The Ghana Securities Industry Association (GSIA) has kicked against the imposition of a one-per-cent withholding tax imposed on interests earned on investments.
The association, an umbrella body of investment banking institutions that invest in the capital market, believes the move is counter-intuitive and will discourage investments in the formal sector assets such as treasury bills, stocks and other formal sector investment products such as those designed by its members.
Subsequently, it is preparing to petition the Ministry of Finance and the Ghana Revenues Authority (GRA) in the first few days in January to stop the implementation of the tax.
New Income Tax law
The Income Tax Act, 2015 (Act 896), which will come into force on January 1, 2016 to replace Act 592, has abolished the exemption of taxes on interest paid to an individual. Such interests on earnings from mutual funds, unit trusts, investments in government treasury securities and other such money market or capital market investments are all to attract a one-per-cent withholding tax, which will be regarded as a final tax.
Under withholding tax Act 895, the law states that “a resident person shall withhold tax at one per cent where that person pays interest to individuals.” It defines income from investment as a gain from the realisation of an investment asset; winnings from lottery (which is taxed at five per cent) and a gift received in respect of the investment.
Although the association is aware of the measure, it said it had neither been engaged nor had any inputs into it, and was as surprised as their clients and customers that the tax would come into force on January 1.
Owing to that, the GSIA, made up of about 150 institutional members, including dealers on the stock market, licensed fund managers, investment bankers and investment custodians, revealed in an interview that it was preparing a case to engage the Ministry of Finance and the Ghana Revenue Authority (GRA) to take a second look at the tax.
However, the Deputy Minister of Finance, Mrs Mona Quartey, insisted that extensive engagement had been conducted as part of efforts to revamp the country’s income tax regime, after 15 years of implementing the Internal Revenue Act, 2000 (Act 592).
Core principle
She said the core principle behind the revamped tax regime was to tax all legitimate income and, therefore, return on investment was also liable to be taxed.
“The tax is not on your investments that you put in, but on the return, the interest that you gain is what is being taxed. There are many people who invest in treasury bills and so on who do not pay any taxes on the return,’ she explained as the core principle guiding the tax.
Mrs Quartey believes the measure is an answer to the several calls for the government to widen the tax base, saying “this is an effort to widen the tax base so all persons who earn income dutifully and rightfully pay the taxes on the income they have earned.”
The deputy finance minister said the measure would also compel people to file their taxes and receive refunds should their liabilities be less than what they had already paid as withholding tax.
However, as per Act 896, the withholding tax on interests earned is a final tax which will not be subject to any refunds.
Source: Graphic