ICAG COLLEGE

PRINCIPLE OF TAXATION

IMPOSITION OF INCOME TAX

BY
RESTER TOGORMEY
 OUTLINE
Imposition of Income tax
Resident/ Non –Resident Person
Assessable Income
Chargeable Income
Exempt Income
Year of Assessment
Basis period
 Imposition of Income Tax
Income Tax is imposed on the total income of both
resident and non-resident person who has
chargeable income and a person who receives a
final withholding payment during each year of
assessment in accordance with Act 896.
 Resident Person
For a Resident Person, both incomes derived from within Ghana and
from foreign source are assessable to tax.

Therefore, the worldwide income of a resident person is liable to tax.

However, the income of a resident individual from employment

exercised in a foreign country is exempt if:
a) The employer is non resident
b) The employer is resident but the employee is present in the foreign
country for 183 days or more during the year of assessment .
c) The expenses is not attributable to a P/E
 Non-Resident Person
• For a Non-resident person, only incomes which have its sources from
Ghana are assessable to tax.

• It means that, the income is accruing in or derived from Ghana.

• Income Accruing in Ghana suggests that, the income is continuing at

least for a reasonable period. A classical example is an employee or a
company registered and operating in Ghana.

• Derived from Ghana suggests that, the source of the income might have
ceased or the person receiving the income is not in Ghana.
• Derived from Ghana suggests that, the source of the income might have
ceased or the person receiving the income is not in Ghana.
 Non-Resident Person
However, where the person has a Ghanaian Permanent
Establishment (P/E), income for the year that is
connected with the P/E, irrespective of the source is
assessable to tax.
Permanent Establishment concept is use :
-to distinguish between trading in or with Ghana.
-to distinguish between business and investment
income.
Trading in Ghana: where a non-resident person
conducts business or economic activity in Ghana and
has created tax presence in Ghana. Therefore, profits
attributable to its activities in Ghana are taxable.
Trading with Ghana: where a non-resident person does
not conducts business or economic activity in Ghana
and has not created tax presence in Ghana. Therefore,
profits made are not attributable to its activities in
Ghana.
 Permanent Establishment
It means a place where a person carries on business through an
agent , other than a general agent of independent status acting
in the ordinary course of business as such .
A Taxable presence is created
Footprint has been extended
Dependent and not Independent agent
A branch and not a subsidiary
 Permanent Establishment
A Ghanaian PE includes:
• a place in the country where a non-resident person carries on
business or that is at the disposal of the person for that purpose.

• a place in the country where a person has, is using, or is installing

substantial equipment or substantial machinery.

• a place in the country where a person is engaged in a construction,

assembly, or installation project for 90 days or more, including a
place where a person is conducting supervisory activities in relation
to that project.
 Permanent Establishment
• the provision of services in the country.

• A place in the country where an agent performs any functions on

behalf of the business of the non-resident person

A foreign PE means a fixed place of business situated in a foreign

country where the business is conducted continuously for at least six
months, but excludes any place at which only activities of a
preparatory or auxiliary nature are conducted.
Individual Company
Resident
Persons

Partnership Trust
 Resident Individual
An Individual is resident in the country for a year of assessment if that
individual is:
a citizen , other than a citizen who has a permanent home outside of the
country and lives in the home for the whole of that year;
present in the country during that year for an aggregate period of 183 days
or more in any twelve month period that commences or ends during that
year;
an employee or an official of the Government of Ghana posted abroad that
year; or
a citizen who is temporarily absent from the country for a period of not
more than 365 continuous days, where the citizen has a permanent home in
Ghana.
 Resident Company
A company is resident in the country for a year of
assessment if :
that company is incorporated under the Companies
Act, 2019 (Act 992);
OR
the management and control of the affairs of that
company are exercised in the country at any time
during that year.
 Resident Partnership
A partnership is resident in the country for a
year of assessment if any of the partners
resided in the country at anytime during that
year.
 Resident Trust
A trust is resident in the country for a year of assessment if :
that trust is established in the country;
a trustee of the trust is resident in the country at anytime during
the year ; OR
a person resident in the country directs or may direct senior
managerial decisions of the trust at any time during the year,
whether the directive is given
-alone or jointly with other person ;or
-directly or through one or more interposed entities
Employment Business Investment
 Employment Income
 Remuneration

