The Ministry of Finance has announced a withdrawal of the one per cent withholding tax imposed on interest earned by individuals on any investments.
The tax imposition on interests is part of provisions in the new Income Tax Act, 2015 (Act 896) which came into force on January 1, 2016.
There has been huge public outcry over the issue after banks and financial institutions sent SMS alerts to their customers about the provision and how it would affect them.
“On the issue of the imposition of a 1% tax on interest earned by individuals, Government has already submitted proposals to Parliament to reverse the position,” a statement from the Finance Ministry said.
Below is the full statement from the Minister Seth Terkper:
IMPLEMENTATION OF THE INCOME TAX ACT, 2015 (ACT 896)
Following the passage of the Income Tax Act, 2015 (Act 896) in September, 2015 Government has taken note of the concerns of taxpayers and the general public on some provisions of the Act especially those relating to the withholding tax on the provision of services and the payment of tax on interests paid to individuals.
The essence of the withholding tax regime on services is to improve tax compliance. It is not a final tax but a payment on account. Therefore the increase in withholding tax on services to 15% is to encourage taxpayers to file their returns, after which they will be entitled to a credit for the amount withheld. Furthermore, the Act allows the Commissioner-General to grant exemptions from withholding tax to compliant taxpayers. The Ministry of Finance has therefore directed the Ghana Revenue Authority to implement these provisions. Proposals have also been submitted to Parliament to review the rate.
On the issue of the imposition of a 1% tax on interest earned by individuals, Government has already submitted proposals to Parliament to reverse the position.
It is important to draw the attention of the general public to the objectives and significant benefits of the Act which are to revise and consolidate the laws relating to income tax after fifteen years of operation of the Internal Revenue Act, 2000 (Act 592). This review included consolidating the general fiscal regime, Minerals and Mining Income Tax, Petroleum Operations Tax, and the taxation of entities such as Public, Mutual, and Non-Profit Causes.
It simplifies the provisions of the legislation and makes it more user friendly, enhances efficiency and facilitates compliance.
It retains provisions that are peculiar to income tax administration worldwide. (Eg. withholding tax and tax payable by instalment provisions)
It further broadens the tax base and removes the narrow and distorted tax base of the Internal Revenue Act, 2000 (Act 592); rationalizes, streamlines and restrict tax concessions; tackles erosion of the tax base and aligns domestic tax rules with current international tax rules.
The law provides additional benefits for taxpayers as all taxpayers are now allowed to determine and pay taxes based on their own estimates; carry forward losses and take account of losses on the disposal of capital assets. The withholding tax threshold has also been revised from GHs500 to GHs2,000 to take account of inflation and exclude small value transactions from the withholding tax mechanism.
The threshold for taxation of car benefits has also been improved from GHs150 and GHs300 to GHs250 and GHs600 respectively to take account of inflation.
The debt-to-equity ratio has also been revised from 2:1 to 3:1 to allow for additional debt financing and at the same time allow the interest on the debt as an allowable deduction.
HON SETH E.TERKPER