incidence of
revenue suppression and obtain accurate
Under the Revenue Administration Act, records for VAT transactions. Upon
the Commissioner-General of the GRA implementation, VAT registered
has the power to waive penalties or to businesses (for both goods and services)
extend penalty payment period if a will be mandated to use an approved FED
taxpayer “shows good cause”. Whiles this at a conspicuous position at each sales
provided a good avenue for taxpayers, location on their premises.
the provision remained arbitrary as
conditions for showing “good cause” were Although application of the FED is not The success with collection of property
not clear. Introduction of the VDP should expected to alter the accounting system taxes has generally been low, a situation
clearly spell out the conditions and of taxpayers, the Government should the Minister attributed to insufficient
provide qualification guidelines for ensure that the technology is robust to valuation capacity and high cost of
penalty waivers. This should enhance prevent disruptions in the accounting valuation. Collaboration between the GRA
confidence and certainty around the system of businesses and also prevent and the MMDAs may help improve the
application of this provision for the manipulation. collection efforts of the MMDA collection
business community. task forces but we believe that a more
technologically inclined solution will be
Deployment of Fiscal Electronic the most effective means of shoring up
Device property tax revenue. The recently
introduced digital addressing system
should ultimately be a platform the
The Minister also announced that
MMDAs leverage to achieve this goal.
government will deploy the use of

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Tax Policy Proposals

Removal of taxes on lotteries • Income Tax Act, 2015 (Act 896)/


Government proposes to abolish VAT Income Tax Regulations, 2016 (L.I.
7.5% lotto stakes. It is also proposed 2244)
that the 17.5% withholding tax on • Revenue Administration Act, 2016
payments of commission to lotto (Act 915)
agents be abolished. • Value Added Tax Act, 2013 (Act
870)/ Value Added Tax Regulations,
2016 (L.I.2243 )
Currently, commissions paid to lotto • Regulations to the Revenue
agents attract a final withholding tax of Administration Act
7.5%. The proposal will exempt the • Fiscal Electronic Device Bill
commissions of lotto agents from this • Tax Amnesty Bill
withholding tax as well as remove VAT on
bet staking.

Key legislations expected to be


reviewed or introduced

The Minister has hinted that the


Government will undertake a
comprehensive review of the
investment environment in Ghana,
with particular mention of review of
the Ghana Investment Promotion
Centre Act in 2018. The Minister also
revealed that the current Transfer
Pricing Regulations, which regulates
pricing of transactions among related
parties, will be updated to reflect
current international best practices.

Other key legislations that are


expected to be reviewed or introduced
in 2018 include the following:
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Quick guide on the tax proposals
Tax /policy Proposal

Limited tax amnesty period in 2018 and waiver of


Tax amnesty & voluntary disclosure penalty/interest for voluntary disclosure of unpaid
taxes

Tax holiday and preferential tax rate for 3 to 5


Corporate tax for young entrepreneurs
years after holiday period

Corporate tax for private universities Relief from corporate tax for private universities if
profits are ploughed back

Personal income tax Tax-free threshold to be pegged to minimum wage

Withholding VAT on taxable Supplies 7% of VAT on taxable supplies to be withheld by


specified withholding VAT agents

Withholding tax (7.5%) on lotto commission and


To be abolished
VAT (17.5%) on lotto stakes

National Fiscal Stabilisation Levy (NFSL) Extension of period to 2019

Special Import Levy (SIL) Extension of period to 2019

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Contacts
For more information and request for
assistance, please contact:

Charles Larbi-Odam
Country Managing Executive
clarbi-odam@deloitte.com.gh
+233 202519894clarbi-odam@deloitte.com.gh

George Ankomah
Partner, Tax
gankomah@deloitte.com.gh
+233 501320895

Ellen Fayorsey
Partner, Financial Advisory
efayorsey@deloitte.com.gh
+233 501320900
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