TABLE OF CONTENTS

LECTURE ONE
TAXATION AS A CONCEPT - - - - 1
BRIEF HISTORY OF INCOME TAX IN GHANA - - - 3
TAXATION AS A LEGAL CONCEPT - - - - - 4
CLASSIFICATION OF TAXES - - - - 6
PROGRESSIVE, PROPORTIONAL & REGRESSIVE TAXES - 7
A GOOD TAX SYSTEM & EQUITY RULES - - - - - 8
APPROACHES TO THE INTERPRETATION OF TAX STATUTES - - 10
INCOME AS A TAX BASE - - - - - - 13
INCOME AS AN ECONOMIC CONCEPT - - - - 14
INCOME AS A LEGAL - - - 15
SOURCES OF INCOME TAX LAW IN GHANA - - - - 17

LECTURE TWO
IMPOSITION OF ON INCOME IN GHANA - - - - 20
JURISDICTION TO INCOME TAX - - - - 20
CHARGEABLE INCOME - - - - - - - 20
ASSESSABLE INCOME - - - - - - - 21
THE SOURCE RULE - - - - - - - - 21
RESIDENCE RULE - - - - - - - 21
TAXABLE INCOME IN GHANA - - - - - 23
BUSINESS (TRADE, PROFESSIONAL ORVOCATION) - - 23
THE SIX BADGES - - - - - - - 25
OTHER TRADE RELATED ACTIVITIES - - - - - 29
i. Mutual Trading - - - - - - 29
ii. Illegal Trading - - - - - 30
iii. Farming as an Incidence of Trading - - - 31
iv. Profits Realized in the Course of Discontinuing Trade - 33

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PROFESSION OR VOCATION - - - - - 34
VOCATION - - - - - - - - 36

EMPLOYMENT - - - - - - - - 37
OFFICE OR EMPLOYMENT - - - - - - - 38
THERE MUST BE EMOLUMENTS - - - - - - 42
EMOLUMENTS MUST DERIVE FROM OFFICE - - - - 44
INVESTMENT - - - - - - - - - 46
GAINS & PROFITS DEEMED ACCRUING IN OR DERIVED FROM GHANA- 47
OTHER TAXABLE INCOME ION GHANA - - - - 50

LECTURE THREE
ASCERTAINMENT OF INCOME IN GHANA - 53
THE CHARGEABLE INCOME - - - - - 53
THE ASSESSABLE INCOME - - - - - - 53
EXPENSESALLOWABLEAS DEDUCTIONS GENERALLY - - - 56
SPECIFIC ITEMS OF EXPENDITURE ALLOWED UNDER ACT 592 - 62
EXPENSES NOT ALLOWED - - - - 65
I. TRAVELLING EXPENSES - - - - 65
II. MEDICAL EXPENSES- - - - - - 67
III. TELEPHONE EXPENSES - - - - - 68

LECTURE FOUR
BASIS FOR COMPUTING ASSESSABLE AND CHARGEABLE INCOME 70
MEANING OF ASSESSABLE & CHARGEABLE INCOME - - - 70
COMPUTATION OF CHARGEABLE INCOME - - - 72
I. TAXATION OF INDIVIDUALS - - - - 72
II. TAXATION OF PARTNERSHIPS - - - 74
III. ILLUSTRATION - - - - 76
CAPITAL ALLOWANCE - - - - - - 78

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TYPOLOGIES OF CAPITAL ALLOWANCE - - - - 79
TAXATION OF COMPANIES - - - - - - 83
RATES OF INCOME TAX - - - - - - 84
DOUBLE TAXATION ARRANGEMENTS AND TAX CREDITS - - 86

LECTURE FIVE
IMPOSITION OF TAX ON CAPITAL GAINS AND GIFTS - 90
CAPITAL GAINS TAX - - - - - - 90
REALISATION - - - - - - - 91
COMPILATION OF CAPITAL GAINS TAX - - - - - 92
CONSIDERATION RECEIVED - - - - - - 94
PROCEDURE RELATING TO CAPITAL GAINS TAX- - - - 95
GIFT TAX - - - - - - - - 96

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 [This is work still in progress and it should not be cited]

LECTURE ONE

GENERAL PRINCIPLES AND BACKGROUND TO TAXATION IN GHANA

1. Introduction: Taxation as a concept

One of the problems that students of taxation have encountered over the
years is a precise definition of what a tax is. Are all forms of levies the citizen
pays to the State taxes? What criteria can we use to decide which of such
payments can be subsumed under the category tax and which are excluded?
This situation is not helped when policy makers find it convenient to say
things are not tax when in fact they certainly seem to look like taxes. Good
examples of such payments in Ghana are television license fees, ground
rents, stamp duties, market and bridge tolls, vehicle licensing fees etc. We
can accept for now, and as a working definition, the view of Morse and
Williams (2000: 3) that:
A tax has three characteristics [and] it is a compulsory levy imposed by an
organ of government for public purposes. The legal essence of this
definition lies in compulsion. Law requires that the payment be made. The
political essence lies in the public purposes for which the payments are
made.

Another view on the definition of a tax is that we list all payments that are
currently considered to be taxes in force in a country. However, such a list
will be impossible to compile within the Ghanaian context and will still not
give us a useful conceptual basis for a proper understanding of what a tax is
or is not.

Another important question that ought to engage all students of taxation is

why taxes need to be imposed in the first place? The general view is that

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 taxes are needed to provide public goods and services and government must
have the means by which to purchase them. Therefore taxation is seen as the
mechanism through which financial resources are raised for public
expenditure. An alternative way of raising such resources as it was done in
earlier times and in cases of military draft was direct conscription. Taxation is
also said to be a means by which a government implements decisions to
transfer resources from the private sector and is a major instrument of social
and economic policy1.

However, taxation goes beyond the function as a means of raising revenue to

finance public expenditure. Modern economists regard taxation not only as a
basic source of national revenue but also as a means to achieving a number
of economic objectives:
(a) As a means of stabilizing the economy;
(b) For distribution of wealth and income or to reduce economic
inequality;
(c) For reallocating resources;
(d) As a deflationary device or as a fiscal tool to control the volume of
money in circulation and thereby control inflation; and
(e) For influencing balance of payments i.e. to discourage or
encourage imports and promote long-term growth.
As Allen observes, if revenue was what was required of taxation a benevolent
government will borrow and that since borrowing is likely to be inflationary the
basic function [of taxation] is to reduce inflation.

2. Brief History of income tax in Ghana

When the Gold Coast separated from Sierra Leone in 1850 there was the need
for revenue to meet government expenditure as the grants from the Colonial
Office in London was inadequate. Various measures including poll tax were

1
Professor Joseph Pearchman Federal Tax Policy

5
adopted, but these did not prove adequate. At that time the annual
parliamentary grant was a meager amount of four thousand pounds2. Income
tax was introduced in the Gold Coast in 1943 for the first time. There was
however an attempt to introduce direct taxation in 1931, which was resisted and
the Bill opposed in the legislative council on the grounds that there could be no
taxation without full electoral representation.

By the early 1940s the political situation had changed considerably as there were
major constitutional changes in the offing. Representations from the
constitutional reforms by the Joint Provincial Council had been forwarded to
London with the Governor‟s approval and the Secretary of State was shortly to
visit the Gold Coast to discuss them. In addition, the colony also faced an
economic crisis as the price for Cocoa, the backbone of the economy had
dropped to 30 pounds per ton and an amount of eight hundred thousand pounds
was needed to balance the budget3.

In the changed economic and political atmosphere the opposition to the Bill was
not pressed further and it became law as the Income Tax Ordinance, 1943 (No.
27). Cap. 27 as the ordinance was usually called has been amended over the
years and finally consolidated into the Income Tax Decree of 1966 (NLCD 78).
This decree was further amended and consolidated into the Income Tax Decree
of 1975 (SMCD 5), which has currently been repealed by the Internal Revenue
Act, 2000 (Act 592).
There is still in Ghana today some confusion, which surrounds the determination
of the basis of liability to Ghana income tax. This according to Mills (1978: 3)
stems from the erroneous belief held by many, that the Tax Ordinance from
which most of Ghana‟s present income tax is derived, was based on the English
Income Tax Acts which were in force in the United Kingdom in 1943. But the fact

2
See Dispatch No. 10 of January 17, 1851 from Bannerman to Grey, CO/96/22.
3
See Mills, J.E.A (1978) “Ghana’s Income Tax Law and the Investor”, Inter-Faculty Lecture delivered on
Thursday, 20th April 1978. Ghana Universities Press: Accra.

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was that, the Income Tax Ordinance was rather a carbon copy of an income tax
model prepared in 1922 by an inter-departmental committee in the United
Kingdom for use in the colonies.

There are important consolidations in the current income tax Act that one needs
to take note of:
(a) The Act has consolidated all the various amendments to SMCD 5 over the
years.
(b) Capital Gains Tax that use to be charged under the Capital Gains Tax
Decree, 1975 (NRCD 347), as amended, has been incorporated in Act 592
as chapter II and the Decree repealed.
(c) The Gift Tax Decree, 1975 (NRCD 348) has also been repealed and its
provisions incorporated in Act 592 as chapter III.
(d) Taxes on the provision of goods and services (sales and service tax) that
used to be collected as part of income tax is now collected by the VAT
Services as Value Added Tax.

3. Taxation as a Legal Concept

Our subject for study is the law of taxation. The question, which immediately
comes to mind is, the source of the power to impose a tax. In principle citizens
of a country cannot be taxed unless the Constitution of that country gives power
to the legislature to impose taxes. There is no rule of Common law or Equity,
which makes a person liable to tax. Tax is the creation of legislation and is
imposed by a statute. In recognition of this principle, previous Constitutions of
Ghana made provisions for taxation4. Under Ghana‟s 1992 Constitution, Article
174 provides as follows:
(1) No taxation shall be imposed otherwise than by or under the authority
of an Act of Parliament

4
See Articles 128 and 138 of the 1969 and 1979 Constitutions of Ghana respectively.

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 (2) Where an Act, enacted in accordance with clause (1) of the article,
confers power on any person or authority to waive or vary a tax
imposed by that Act, the exercise of the power of waiver or variation,
in favour of any person or authority, shall be subject to the prior
approval of Parliament by resolution.