Fees and commission

Overtime and bonuses
Personal allowances
Discharge or reimbursement (not a business
expense)
Gift in respect of the employment
 Business Income
 Income from trade, profession, vocation or isolated
arrangement with a business character.
Gains from realization of capital assets
Excess on realization of depreciable assets
Gifts received in respect of the business
An amount derived as consideration for accepting a restriction
on the capacity of the person to conduct the business
NB: THERE ARE EXEMPTIONS
 Investment Income
Dividend
Interest
Annuity
Rent
Royalty
 Investment Income
Gain from the realization of an investment
asset
An amount derived as consideration for
accepting a restriction to conduct
investment
Gift received in respect of an investment
NB: THERE ARE EXEMPTIONS
 Chargeable Income
The chargeable income of a person for a year
of assessment is the total of the assessable
income of that person for the year from each
employment, business or investment less the
total amount of deduction allowed that
person under the Act.
 Exempt Income

READ

Section 7 of Act 896

 Year of Assessment
It is the income tax year or the year in
which taxes are levied or collected.
Government fiscal year or budgetary year
In Ghana, it is the calendar year
January to December
 Basis period
The period reference to which the assessable income of
a person is computed in accordance with provisions of
the Act .
It is a twelve (12) months period
It can not be more than twelve (12) months
However it can be less than twelve (12) months
- commencement and
- cessation
 Basis period
For individuals and those in partnership, the basis
period is the same as the Year of Assessment – the
calendar year, which is
1/1 to 31/12

For companies and trust, the basis period is the same

as the Accounting year of the company or trust.
 Example
1)Nhyira commenced business on 1st March 2016,
preparing accounts to 30th September each
year. He had to relocate outside Ghana and
therefore ceased to operate on 31st August
2022. Determine the relevant year (s) of
assessment and basis period for the year (s) of
assessment.
 Example
2) Nyameye Ltd commenced business on 1st
September 2016, preparing accounts to 30th April each
year. There was serious misunderstanding between
the two major shareholders. Consequently, the
business was liquidated on 30th November 2021.
Determine the relevant year (s) of assessment and
basis period for the year (s) of assessment.
 Example
3) Adoye and Co. commenced business on
1st December 2016, preparing accounts to
31st May each year. Due to economic
recession, the business ceased to operate
on 31st May 2020.
Determine the relevant year (s) of
assessment and basis period for the year
(s) of assessment.
 Example
EXERCISE 1
Akosua company Ltd commenced business on 1/10/16 preparing
accounts to 31/3 each year. The following are the agreed profits for
the first three and half years of operations:

₵
Period to 3/31/2018 24,000,000
Year to 3/31/2019 36,000,000
Year to 3/31/2020 42,000,000
Determine the company’s assessable income for all relevant
years
 Example
EXERCISE 2
Aikins Ltd has been in business since 1/8/2016 making up accounts to 31/5
each year. Due to a misunderstanding between the two major shareholders
the company was liquidated on 30/11/2021. The agreed profits for the past
years of operations are as follows:

₵
Year to 31/5/2019 15,500,000
Year to 31/5/2020 18,400,000
period to 30/11/2021 9,200,000

calculate the assessable income for all relevant years.

 Example
EXERCISE 3

Selikem: a second hand cloth dealer has been in business for several years preparing accounts to
30/9 each year

Assume he ceases to operate on 30/6/2020. The agreed profits for the past years of operations
are as follows:
₵
Year to 30/9/2016 12,300,000
Year to 30/9/2017 15,000,000
Year to 30/9/2018 22,000,000
Year to 30/9/2019 25,000,000
Period to 30/6/2020 20,000,000

a. State the lessons derived from the exercise

b. Calculate the assessable income for all relevant years
 EXERCISE 4 Example
Hamza Ltd commenced business on 1/9/2016 making accounts to February end.
From the following agreed profit, determine the company’s assessable income
for the relevant years.
₵
Period to 28/2/2018
54,000,000
Year to 28/2/2019
60,000,000
Year to 28/2/2020
65,000,000
Year to 28/2/2021 72,000,000

a. Calculate the assessable income for all relevant years

EXERCISE 5 Example
Delivery Expert Ltd commenced business on 1/5/2016 making accounts to 30/6.
The company ceases to operate on 30/9/2021. It submitted the following
accounts for tax purposes:
₵
Period to 30/6/2017
28,000,000
Year to 30/6/2018
42,000,000
Year to 30/6/2019
45,000,000
Year to 30/6/2020
15,000,000
Year to 30/9/2021
• SUMMARIES

• QUESTIONS ?