Even military regimes in Ghana (apart from the National Liberation Council) that
did not operate under formal constitutional documents, made similar provisions
in their Establishment Proclamations. These Proclamations had identical
provisions, which read, “the Council shall have the power to impose taxes”5.

Pursuant to the above general power to impose tax, Acts, Decrees and Laws are
made by the appropriate legislative body at the relevant times. Since taxes are
imposed by or under statutes, they are the subject of judicial interpretation and
review. Thus, taxes, which originate as economic instruments must assume a
legal cloak of statute before they become enforceable. This is one important
reason why lawyers have to study and understand taxation. However, for a
lawyer to have a proper understanding of how taxation operates within the
economy he or she must be interested in allied subjects such as Economics,
Accountancy, Public Finance, and Tax Policy and Measures. For instance
principles of book keeping and Accountancy are implicated in the administration
of taxes in terms of ascertaining gains or profits from business, employment and
investments, which are chargeable with tax.

4. Classification of Taxes
There are different kinds of taxes, which are also classified differently based on
the economic standpoints from which they are viewed.
(1) Taxes classified according to tax base:

5
See section 14, section 4 and section 21 of the National Redemption Council, Armed Forces
Revolutionary Council and Provisional National Defence Council Establishment Proclamations of 1972,
1979 and 1981 respectively.

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 (a) Taxes on income, which includes income tax of individuals and
corporate or non-corporate bodies, tax on rent;
(b) Taxes on capital such as Capital Gains Tax on individuals and
companies, property tax on land, wealth tax and gift tax.
(c) Taxes on expenditure such as consumption or production in Value
Added Tax (VAT).
Economists normally illustrate the functional relationship between income,
consumption and savings by the following mathematical formula: Y= C + S
Where Y stands for income, C for Consumption and S for Savings, in which the
income of a person is the sum total of his consumption and savings. The part of
income, which is consumed, is subject to consumption tax while the portion,
which is saved, is not. Consumption tax is therefore often seen as unfair as it
involves under-taxing of savings or at the least its postponement.

(2) Direct and indirect taxes are the more usual way of classifying taxes in
Ghana.
(a) Direct taxes are based on the notion that taxes on income and
capital are levied directly on chargeable persons such as individuals
and companies. In this form of taxation both the impact and incidence
of tax are on the persons to whom the incomes or gains accrue. Direct
tax includes income tax on individuals and companies, which are
administered by the Internal Revenue Service.
(b) Indirect Taxes are on expenditure through production and
consumption. They are levied on the ownership of goods and services.
They are said to be indirect because the impact is on the person
immediately paying the tax. For example an importer and the
consumer in which the incidence of tax is on the consumer i.e the
person who ultimately bears the burden of the tax. They are collected
from the person providing the goods and services and their burden is
on the consumer. These taxes include customs and excise duties and

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 value added tax; administered by the Customs, Excise and Preventive
Service (CEPS) and the Value Added Tax Service (VAT Service).

(3) Progressive, Proportional and Regressive Taxes. These are taxes

classified according to their incidence among the intended class of tax
payers:
(a) A progressive tax is a tax regime of which the ratio of tax liability to
income or other tax base rises as income or other tax base increases.
This means taxing a greater percentage of income as income
increases. This is a graduated form of taxation. A good example of
this type of tax system is the rate of tax upon individuals in the First
Schedule of the Internal Revenue Act of 2000 (Act 592).
(b) A tax regime is said to be proportional if the ratio remains constant,
that is to say, taxing the same percentage of income at any level of
income or expenditure. Examples are taxes on liquor or cigarettes of
say 10% of tax of whatever quantity you buy.
(c) A regressive tax regime is one in which the tax ratio falls as income
increases. It exacts a smaller percentage of tax as income increases.

The Economist Adam Smith considered the proportional principle of taxation as

the most equitable, since it seems fair that if a man with an income of 1, 000
pounds pay 100 pounds as tax, a man with 4, 000 pounds should pay 400
pounds. Since his day it has come to be acknowledged that 1 pound is worth
more to a man with 1, 000 pounds than a man with 10, 000 pounds. This
concept is known as the law of diminishing marginal utility. A progressive tax
now seems to accord better with the traditional view that taxation should be
related to the ability to pay.

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 5. A good tax system and equity rules
Economists and Social Philosophers from Adam Smith have propounded theories
on what constitutes a good tax system. Adams Smith‟s (1776) celebrated
cannons of taxation were:
(a) Equity;
(b) Certainty of imposition;
(c) Convenience of payment; and
(d) Economy in collection (Administrative efficiency)6.
These principles have survived over the years and have been woven into modern
theories of the basic requirements of a good tax system as follows:
(1) The distribution of the tax burden should be equitable in which
everyone is made to pay his fair share
(2) Taxes should be chosen so as to minimize interference with
economic decisions. In other words, taxes should be neutral with a
minimal excess burden7.
(3) At the same time taxes may be used to correct inefficiencies in the
private sector provided they are suitable instruments for doing so;
(4) The tax structure should facilitate the use of fiscal policies for
stabilization and growth objectives;
(5) The tax system should permit efficient and non-arbitrary
administration and it should be understandable to the taxpayer;
(6) Administrative and Compliance costs should be as low as
compatible with other objectives. We can add to the above, in the
light of today‟s global reality, the requirement that; and
(7) A tax should be both convenient and internationally competitive.

6
The Wealth of Nations, 1952 Book 1, Chap. VI. In fairness to Adam Smith, however, his thesis was more
on social or national income but was only tangentially concerned with the income of individuals.
7
This measures the difference between the total loss of welfare or other economic cost of tax as it is
actually imposed and the laws which are resorted to if the same tax revenue have been collected without
disturbing or distorting economic decisions in the private sector.

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The above and other requirements may be used as criteria to appraise the
quality of a good tax system. The various objectives are not necessarily in
agreement, and where they conflict trade-offs between them are needed. For
instance, equity may require administrative complexity and may interfere with
neutrality. While a corrective use of tax policy may interfere with equity. The
essential consideration, however, is the fairness of the distribution of the tax
burden.

Equity is the basic criteria for a tax structure design. Everyone agrees that a tax
system should be equitable. That each taxpayer should contribute his fair share
to the cost of government. However, the notion of a fair share has not been
universally defined. A variety of approaches may be taken of which two are
outstanding. These are the benefit and ability to pay principles. These two
principles have been summarized in the Canadian Report of the Royal
Commission in 1966 as follows:

For centuries men have been seeking some general principle that would be
used to apportion the burden of taxation in an equitable manner. Two
streams of thought have emerged from this great debate. The benefit
approach postulates that equity is served if taxes are apportioned according
to the benefit derived from government by particular individuals or group of
individuals. Under this approach taxes are treated as payment for goods and
services, reflects the wishes of the people, so goes the argument, the
imposition of taxes on those who benefit can be treated as a fair exchange,
similar to exchanges that take place in the market. The other train of
thought, the ability to pay approach, largely ignores what government
provides to the members of society by way of goods and services and takes
the position that taxes are equitable when they are levied according to a
defined tax capacity or ability to pay of individuals and groups.

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The ability to pay, calls for equal amount of tax to be paid by taxpayers with
equal abilities and different amounts of taxes when such capacities differ. It also
means equal sacrifice or loss of welfare. The two concepts that equals pay
equally and unequals pay differently are known as horizontal and vertical
equities. Horizontal equity is a situation in which equal taxes are paid by
people in equal positions (ability to pay). The marginal utility of the income
schedule is the same for all taxpayers. Vertical equity is a situation in which
people with unequal income pay unequal taxes- people with different incomes
pay different amounts. Vertical equity and the problem of progressive taxation
should be related to relative income positions. In practice, however, the benefit
principle and the ability to pay are combined in devising an ideal tax structure.
But the ability to pay better meets the equity and fairness problem.

6. Approaches to interpretation of tax statutes

The law of income tax, owing to its recent origin has never been part of the
common law. It was built up upon statute law through years of consolidation of
successive income tax legislation. Unlike other branches of law, revenue law is
purely a creation of statute- legislation being its main source. The judicial
function is confined to interpretation. There is therefore no equity in a tax
statute, and liability cannot be implied under any principle of equity but must be
found in the express language of a statutory provision. There are two significant
differences between the Common law and tax laws that are worth noting:
(a) There is no code of interpretation of the Common law, but on decisions of
the judges. On the other hand, in constructing statutes you have to apply
particular codes or rules.
(b) No one can impose a tax except the authority vested with the power of
taxation. Therefore, what has not been clearly authorized by parliament
cannot be the subject of taxation.

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In Russell v. Scott [1948] AC 422 at page 433 Lord Simmonds observed
that the subject is not taxed unless the words of the taxing statute
unambiguously impose the tax on him.

Tax statutes, like any other legislation, are subject to the general rules of
statutory interpretation. However, the special position of tax statutes as part of
fiscal legislation has led to development of some special rules for their
interpretation8. The rules of statutory interpretation as applied to tax legislation
were outlined by Lord Donovan in Mangin v. I.R.C [1971] AC 739:
First the words are to be given their ordinary meaning. They are not to be
given some other meaning simply because their object is to frustrate
legitimate tax avoidance devices … Secondly, „one has to look merely at what
is said. There is no room for any intendment. There is no equity about tax.
There is no presumption as to tax. Nothing is to be read in, nothing is to be
implied. One can only look fairly at the language used‟ (Per Rowlatt, J, in
Cape Brandy Syndicate v. I.R.C [1921] 1KB 64). Thirdly, the object of
the construction of a statute being to ascertain the will of the legislature, it
may be presumed that neither injustice nor absurdity was intended. If,
therefore, a literal interpretation would produce such a result, and the
language admits of an interpretation, which would avoid it, then such an
interpretation may be adopted. Fourthly, the history of an enactment and the
reasons, which led to it being passed, may be used as an aid to its
construction.
It has to be also noted that in a tax statute the provisions, which impose the tax
are known as the charging section9 and are usually separate from those that
provide rules for computing or collecting the tax; known as the machinery
section. It was held in I.R.C v. Longman Green Co. Ltd. (1932) 17 TC 272

8
See Rawlinson, (1983) “Tax Legislation and the Hansard Rule” [1983] BTR 274.
9
See sections 1-3 of Act 592.

14
at 282 that a court will not construe a machinery section to defeat a charge to
tax.
However, the Memorandum to Ghana‟s recent Interpretation Bill10 is of the view
that the courts in the Commonwealth have now moved to the Purposive
Approach to the interpretation of legislation and indeed of all written
instruments. The Bill therefore provides that:
Where a Court is concerned with ascertaining the meaning of an
enactment, the Court may consider […] a relevant treaty or other
international agreement which has been ratified by Parliament or is
referred to in the enactment of which copies have been presented to
parliament or where the Government is a signatory to the treaty or other
international agreement; and an agreement which is declared by the
enactment to be a relevant document for the purposes of that
enactment11.

In furtherance of the Purposive Approach to interpretation as envisaged by the

Bill, interpretation must take account of the words of an Act according to their
ordinary meaning as well as the purpose and context in which the words are
used. To ascertain the purpose and context in the interpretation of an Act,
reliance can now be made to:
- the legislative antecedents of the statutory provisions under
consideration;
- the pre-parliamentary materials relating to the provisions of the Act in
which it is contained, such committee reports, recommendations and
reviews by commissions on the existing law;

10 The Interpretation Bill submitted to Parliament by the Attorney-General and Minister for Justice. Dated
20th May, 2003.
11
Par. 10 of the Interpretation Bill.

15
 - Parliamentary materials such as the text of a Bill and reports on its
progress in Parliament taking note also of explanatory memoranda,
proceedings in the committees and parliamentary debates12.

The proposed approach to interpretation of statutes envisaged by Ghana‟s

interpretation Bill is in accord with the Lord Donovan‟s fourth principle as laid
down in the Mangin‟s case (supra). What remains unclear in Ghana‟s new
approach to interpretation is whether Rowlatt J‟s principle that a tax treaty
should not be interpreted with the object of frustrating legitimate tax avoidance
devices would be followed by the Ghanaian Tax Courts given the detailed anti-
tax avoidance provisions in sections 69 to 71 of the Internal Revenue Act, 2000
(Act 592). This issue will be taken up in detail in our consideration of the
doctrine of form and substance and the rules against tax avoidance in a
subsequent chapter.

7. Income as a tax base

Hardly does one comes across the definition of income in any tax statute. And
yet the economists‟ understanding of income differs from its understanding as a
legal concept and even more so from the Accountants understanding of the
concept. A tax base is the asset, transaction, profit or other thing, which is liable
to tax. This could range from the sale of a capital asset, through an employee
income to the net profits of a company.

(a) Income as an economic concept

Classical economists like Adam Smith, Irvin Fischer, Haig and Simon define
income as a base for tax with varied emphasis. Adam Smith defines income as a
base for tax to include rent and profit. British tax law is modeled on such an
understanding of income and to a large extent Ghana‟s income tax law. In 1974

12
Interpretation Bill [p. iii]. Note should be taken of the fact that under Section 19(1) of the Interpretation
Act, 1960 (C. A. 4) no reference to parliamentary debates prior to the approval of a Bill can be used as an
aid to interpretation of the enactment.

16
rent income was removed from the income base and taxed differently under
NRCD 282. However, under the current Internal Revenue Act (Act 592) rent is
considered as part of income from investment and taxed accordingly13.

Adam Smith did not consider gift, windfall gain (lotto) or capital gains as taxable
to income tax. In the United States of America, short-term capital gains are
treated as speculative gains and are included in income gains, but long-term
capital gains are treated as capital gains. According to Adam Smith, national
income is a money measure of the overall annual flow of goods and services in
the economy, while land, labour and capital are a measure of the net result of
economic activity.

Irvin Fischer (1930)14 looked at income as expenditure- a factor of consumption.

He advocated taxation on spending in place of income while leaving out savings
and capital appreciation. Calder of the United Kingdom Royal Commission holds
the same view on taxation. In Calder‟s view the ideal definition of income as a
measure of taxable capacity is to be thought as consumption plus real capital
accumulation. He thinks the problem of defining income is insoluble and
advocates that consumption is a better measure of taxable capacity to an income
and recommends expenditure tax as an important supplement of income tax.

Haig and Simon define income as the money value of net accretion to one‟s
economic power between two points in time. To Haig all accretions are included
as he says:

13
See section 9 (2) of Act 592.
14
Fisher, I. (1930) The theory of Interests as Determined by Impatience to spend Income and opportunity to
Invest it. Macmillan & Co.

17
 Income is the measure of accretion in one‟s power to satisfy his wants in a
given period, in so far as that power consist of (a) money itself or (b)
anything susceptible of valuation in terms of money15.

Simon16 equates personal income with the algebraic sum of consumption and
changes in net worth. His definition applies to income net of income of all
accretions i.e. factor earnings such as rents, interests, profits and wages are
included along with gifts, inheritance, gambling or profits of any windfall. His
critics say he fails to classify what constitutes economic activity giving rise to
income.

(b) Income as a legal concept

Ghana very much like other commonwealth jurisdictions leaves the task of
defining income to the courts. Income tax Acts merely provide a series of
definitions of various types of incomings, which are declared to be either taxable
or not taxable. They do not attempt to define income and the rules only
generally define the source of income. Income tax base is therefore whose or
what incomes are chargeable with tax. Various rules are laid down for computing
the amount of income liable to tax and decisions of the courts contribute to the
law on the subject. As observed by Lord Macnaghten in London County Council
v. Attorney General [1901] AC 26 at 35, “income tax, if I may be pardoned for
saying so is tax on income”. Lord Macnaghten‟s dictum in the face of recent
developments needs some modification. Some transactions that have been held
by the courts to have an income character now attract tax. The right legal
position, therefore, should be that income tax is tax on income and that which
the law deems to be income17.

15
Haig, R.M (1920) “The Concept of Income in the Federal Income Tax”, Columbia University Lectures,
Columbia University Press.
16
Simons, H. (1938) Personal Income Taxation, Chicago.
17
See IRC v. Rolls Royce (1942) 40 TC 443, Pilkford v. Quirke (1927) 13 TC 251 and California Copper
Syndicate v. Harris (1904) 5 TC 159.

18
To appreciate the nature of income as a tax base one must make a distinction
between income and capital and this requires a further distinction between
revenue receipts and capital receipts. The judgment of Sankey J. in Pool v.
Guardian Investment Trust Co. Ltd. (1921) 8 TC 167 captures this
distinction succinctly:

As Mr. Justice Pitney points out in his judgment of the Supreme Court of the
United States in [ Eisner v. Macomber (1919) 252 US 189] … the fundamental
relation of capital to income has been much discussed by economists, the
former being likened to the tree or the land, the latter to the fruit or crop; the
former depicted as the reservoir supplied from springs, the latter as the outlet
stream to be measured by its flow during a period of time. He cites … various
definitions, one of which was that income may be defined as the gain derived
from capital, from labour, or from both combined, and points out that the
essential matter is that income is not a gain accruing to capital but a gain
derived from capital.

The legal importance of the distinction between capital and income right through
a tax system should never be underestimated; and it has been a vital issue in a
variety of recent English cases. A good example is Jeffs v. Rightons Ltd. (1986)
All ER 144, where the issue was whether payments made by a company towards
a pension fund for employees were income (therefore deductible) or capital (and
thus not deductible). Scott J. quoted observations by Lord Denning on the
importance, and the difficulty of the distinction as follows:
The question- revenue expenditure or capital expenditure- is a question,
which is repeatedly asked by men of business, by accountants and by
lawyers. In many cases the answer is easy; but in others it is difficult. The
difficulty arises because of the nature of the question. It assumes that all
expenditures can be put correctly into one category or the other; but this is

19
 simply not possible. Some cases lie on the border between the two; and this
border is clearly not a line clearly marked out; it is blurred and undefined
area in which anyone can get lost … It is like the border between day and
night, or between red and orange. Everyone can tell the difference except in
the marginal cases; and then everyone is in doubt … When these marginal
cases arise, then the practitioners- be they accountants or lawyers- must of
necessity put them into one category or the other; and then, by custom or by
law, by practice or by precedent, the border is staked out with more
certainty.

8. Sources of Income Tax Law in Ghana

As was indicated earlier, tax is a creature of statute. Therefore, legislation is the
main source of tax law. In the Ghanaian context, the authority to tax emanates
from the 1992 Constitution and all tax legislation are passed pursuant to the
relevant constitutional provision. In practice however a large body of tax law is
contained in regulations that are passed under enabling legislation. Therefore a
reading of the parent Act alone will not give a tax lawyer a detailed picture to
enable him competently advise his client. For instance, Act 592 of 2000 is the
parent Act on income tax but the Internal Revenue Regulations of 2001 (L/I
1675) detail out the mechanics of assessing and computing the tax liability of a
taxpayer.

Further, as a tool of fiscal policy, tax laws and regulations change rapidly. These
changes often emanate from resolutions of Parliament or in its yearly
Appropriation Acts. A good tax lawyer must keep pace with these general fiscal
policy developments, which take place within Parliament. A most reliable source
is Reports from the Parliamentary Select Committee on Finance that are of a
revenue nature. An important parliamentary source for the tax lawyer are
resolutions passed to ratify double taxation and prevention fiscal evasion treaties
entered into by the Government of Ghana with other States, which cannot be
found in any tax legislation or regulations. Such treaties are on the increase for

20
the past one-decade and are likely to continue to increase in the future. The
legal basis for such treaties is contained in article 75 of the 1992 Constitution:

(1) The President may execute or cause to be executed treaties,

agreements or conventions in the name of Ghana
(2) A treaty, agreement or convention executed by or under the authority
of the President shall be subject to ratification by-
(a) Act of Parliament; or
(b) A resolution of Parliament supported by the votes of more than
one-half of all members of Parliament.

Disputes over tax often find their way to the courts of law. Therefore in most
jurisdictions case law is an important source of tax law. As observed by Mason
(1980: 4), a tax case may involve two issues:
(a) The extent of a charge to tax imposed by an Act of Parliament; and
(b) Whether the facts are such as to bring the taxpayer within the charge

Decided cases quite often turn on the first issue, that is, the meaning and effect
of the statutory provision. Ghana suffers a dearth of case law on tax. This is due
to the fact that proposals for a tax court have never been implemented over the
years. The Ghanaians courts have also not had much experience of situations
where Tax Commissioners‟ decisions have been challenged as ultra vires under
the rules of judicial review as obtains in the United Kingdom. However, this
situation is bound to change radically with the creation of the Tax Appeals Court
as a division of the High Court. Before this division of the High Court builds
judicial precedent, English tax law judicial precedents and those of other
commonwealth or cognate jurisdictions would serve as persuasive guides to our
courts. I therefore consider such case law as a source of tax law in Ghana.

By Dr. Benjamin Kunbuor, Lecturer

21
 [NOTE: This Paper is work in progress and should not be cited]
LECTURE TWO

IMPOSITION OF TAX ON INCOME IN GHANA

Jurisdiction to income tax

The income tax statutes of Ghana apply to the territorial area of Ghana. Broadly
speaking all income arising within this territorial area is liable to Ghana income
tax regardless of the nationality or residence of the recipient. And foreign income
is assessable to tax only if the recipient is resident in Ghana. Where income is
liable to double taxation (in the country where it arises) and in the country
where the recipient resides relief may be available. It would be observed that the
charging section of the Internal Revenue Act (Act 592) of 2000 in section 1
prescribes that:
(1) A person who has a chargeable income shall pay tax, subject to this
Act, for each year of assessment of income tax as calculated in
accordance with this Act.

Chargeable income is defined in section 5 of the Act as:

[…] The total of that person‟s income for the year from each Business,
Employment, and Investment less the total amount of deductions
allowed to that person for the year under sections 13 to 22 (relating to
general and specific deductions), 39 (relating to personal reliefs), 57
(relating to life insurance), and 60 (relating to contributions to retirement
funds).

Assessable income of a person is defined in section 6 of Act 592 as income

from (in the case of resident persons) “the full amount of the person‟s income
from business, employment, or investment accruing in, derived from, brought
into, or received in Ghana during any basis period of the person ending within

22
the year of assessment”. And for non-resident persons, “the full amount …
accruing in, or derived from Ghana”. Further, section 2 of the Act specifies a
number of sources of income that are taxable as a final tax (on income of
residents) while section 3 specifies other sources of income of non-residents
accruing in or derived from Ghana that are taxable as final tax. Under section 4,
the taxes referred to in sections 2 and 3 can be withheld by a Tax-Withholding
Agent. And income from such sources shall not be included in ascertaining the
assessable income of such residents or non-residents who receive them.

The above raises the question as to who or what should be taxed and where?
The characteristics of Ghana‟s income tax jurisdiction can therefore be drawn
from a combination of the above sections of the Act as source. It is therefore
often said that the tax jurisdiction of Ghana is primarily source while the
secondary jurisdiction is residence.

The Source Rule

Ghana‟s income tax jurisdiction is basically source i.e. it is the source which
determines the jurisdiction to tax. It also means that tax is imposed only on
income having its source in Ghana so that foreign income is taxed only when
remitted to Ghana - brought into or received in Ghana. This is the case since
Ghana‟s income tax jurisdiction is not global or nationality as it is in the case of
the United States of America. It further means that only that portion of a whole
income earned abroad which is brought into or received in Ghana that is liable to
tax. Any portion remaining outside cannot be taxed in Ghana.

Residence Rule
The other leg of Ghana‟s income tax jurisdiction is residence. Section 6 (1) (b) of
the Act exempts any person not resident in Ghana for any year of assessment
from tax in respect of income not accruing in or derived from Ghana- income
earned abroad and not brought into or received in Ghana. This applies even to

23
Ghanaian citizens not resident in Ghana in respect of foreign income. It therefore
becomes important to determine first whether the recipient of the income is
resident in Ghana? If he is not so resident then such income is exempt from tax
under section 6 (1) (b) of the Act. But such a non-resident person is liable to tax
on income accruing in or derived from Ghana. A resident person is also taxable
on income brought into or received in Ghana from any business, employment or
investment outside Ghana. It is certainly by virtue of the combined effect of
sections 3, 5 and 6 (1) (b) that Ghana income tax jurisdiction can be said to be
partly residence.

Section 167 (Definition section) of the Act defines a resident person for tax
purposes to include a resident: individual, company, body of persons, the
Government of Ghana, or a political subdivision of the Government of Ghana.
Section 160 defines a resident individual as:

(a) A citizen of Ghana, other than a citizen who has a permanent home
outside Ghana for the whole of the year of assessment;
(b) Present in Ghana for a period, or periods amounting in aggregate to,
183 days or more in any twelve-month period that commences or ends
during the year of assessment;
(c) An employee or official of the Government of Ghana posted abroad
during the year of assessment; or
(d) A citizen who is temporarily absent from Ghana for a period not
exceeding 365 continuous days where that citizen has a permanent
home in Ghana.

Section 161 defines a resident company to include a company

incorporated under the laws of Ghana, or has its management and control
exercised in Ghana at any time during the year of assessment. Section
162 defines a resident body of persons as a body of persons established

24
under the laws of Ghana, has a resident as manager, or is controlled
directly or indirectly by a resident person or persons at any time during
the year of assessment. While section 163 defines a resident Partnership
as one in which during the year of assessment, any partner is a resident
person. Therefore, a non-resident individual or entity is one outside the
categories referred to in sections 160 to 163.

Taxable income in Ghana

Section 5 of the Act refers to the chargeable income of a person as that
person‟s total assessable income for the year from each business,
employment and investment less specific allowable deductions,
personal reliefs and contributions to retirement funds. Business is defined
in section 167 to include trade, profession or vocation. The income
activities, which constitute business, are not defined by the Act. Neither
trade nor profession nor vocation is defined in the Act; therefore one must
have recourse to what the judges have held from time to time to
constitute these categories of business activities.

(A) BUSINESS (trade, profession or vocation)

(1) Trade
As Lord Denning said in Harrison Ltd. v. Griffiths [1963] AC 1 said:
Try as you will, the word trade is one of the common English words which
do not lend themselves readily to a definition but which all of us think we
understand well enough. We can recognize a trade when we see it, and
also an adventure in the nature of trade. But we are hard pressed to
define it …Short of a definition, the only thing to do is to look at the usual
characteristics of a trade and see how this transaction measures up to
them.

25
A good way of ascertaining whether a transaction is a trade or not is to
look at its characteristics. According to Lord Wilberforce in Ransom v.
Higgs [1974] 3 All ER 949:
Trade involves, normally, the exchange of goods, or services, for reward,
not all service, since some qualify as a profession, or employment or
vocation, but there must be something, which the trade offers to provide
by way of business. Trade moreover, presupposes a customer (to this too,
there may be exceptions, but such is the norm), or, as it may be
expressed, trade must be bilateral- you must trade with someone.

Similarly in Kowloon Stock Exchange Ltd. v. Commissioner of

Inland Revenue [1984] STC (Simon Tax Cases) 602, Lord
Brightman said:
The word trade is no doubt capable of bearing a variety of meanings
according to the context in which it is used. In its most restricted sense it
means the buying and selling of goods; in a slightly wider sense, it
includes the buying and selling of land; there is no reason to exclude, in
an appropriate context, the buying and selling of choses in action. It is
commonly used … to denote operations of a character by which the trader
provides to customers for reward some kind of goods or services. NB! The
mere fact that you are liable for tax does not mean that you should pay
tax. This is very essential.
We are still not far in our understanding of what constitutes trade, as the
decided cases seem to deal with the issue on a case-to-case basis.

A useful guide to an understanding of the ambit of activities, which

constitute trade, is to look at the Radcliffe Royal Commission on the
Taxation of Profits and Income in the United Kingdom in 1954. It
identified what has come to be known as the six badges of trade as the
type of activity judges have held to constitute trading. Though the Report

26
 is relatively dated, it is still the basis for decisions on whether a trade is
being carried on or not. It was made clear in Marson v. Morton [1986]
1 WLR 1343 that the badges of trade should be put in a practical
context- how was the transaction carried out? Was the asset broken up
for resale? Did the asset give any pride in possession?

The six badges of trade include the following:

(a) Subject-matter,
(b) Period of ownership,
(c) Frequency of transactions,
(d) Supplementary work,
(e) Circumstances of realization, and
(f) Motive.

(a) Subject- matter: This badge of trade operates on the assumption that
though almost every property can be traded in, properties such as
commodities or manufactured articles, which are normally the subject of
trading are only exceptionally not so. It is therefore unlikely that such
properties are the subject of investment or other business activity but not
trading. Further, property that does not yield its owner an income or
personal enjoyment merely by virtue of its ownership is more likely to
have been acquired with the object of a deal than property that does.

In Rutledge v IRC (1929) 14 TC 490, the taxpayer, a moneylender,

while abroad bought a large quantity of toilet roll, which on his return to
the United Kingdom he sold in a single purchase and made a profit of £10,
000.00. In holding that he was in an adventure in the nature of trade Lord
President Clyde said that the taxpayer made himself liable for the
purchase of the vast amount of toilet paper obviously for no other
purpose than that of selling and making a profit. Also in Johnston v

27
 Heath (1970) 3 All ER 915, the taxpayer did not have the means to
purchase land offered to him. He therefore entered into a contract with a
buyer (third party) to sell the land before he accepted the offer to buy the
land himself. It was held that this was an adventure in the nature of a
trade,
especially in view of the fact that he had contracted to sell the land before he
entered into a contract to buy it.
NB! This case is a particular example of a derivative contract or futures contract.
(b) Period of ownership: Generally property meant to be traded is normally
realized within a short time after acquisition. But there are many exceptions to
this rule. In Turner v. Last (1965) 42TC 517, Cross J. said:
Of course, the mere fact that when you buy your property, as well as intending
to use and enjoy it, you have also in your mind the possibility that it will
appreciate in value, and that a time may come when you will want to sell it and
make a profit on it, does not of itself make you a trader; but if the position is
that you intend to sell it as soon as possible to recover the cost of purchase, the
position is obviously different.

In Marson v Morton (supra) the land was owned by the taxpayer for three
months, but it was held that they were not trading because the land was
originally bought as a long-term investment by people who did not regularly
invest in them and was sold as a whole. (contrast this case with Turner v. Last
(supra).

(c) Frequency of transactions: If realization of the same type of property

occurs in succession over a period of time or there are several such realizations
at about the same date, a presumption arises that there has been trading in
respect of each. In Leech v Pogson (1962) 40 TC 585, the taxpayer had
started a driving school, which was successful and he later sold. He subsequently
set up 30 driving schools and sold. The Special Commissioners held that the

28
receipts of all the sales were receipts of trade. On appeal in respect of only the
first sale, it was held that the Commissioners decision was correct and that they
were entitled to take subsequent events into account.

Also see *Martin v Lowry [1927] AC 312 in which the taxpayer bought 44
million yards of aircraft linen although he had not previously been involved in
linen trade. He could not sell the entire stock in one transaction so he set up a
selling organization to dispose of them, which took him a year to sell and made a
profit of 1.6 million pounds. The House of Lords held that he was trading.(the
effort involved in setting up the selling organization was one such indicator).
(d) Supplementary work: If the property is worked on in any way during
ownership to bring it to a more marketable condition or if there is a special
exertion made to find or attract purchasers, such as advertising and opening of
an office then there is some evidence of trading. For where there is an organized
effort to obtain profit there is a source of taxable income. This badge of trade is
illustrated in Martin v Lowry (supra), where the taxpayer created a special
organization. Also see Cape Brandy Syndicate v IRC [1921] 2 KB 403, where
three wine merchants bought a quantity of brandy, blended it with other brandy,
and sold the new blend over several months. It was held that they were trading.
(the element of supplementary work was satisfied). The House of Lords held that
they were trading.
NB! The supplementary work principle here is a bit controversial. It is unclear if
supplementary work related to work that is not originally yours constitutes a
trading activity. The cases however seem to suggest that it is.

(e) Circumstances of Realization: There may be some explanation, such as

sudden emergency or opportunity calling for ready money, which negatives the
idea that any plan of trading prompted the original purchase. In West v Philip
(1958) 38 TC 203, the taxpayer was a builder. He built some houses for sale
and was assessed to tax, and later built others for rental. Due to government

29
rent control measures he sold the houses built for rental. It was held that
whereas the houses built for sale were properly assessed the houses built for
rental were not as they were not connected with his trading activities.
NB! The sudden realization of an asset for profit motive may lead to a
presumption of trade.

(f) Motive: There are many cases in which the purpose of a transaction of
purchase and sale is clearly discernible. Motive is never irrelevant in any of these
cases. What is desirable is that it should be realized clearly that it can be inferred
from surrounding circumstances in the absence of direct evidence of the seller‟s
intentions and even, if necessary, in the facts of his own evidence. In IRC v
Rheinhold (1953) 34 TC 389, the taxpayer bought four houses and resold
them three years later at a profit. He admitted he had bought the property with
a view to resale, and instructed his agents to do so if a good opportunity arose.
The Commissioners were equally divided and allowed an appeal by the taxpayer
against assessment. In the Court of Session it was held that the Commissioners
decision was justifiable. Lord Keith said:
It is not enough for the revenue to show that the subjects were purchased with
the intention of realizing them some day at a profit. This is the expectation of
most, if not all, people who make investments … The intention to resell some
day at a profit is not per se sufficient … to attract tax.

Here Lord Keith reviews all the badges of trade.

The Reinhold case has to be contrasted with Pilkington v Randall (1966) 42

TC 662. Where the taxpayer and his sister were entitled to their father‟s residual
estate of several acres of land in respect of which outline planning permission for
development had been given. The taxpayer bought his sister‟s share and
developed and sold it for a profit. The Commissioners held that the profit was a
trading profit and the Court of Appeal reluctantly upheld their decision. Lord
Denning M. R said:

30
 The commissioners heard Mr. Pilkington‟s evidence. They said they were
in no doubt that the reason he had bought his sister‟s share was to make
profit by reselling it off. They held that he had embarked on a trade. The
decision of the Commissioners is not such an unreasonable conclusion
that this Court should interfere with.
But it must not, however, be thought that a profit motive is essential to a finding
of trade. In Grove v YMCA (1903) 4 TC 613, Ridley, J found that the Association
ran a restaurant according to the usual commercial principles, but would indeed
carry it on even without a profit. Accordingly, his Lordship could not escape from
the conclusion that the object is not to carry that restaurant on as a trade.

Other Trade Related Activities

(i) Mutual Trading
If the same people who contribute to an activity are the persons who are entitled
to any surplus, they cannot be said to be trading, for, as Lord Wilberforce has
said in Ransom v Higgs (supra), “trade must be bilateral- you must trade with
someone and such people are essentially dealing with themselves. Also, in
Municipal Mutual Insurance Co. v Hills (1932) 16 TC 430, Lord Macmillan
said:
The cardinal requirement is that all contributors to the common fund must be
entitled to participate in the surplus and that all the participators in the surplus
must be contributors to the common fund; in other words, there must be
complete identity between the contributors and the participators.

But the identity required is not, however, identity of individuals but of class: See
Falconbridge v National Employers’ Mutual General Insurance
Association Ltd. (1952) 33 TC 103. This requirement will be satisfied in the
case of mutual insurance societies, as in the Falconbridge case, where every
policyholder was a member of the association, and the association‟s only income
came from premiums on policies paid by members.

31
Not all common ventures meet the requirement of mutual trading. In giving
advice on the Privy Council in English & Scottish Joint Co-operative Society
Ltd. v Assam Agricultural Income Tax Commissioner [1948] All ER 395,
Lord Norman said:
What kind of business other than mutual insurance may claim exemption from
liability to income tax under the principle of [mutual trading] need not be here
considered, but their Lordships are of the opinion that the principle cannot apply
to an association, society or company which grows produce on its own land or
manufactures goods in its own factories, using its own capital or capital
borrowed whether from its members or from others, and sells its produce or
goods to its members exclusively. In the present case the appellant society is not
bound by its rules to sell its tea only to its members, but it could make no
difference if it were. No matter who the purchasers may be, if the society sells
the tea grown and manufactured by it at a price which exceeds the cost of
producing it rendering it fit for sale, it has earned profits which are, subject to
the provisions of the taxing Act, taxable profits … for there is no common fund to
which the members of the appellant society contribute and in which they
participate.

The words of Lord Wilberforce in the Privy Council case of Fletcher v

Jamaican Commissioner of Income Tax [1972] AC 414 is worth noting:

It may not be an essential condition of mutuality that contributions to the fund

and rights in it should be equal; but if mutuality is to have any meaning there
must be a reasonable relationship, contemplated or in result, between what a
member contributes and what, with due allowance for interim benefits of
enjoyment, he expects or be entitled to draw from the fund: between his
liabilities and his rights.

In that case, hotel owners paid subscriptions to a members‟ club so that the
hotel guests would be entitled to use the club‟s facilities. The Privy Council held

32
that the hotel owners had a trading relationship with the club, because the hotel
owners were contributing much more than other members but were entitled to
the same benefits.

(ii) Illegal Trading

Another important issue to consider as an incidence of trading is whether

criminal activities amount to trading, the profits of which are taxable. It seems
settled that illegal profits of a legal trade are assessable- alcohol sold out of
licensing hours. But profits of systematic crime are not. In Lindsay v IRC (1932)
18 TC 43, Lord Morrison said:

During the discussion a question was raised as to whether the profits or gains of
a burglar were subject to tax. Obviously not, because burglary is not a trade or
business; but if a trader committed a housebreaking and stole his rival‟s order
book and, from its information, was able to increase the profits of his own
business, I have no doubt that these profits are subject to tax. It is my opinion,
absurd to suppose that honest gains are charged to tax and dishonest gains
escape.

In Mann v Nash [1932] 1 KB 752, Rowlatt J., observed that:

It is said … „Is the State coming forward to take a share of unlawful gains?‟ It is
mere rhetoric. The State is doing nothing of the kind; they are taxing the
individual with reference to certain facts. They are not partners; they are not
principals in the illegality, or sharers in the illegality; they are merely taxing a
man in respect of those resources. I think it is only rhetoric to say that they are
sharing in his profits, and a piece of rhetoric, which is perfectly useless.

The issue of illegality was again raised in IRC v Aken [1988] 5TC 69, where
following a television appearance by a prostitute known as „Lindi St Claire‟, the

33
Inland Revenue made inquiries into her income resulting in assessments for a
six-year period amounting to a total of £58, 751 in tax. The taxpayer argued that
her activities as a prostitute involved illegality and should not be taxed. The
argument was not accepted and the assessment was upheld.

(iii) Farming as an incidence of trading

In the United Kingdom all farming is generally treated as trading but in view of
section 11 (1) of Act 592, even if farming is treated as trading in Ghana, the first
ten years in the case of tree crops or cattle farming and five years for other
livestock will be exempted from tax. The Ghana Act refers to farming business,
which is defined in section 11 as “business of producing crops, fish or livestock”.
But if section 11 is read together with section 167, one could interpret the
phrase to include farming as a trade, profession or vocation. Under section 11 of
the Act farming business in Ghana is exempt from tax:

(a) In the case of farming tree crops, for the period of ten years of
assessment commencing from and including the year in which the basis
period of that person ends, being the period in which the first harvest of
those crops by the business occurs;
(b) In the case of farming livestock (other than cattle), fish, or cash crops, for
the period of five years of assessment commencing from and including
the year in which the basis period of that person ends, being the period in
which the business commences; or
(c) In the case of farming cattle, for the period of ten years of assessment
commencing from and including the year in which the basis period of that
person ends, being the period in which the business commences.

The income from cocoa from a cocoa farmer is exempt from tax under section 11
(7) of the Act. The wording in section 11 of the Act suggest that the gestation
period for farming business does not count for purposes of determining the basis
period of the taxpayer.

34
It is not clear from the Act whether subsistence farming can be treated as
trading, particularly where farmers sell some of their crops to enable them buy
other necessaries of life. In the previous Income Tax Decree (SMCD 5) of 1975
the phrase farming enterprise was used as the basis of the exemption, which
seem to confine to farming activity that will qualify for exemption to one
adopting commercial methods of farming and it must be registered as such. The
change in the present Act from enterprise to business, in which the latter is
defined to include trade, profession or vocation suggest that farming may not be
defined to include trade but does it exclude farming as a profession or vocation?
This issue will be explored in detail in the next section of this chapter.

(iv) Profits Realized in the course of discontinuing a Trade

Disposal of trading stocks after discontinuance are not themselves by way of

trade. However, it has proved difficult to differentiate disposals in the course of
discontinuance of a trade which is not chargeable to tax from disposals in other
to continue which is chargeable as part of trade. Thus mere realization of assets
after a permanent discontinuance of trade, for example, by a liquidator in the
course of winding up of the company or by the personal representative in the
case of administration of an estate does not constitute trading if the transactions
are incidental to the liquidation or administration.

In IRC v Nelson (1938) 22 TC 716, a Whisky Broker was compelled through

ill health to close his business. He closed his bank account, instructed his
Accountant to wind up business and notify his creditors and customers. Within a
few days one of his customers purchased the business including a stock of
whisky, which was its principal asset. It was held that this was not a sale in the
course of trade but after cessation of the business. And that the profit on the
sale was not assessable to tax as a profit from trading.

35
On the other hand, if a trader decided to sell off his stock with the view to
discontinuing business he will be treated as realizing assets in the course of
trading until the whole stock is finally sold off. However, in O’Kane & Co. v IRC
(1922) 12 TC 303, a firm of wine and spirit merchants who being minded to
cease business circulated to their customers to that effect and proceeded to sell
their stock over the next two years without entering into new purchase
contracts. They were held to be still trading.

If the liquidator or personal representative does something more than merely

realizing assets i. e if he also makes purchases he may be held to be trading
unless such purchases were necessary to facilitate the existing assets. In IRC v
Old Bush Mills Distillery Co. Ltd. (1928) 12 TC 1148, a liquidator
purchased spirits to blend with stock of whisky, and also bottles and casks to
facilitate sale. He was held not to be trading. Also if the deceased trader was one
of a number of partners, the participation of his personal representatives in the
trading activity of the continuing partners will not necessarily constitute trading.

(2) Profession or Vocation

(a) Profession

As indicated earlier, Profession or Vocation has not been defined in the Act, as is
the case in most tax statutes of many jurisdictions. However, what business
activity constitutes a profession has received a lot of judicial attention in the
United Kingdom. In general terms it involves the idea of an occupation which
requires an intellectual skill or any manual skill controlled by an intellectual skill
of the operator, as observed by Scrutton J in IRC v Maxse [1919] 1 KB 647
at 656. In this case the taxpayer was the sole proprietor, editor and publisher of
a monthly magazine. The sale of the Magazine was largely due to the popularity
of the writings of the taxpayer who was also the principal contributor. Having
been assessed to excess profit tax in respect of the profit derived from the
magazine the taxpayer filed an objection that he was covered by section 39 (c)

36
of the Finance Act pf 1915, which granted an exemption in any profession in
which the profit are dependent on the personal qualification of whom the
profession is carried out with no capital expenditure of a comparatively small
amount. The major issue was whether the taxpayer could have carried on a
profession. It was held per Scrutton L. J. that:

A profession in the present use of language involves the idea of an occupation

requiring either purely intellectual skill or if any manual skill as in painting or
sculpture or surgery, skill controlled by intellectual skill of the operator as
distinguished from an occupation which is substantially the production or sale or
arrangement for the production or sale of commodities. The line of demarcation
may vary from time to time. The word profession used to be confined to the
three learned professions- church, medicine and law. It appears to me clear that
a journalist whose contribution has any literary form as distinguished from a
reporter exercises a profession and that the editor of the periodical comes in the
same category. It seems to me equally clear that the proprietor of a newspaper
controlling the printing, publishing and advertising but not responsible for
selecting of the literary and artistic content does not exercise a profession but a
trade or a business other than a profession. Applying these principles to the
present case Mr. Maxse is exercising a profession of an editor, a profession the
profit of which are dependent mainly on his personal qualification in which only
small capital expenditure is required.

The Courts have held that a headmaster, an actress and a journalist were each
carrying on a profession but that photographers, a stockbroker, a film producer
and a dance bandleader were not. See:

Currier v IRC [1921] 2 KB 332,

IRC v Braith Waite (1931) 2KB 628

37
 Carr v IRC [1944] 2 All ER 163 (Optician)

Christopher Baher & Sons v IRC 1919 2 KB 22 (Stockbroker)

Durant v IRC [1921] 2 KB 33 (Insurance Broker)

Loss v IRC [1945] 2 All ER 683 (Dance Band Leader)

IRC v North & Ingram [1918] 2 KB 705 (Headmasters)

(b) Vocation

Vocation was said by Denman J. to be “a word of significant meaning a way in

which a man passes his life” in Partridge v Mallendaine (1886) 18 QB 276.
The appellants in this case regularly attended horse races and systematically
placed bets from which they derived profits. They objected to an assessment on
them in respect of the profits made from their betting on the ground that they
had no trade, profession, calling or vocation within the meaning of the income
tax Act. It was held per Denman J. that:

A man may employ himself in order to make money in such a way as to come
within the definition (employment). But I think the word vocation is still a
stronger word. It is admitted to be analogous to the word calling which is very
large; it means a way in which a person passes his life and it is a very large word
indeed. I think these come within the definition of the word vocation according
to common sense and according to ordinary use of language. And therefore I
think the income Commissioners were right.

38
Authors exercise a vocation, just like a bookmaker, land agent, a playwright but
not a film producer all exercise vocations. Generally however, no practical
importance attaches to a distinction between trade and business on the one
hand and a profession or vocation on the other. The important distinction is
between the profit activity which constitutes the carrying on of a trade, business,
profession or vocation and the activity which does not, the gains from which falls
under capital gains Act.

In practical terms trade or trading is commonly used by the Internal Revenue

Service in Ghana to include Trade, business, vocation or profession. For ease of
classification, Lawyers, Doctors, Accountants, Hairdressers, Fitters and so on are
classified as carrying on business.

(B) EMPLOYMENT

Gains or profits from employment are chargeable to tax under section 8 of the
Act. The Act defines these gains and profits as including any allowances or
benefits paid in cash or given in kind to, or on behalf of, a person from
employment other than payments expressly exempted. But what is employment
as distinguished from profession or vocation? Generally a person in employment
works under a contract of service whilst a person exercising a profession or
vocation works under a contract for services. Generally, three conditions must
exist for one to determine whether an income activity is employment or not:

(a) There must be an office or employment

(b) There must be emoluments
(c) The emoluments must derive from office or employment
These conditions have received judicial adaptation we may draw some guidance
from.

(a) Office or Employment

Employment is defined in the Act in section 94 to mean:

39
 (a) The position of an individual in the employment of another person;
(b) The holding of or acting in any office or position entitling the holder to
a fixed or ascertainable remuneration other than an office or position
as director of a company or manager of a body of persons.
An employee is defined in the Act as an individual engaged in employment while
an employer is a person who employs or remunerates an employee.

Rowlatt J. defined office in Great Western Railway Co. v Bater [1920] 3 KB

266 to mean a “ subsisting, permanent, substantive position which has an
existence independent of the person who filled it, which went on and was filled
in succession by successive holders”. This definition has more recently been
considered by the House of Lords in Edwards v Clinch [1981] 3 All ER 543.
while generally approving Rowlatt J‟s dictum their Lordships made it clear that
any emphasis on permanency and continuity is now misplaced since the
significance of these factors has diminished in recent years. Lord Wilberforce put
the matter in this way:

For myself I would accept that a rigid requirement of permanence is no

longer appropriate, nor vouched by any decided case, and continuity need
not be regarded as an absolute qualification. But still, if any meaning is to
be given to office in this legislation, as distinguished from employment or
profession or trade or vocation (these are various words used in order to
tax people on their earnings) the word must involve a degree of
continuance (not necessarily continuity) and of independent existence; it
must connote a post to which a person can be appointed, which he can
vacate and to which a successor can be appointed.

The word office has been held in a number of cases to include:

(a) The Director of a Company which is resident in the United Kingdom

whether public or private; regardless of where he resides or the extent
of his involvement with the Company as in Macmillan v Guest
[1942] AC 561.

40
 (b) A trustee or executor as in Dale v IRC [1954] AC 11; but
professional trustees or executors are assessed under trade or
business or profession
(c) Part-time health service appointments of medical specialist as in
Mitchell & Edon v Ross [1962] 2 AC 813
(d) Auditors as in Ellis v Lucas [1967] Ch. D 858
(e) Registrarships of Companies by a firm of Advocates (Scots
equivalent of Solicitors) as in IRC v Brander Cruickshank [1971]
All ER 36
(f) The appointment as a Local Land Charges Registrar held by a Clerk to
the Council as in Ministry of Housing and Local Government v
Sharp [1969] All ER 223, [1970] 1 All ER 1022.

The word employment is wider than office though:

It means something analogous to an office and which is conveniently amenable

to the scheme of taxation which is applied to office per Rowlatt J. in Davies v
Braithwaite [1931] 2 KB 628 at 634.

The term employment signifies something in the nature of a post. The important
line of division is between office and employment on the one hand and
profession or vocation on the other. This division is largely in coincidence with
the distinction between contract of service and contract for services respectively
of which the determining criterion is the degree of control exercised by one
contracting party over the other. Employment has elements of stability akin to
offices giving rise to employment income. Whereas series of engagements of
fluctuating character such as those undertaken by an actor or a freelance
journalist together give rise to a profession or vocation.

In Davis v Braithwaite (supra), an actress earned her living by accepting and

fulfilling various engagements. In one particular period her engagements

41
included: acting in various stage plays one in the United States of America under
various contracts with theatrical producers, performing for the films, performing
on radio for the BBC, and recording for Gramophone Companies. The issue was
whether the taxpayer was exercising an employment or carrying out a
profession. It was held by Rowlatt J. that all her engagements do not consist of
obtaining a post and staying in it. But consist of a series of engagements and
moving from one place to another was part of one profession carried on by her.
He observed as follows:

It seems to me quite clear that a man can have a profession and an employment
at the same time in different categories. A man may have the steadiest
employment in the world by day and may do something different in the evening
and make some money by the exercise of a profession or a vocation. I cannot
doubt that would be so even if it were in the same sphere, I do not see why we
should not have both an employment as well as a profession. For instance a
Musician who holds employment can at the same time follow his profession
privately … I think that whatever she does and whatever contracts she makes
are nothing, but incidents in the conduct of her professional carrier.

The above implies that an individual may hold an office or employment and carry
on a profession or vocation at the same time when both employment and
profession are in the same line. Thus in IRC v Brander Cruickshank (supra), a
firm of Advocates in Scotland, although not holding themselves out as
professional registrars acted as secretaries and registrars of companies and
performed duties imposed on the holder of such offices by the companies Act.
The registrarship was acquired in the ordinary course of the firms‟ practice as
Advocates. It was held that the registrarship was offices and that payment of £2,
500 on the determination of the registrarship was payment to which schedule E
rules applied and being less than £5, 000 it was exempt from tax.

42
There have also been cases in which the taxpayers have been held to carry on a
profession and one or more employment simultaneously. In Blackburn v Cross
Ltd. (1960) 39 TC 164, Merchant Bankers who received allowances and fees
for performing managerial and secretarial services for companies were held to be
assessable to income tax on their profit under a trade and to employment tax in
respect of their fees and allowances. More recently in Fall v Hitchen (1973)
STC 66, a Ballet Dancer was engaged by Sandlers Wells under a standard
contract which provided inter alia:

(a) that the engagement was to be for a minimum period of rehearsals

plus 22 weeks;
(b) the taxpayer should work full time during specified hours for a regular
salary;
(c) that during the engagement he should not perform elsewhere without
the consent of the management; and
(d) the management should provide and retain the property in the stage
costume used by him.
The management also encouraged him to carry on outside work on days he had
no assignment. The issue was whether the taxpayer was taxable in a profession
or vocation. It was held that the word employment in schedule E is co-terminus
with the word contract of service and that there existed contract of service from
which it followed that the taxpayer‟s salary arose from an employment. And that
he had therefore been correctly assessed under the Schedule.

(b) There must be emoluments

Gains from office or employment include salaries, wages and other payments in
cash or in kind. Section 8 of the Act defines total emoluments of employment to
include fixed allowances in relation to accommodation shared or single, with or
without furnishing or furnishing only … gains derived from the use of vehicle with
or without fuel at various rates provided by the employer. Such gains are to be
determined by reference to the Second Schedule, tables A and B of the Act. A

43
careful reading of section 8 (4) of the Act and paragraph 2 of the Second
Schedule to the Act suggest that the categories of emoluments is not limited to
those expressly listed in section 8 and the Second Schedule. Sub-section (4)
reads as follows:

(4) The amount of any allowance or benefit from an employment to be included

in ascertaining a person‟s gains or profits under subsection (2) shall be
determined in accordance with the Second Schedule and, in any case not
referred to in the Schedule, as the value of the allowance or benefit to a
reasonable person in the position of that person (emphasis mine).

The Income Tax Regulations of 1980 L/I 1252 as amended by L/I 1269 of 1982
defined total emoluments in regulation 2 (1) as follows:

The total emoluments shall include salary, all cash allowances or benefit in kind
paid to or on behalf of the employee on account of housing, use of motor vehicle
provided by the employer, petrol coupons, stewards, drivers, personal servants
or other similar persons in accordance with section 13 and the Second Schedule
of the income tax decree of 1975 provided that any allowances, including
entertainment allowance paid to an employee as reimbursement of expenses
incurred by him on behalf of his employer shall qualify for tax exemption only
where the employee accounts for the expenditure (emphasis mine).

Gains from employment paid by an employer to an employee such as petrol

coupons, use of drivers etc. has not been expressly mentioned in the Act as part
of the employees total emoluments neither is reference made to it under the
Internal Revenue Regulations, 2001 (L/I 1675). The question is whether such
gains are part of the total emoluments of the employee?

Subsection (2) of section 8 of the Act excludes allowances or benefits such as:

44
 - a person‟s dental, medical or health insurances expenses
where the benefit is available to all full-time employees on
equal terms;
- passage to or from Ghana for a person resident outside
Ghana;
- accommodation provided by an employer carrying on
timber, mining, building, construction or farming business at
the site of operations;
- expenses incurred on behalf of an employer that serves a
proper business purpose;
- severance pay; and
- night duty allowance.

Subsection (3) of section 8 adds gains and benefits of such amounts, allowance,
or benefit from employment:

- provided to an employee by an employer, an associate of

the employer or a third party under an arrangement;
- provided to an employee or an associate of an employee;
and
- provided in respect of past, present, or prospective
employment;
as part of the total emoluments of an employee.

Noting that SMCD 5 of 1975 has been repealed together with any regulations
made thereunder it is safe to say that L/I 1269 of 1982 being one such
regulation, it has also been repealed. The question that still remains is whether
subsection (3) of section 8 can be interpreted to include petrol coupons,
domestic servants etc. as gains and benefits that are part of total emoluments of
an employee?

45
(c) Emoluments must derive from office

In Hochstrasser v Mayes [1959] Ch. D 22, Upjohn J. said:

Not every payment made to an employee is necessarily made to him as a profit

from his employment. Indeed in my judgment the authorities show that to be a
profit arising from the employment, the payment must be made in reference to
the services the employee rendered by virtue of his office. And it must be
something in the nature of a reward of services past, present or future

On appeal the House of Lords approved this view of the lower court per Upjohn
J. The facts briefly are that a company operated a housing scheme for its
married employees, whom it transferred from one part of the country to another.
Under the scheme, an employee who sold his house at a loss was reimbursed by
the company to the extent of such loss. The taxpayer, an employee of the
company, received £350 to cover the loss sustained by him on the sale of his
house. The issue was whether the amount was taxable or not. It was held that
the payment was not assessable to tax as it was not an emolument from office
or employment. Viscount Simmonds LJ (on appeal) observed that:

In his hands the benefit is not a reward for services- a distinction which is
abundant in the vernacular … described by saying that the employment in such a
case is causa sine qua non of the benefit but not the causa causans. [1960] AC
376

However, Lord Simon of Glaisdale in Brumby v Milner [1976] All ER 636 is of the
view that these “outmoded and ambiguous concepts of causation couched in
Latin are of little assistance in solving the problem. It would seem however, that
the necessary connecting link between the employment and emolument need
only be tenuous (or, alternatively, that the concept of reward is a very loose
one).

In Beecham Group Ltd. v Fair [1984] 5TC 15, company‟s sales representatives
were provided with a company car and a certain amount of the company‟s

46
stocks. It was a condition of their employment that the representatives should
keep their stocks and car in their own garages, and the each received an
allowance of £2 a week in respect of the use of the garages for this purpose. The
Inland Revenue claimed that these allowances represented emoluments of their
employment. Wilton J said:

Now why is the garaging payment of 2 pounds per week made in the present
case? It seems to me that there really cannot be any two ways about the answer
to that. The employee is provided, as a result of (and as a result merely of)
being employed by the employer, with a car and with a large amount of
company stock and equipment. That car and that stock and equipment he is
therefore, as a good employee, bound to keep safe; he is bound to protect it to
the best of his ability, and not be negligent. In other to ensure that that should
be done the company pays him a sum of £2 per week … incident of his
employment … Under those circumstances, I do not see how it is possible to
regard the garaging allowance of £2 per week as anything other than an
emolument arising from his employment. Putting it very shortly indeed, it is paid
in order to ensure that he carries out part of his obligations of that employment
in a manner, which is totally satisfactory and acceptable to his employer.

It is not sufficient for the Commissioners to show that the payment would not
have been made had the relation of employer/ employee not existed.
Assessability depends on a reward for services.

The basis of a charge on emoluments in Ghana is section 8 of the Act with

reference to the Second Schedule to the Act and subject to exceptions.
Emoluments are not chargeable unless received or are credited to or otherwise
placed at the disposal of the employee. If an employee assigns his emoluments

47
to a third party they are treated as having been received by him if when received
they relate to services rendered in the past. They must be treated as income of
the years in which these services were rendered. Thus in Heasnan v Jordan
[1954] Ch D 744, a gratuity paid to an employee in 1945 for overtime during
the war years was held to be taxable when the services were rendered.

( C) INVESTMENT

The Act under section 9 makes gains or profits from investment part of a
person‟s income for tax purposes. The gains or profits of a person from
investment include the following:

- dividends from a non-resident company,

- interest, (2 kinds of interest; allowable deductions: (1)
interest on a bank loan.
- charge,(2) the swap: this is a financial arrangement where a
company buys the debts of the other as a tax avoidance
technique.
- annuity,
- royalties,
- rent,
- natural resource payment, or
- other income accruing to or derived by that person from the
investment other than an amount included in ascertaining
that person‟s income from a business or employment.
The Act in section 94 defines investment to mean “a manner in which a person
may derive gains, profits or income, other than from a business or employment.
Therefore it seems that apart from the gains or profits expressly mentioned in
section 9 (2) other gains that are not of a business (trade, profession or
vocation) or employment nature are of investment.

Gains and profits deemed accruing in or derived from Ghana

48
Under section 63 of the Act, gains or profits from a business (trade, profession
or vocation) of a resident person shall be treated as accruing in or derived FROM
Ghana, unless attributable to permanent establishment of the resident person
outside Ghana. But in the case of a non-resident person it shall be treated as
such to the extent that the gains and profits are attributable to a permanent
establishment of the non-resident person in Ghana. Therefore gains or profits of
a resident person with a permanent establishment outside Ghana are not
deemed to be accruing in or derived from Ghana. While gains and profits from a
non-resident person with a permanent establishment in Ghana are deemed to be
accruing in or derived from Ghana. A permanent establishment is defined in the
Act as:

A place where a person carries on business, and

(a) a place where a person carries on business or through an agent, other

than a general agent of independent status acting in the ordinary
course of business as such;
(b) a place where a person has, is using, or is installing substantial
equipment or machinery;(e.g. exploration companies) or
(c) a place where a person is engaged in construction, assembly, or
installation project for ninety days or more, including a place where a
person is conducting supervisory activities in relation to such project.

Under section 63 (1) the gains or profits from any employment are deemed to be
accruing in or derived from Ghana on the basis of the extent to which the
employment is exercised in Ghana, regardless of the place of payment.
Therefore the extent of exercise of the employment in Ghana is the determining
factor and not the place of payment for the employment. (this however is only in
relation to investment income). This is the only statutory exception to the
principle that the tax jurisdiction is primarily source and residence.

49
Gross receipts of non-resident persons who carry on the business of ship
operator, charterer or air transport, except in the case of trans-shipment, are
deemed to be accruing in or derived from Ghana. The Act in subsections (4) to
(13) of section 63 stipulates a number of activities in which the gains or profits,
under particular circumstances, are deemed to be accruing in or derived from
Ghana. These include the business of non-resident persons engaged in:

- transmitting messages by cable, radio, optical fibre, or

satellite communication from the transmission of messages
by apparatus established in Ghana;
- dividend paid by a resident company;
- interest where the debt obligation is secured by real
property in Ghana;
- interest is paid by a resident person; or
- interest is borne by a permanent establishment of a non
resident person
- charge, annuity, management and technical service fees,
proceeds of life insurance policy, pension or other payment
from a retirement fund, where it is paid by a resident person
or by a permanent establishment of a non-resident etc.
The general principle on all the above is that there is a distinction between doing
business within Ghana and partly doing business within Ghana. Income derived
within the latter is taxable in Ghana. Under English law three tests have been
established to distinguish between trading with and trading within or partly
within another country.

(a) Place of contract: If the activities consist of selling goods, the place where
the contracts are concluded may be decisive. In Grainger & Sons v Gough
[1896] AC 325, the question arose whether a French wine Merchant was
trading in the city of London for sale of his wines. The agents canvassed

50
 for orders and were remunerated on a commission basis, but no orders
were accepted in Britain. Orders were transmitted to France where the
French wine Merchant exercised his discretion whether or not to accept
them. No offers were accepted on behalf of the French wine Merchant in
Britain. It was held that no part of the trade was carried on in the United
Kingdom. (see Lord Herschell‟s judgment in this case).
(b) Where the operations take place: Atkins LJ posed the useful question in
Smidth & Co. v Greenwoods (1957) I AER 561 thus: “where do the
operations take place from which the profits in substance arise?” Also see
Firestone Tyre and Rubber Co. Ltd. v Lewellin, where the House of Lords
preferred not to accede to the contention that the place where contracts
are made is the crucial factor. A United States Company sold tyres on the
Continent of Europe but arranged for manufacturing and delivering of the
tyres by a United Kingdom company. The United States Company was
held to be trading in the United Kingdom through the manufacturers as
agents.
(c) Power of Control: The control, whether exercised or not constitutes the
carrying on of the trade or business. Section 161 of the Act defines a
resident company as one incorporated under the laws of Ghana, or has its
management and control exercised in Ghana. Therefore a non-resident
company is one not registered under the laws of Ghana, or has the
exercise of its management and control outside Ghana. It would therefore
seem that even if a company is incorporated outside Ghana but its
management and control is exercised from Ghana it will be deemed to be
trading in Ghana and its gains or profits deemed accruing in or derived
from Ghana. In Ogilvie v Kitton (1905) 5 TC 338 at 345 it was stated that
“it is a matter … of power and right and not of the actual exercise of right
or power”. This case was talking about control.

Other taxable income in Ghana

51
Under section 2 (1), tax shall be charged and shall be paid by a resident person
or partnership who or which is:

(a) paid a dividend by a resident company other than a dividend exempt

from tax, or
(b) paid for services mentioned in paragraph (a) and (b) of section 84 (1).
These services include fees paid to a resident part-time teacher,
lecturer, examiner, examination invigilator, or examinations supervisor.
And fees, emoluments, and any other benefit, including a benefit
under section 53 of the Act, to a resident director, manager, or board
member of a company or body of persons.
Under section 3, a non-resident person or partnership shall pay tax on any
dividend, interest, royalty, natural resource payment, rent, endorsement fee or
management and technical service fee accruing in or derived from Ghana except
such receipt is exempt from tax or attributable to a permanent establishment.

A dividend is defined in section 94 of the Act to mean:

(a) capitalization of profits, whether by way of bonus share issue or

increase in the amount paid-up on shares, or otherwise involving a
credit of profits to the share capital or share premium account; or
(b) an amount derived by a shareholder from a company in the course of
liquidation or reconstruction, or to a reduction of share capital or buy
back; provided such amount is not debited to the company share
capital or share premium account
Royalties is defined to mean any payment of a premium or like amount derived
as consideration for the use of a copy right of literary, artistic or scientific work
including cinematography films, video or audio tapes; whether in electronic
format or not. It also includes the use of or the right to use a patent, trademark,
design or model, plan or secret formulae process. It further includes the use of
or right to use any industrial, commercial or scientific equipment as well as the

52
use or the right to use information concerning industrial, commercial, or scientific
experience.

Natural resource payment means a payment including premiums or like amount,

for the right to take minerals or a living or non-living resource from real property
or the sea. And also includes a payment calculated in whole or in part by
reference to the quantity or value of such minerals or living and non-living
resource.

Rent means payment, including payment of a premium or like amount for the
use of or the right to use property of any kind other than a natural resource
payment or royalty.

Management and technical services fee (consultancy fees) means a payment of

any kind to a person, other than to an employee of the person making the
payment, in consideration for any services of a managerial, technical or
consultancy nature.

Endorsement fee is defined in section 167 as a payment made to a person for

recommending a product in an advertisement launched to promote the sales of a
new product or to promote sales at the expense of a competing product whether
in electronic, print media or otherwise. While interest is defined in the same
section to include:

(a) Any payment, including of a discount or premium, made under a debt

obligation which is not a return of capital;
(b) Any swap or other payments functionally equivalent to interest;
(c) Any commitment, guarantee, or service fee paid in respect of a debt
obligation or swap agreement; or
(d) A distribution by a building society.

53
There is no express mention of charges or annuities in sections 2 and 3 of the
Act as was the case in SMCD 5 of 1975. It is my view that these are considered
as a return on capital to be handled for tax purposes as either a form of interest
gains or capital gains. Income on annuities may also be charged with tax under
investment income.

[NOTE: This is work in progress and should not be cited]

LECTURE THREE
ASCERTAINMENT OF INCOME IN GHANA

All income falling under section 5 of the Act is chargeable to income tax, unless
otherwise exempted under section 10 or other statute. An exemption arises
where some gain is expressed not to be a chargeable gain. There is also the
situation in which a relief from tax is granted to an otherwise chargeable gain
just as much as some business expenses are permitted or allowed as deductions

54
before one arrives at the quantum of tax a taxpayer should pay. This chapter
seeks to look closely at the category of incomes that are exempted from tax,
expenses that are allowed as deductions and those not allowed as deductions.

The chargeable income of a person is any income that can be charged with
tax under the Act. Section 5 of the Act provides that:
Subject to this Act, the chargeable income of a person for a year of
assessment is the total of that person‟s assessable income for the year
from each business, employment, and investment less the total amount of
deductions allowed to that person for the year under sections 13 to 22
(relating to general and specific deductions), 39 (relating to life
insurance), and 60 (relating to contributions to retirement funds).

The Assessable income of a person is the income upon which a person is

chargeable to tax within the tax year. Income chargeable with tax may be
assessable over one or more years of assessment in which case the income may
be apportioned within the relevant years of assessment. Section 6 of the act
defines the assessable income of a person for a year of assessment to include
income from the business, employment or investment (in the case of a resident
person) accruing in, brought into or derived from, or received in Ghana
during the basis period of the person.
In the case of a non-resident person it includes such income accruing in or
derived from Ghana during any basis period of the person.

The Gross income is the assessable income before allowable deductions are
made or income exempted is deducted. Therefore the gross income minus
deductions is equal to the net income, which is the balance remaining after
deductions have been allowed from gross income. It is this amount on which tax
is finally imposed. And it is the chargeable income for that year of assessment.

55
Income exempted from tax
Section 10 of the Act gives a list of fourteen sources of income that are
exempted from tax. The most important of these include:

- the salary, allowances, pension and gratuity of the President of the

Republic of Ghana;
- the income of a local authority, other than income from activities
which are indirectly connected with the local authority‟s status;
- the income of a statutory or registered building society, friendly
society, other than business carried out by that society;
- income accruing to or derived by an exempt organization other than
income from a business;
- interest paid to an individual by a resident financial institution or on
bonds issued by the government;
- capital sums paid to a person as compensation or a gratuity in relation
to personal injuries suffered or death;
- the interest, dividend, or any other income of an approved unit trust or
mutual fund scheme;
- income of a public corporation or institution exempted from tax under
any enactment;
- income of a person receiving educational instruction at an institution
from scholarship, exhibition, bursary, or similar educational
endowment;
- income of individuals entitled to privileges under the Diplomatic
Immunity Act, 1962 (Act 148) or under rules made pursuant to the
Act.

Under industry concessions, as indicated in our discussion on farming as a

business activity, both arable and livestock farming businesses are exempt from

56
tax for a number of years from the commencement period which also takes into
account the gestation period. Under section 11 of the Act, the income of a
company from a processing business in Ghana is exempt from tax for three years
after commencement. Processing business is defined in section 11 (10) of the
Act to mean “the business of converting crops, fish, or livestock
produced in Ghana into edible canned or other packaged product other
than in their raw state”. And where a company conducts both farming and
processing business, the company may elect to be treated for tax purposes
under either line of business activity.

In addition, the income of a rural bank from a business of banking is exempt

from tax for a period of ten years from the period its operations commenced.
Other exemptions under industry concessions include:
- the rent income of a person from any residential or commercial
premises is exempt from tax for a period of five years in the case
where the premises is constructed or completed or is purchased from a
registered real estate company with a certificate of a right of entry;
- the income of a company from business of construction for sale or
letting of residential premises is exempt from tax for five years from
the time operations commenced; and
- the income from cocoa of a cocoa farmer is exempt from tax.
However, sections 10 and 11 shall not be construed as exempting in the hands
of a recipient any amounts including dividends, interest, or employment income,
paid wholly or partly out of income exempt from tax.

Expenses allowable as deductions generally

Expenses incurred in earning profit are an allowable deduction from the gross
income, except in so far as the Act prohibits such a deduction. Statutory
deductions allowed or allowable are spelt out in sections13 to 22 of the Act and
in paragraphs 2 to 8 of the Internal Revenue Regulations (L/I 1675), while

57
deductions not allowed are also spelt out in section 23 of the Act and paragraphs
9 and 10 of the regulations. It appears from the wording of the sections in
question that the categories of allowable and non-allowable deductions are not
exhaustive. From a close reading of section 13 of the Act it appears that if
sections 13 to 22 does not allow expressly and section 23 does not prohibit
expressly, an expense incurred in earning income may be deductible, if it can be
established that is wholly, exclusively and necessarily incurred during that period
in the production of the income; or prescribed by regulations to the Act.

For an expenditure to be allowable it must be of a revenue nature and not of a

capital nature. Section 13 refers to the deductions of:
All outgoings and expenses wholly, exclusively and necessarily incurred
during that period by that person in the production of the income.
For expenditure to be deductible it must be an outlay in the actual earnings of
profits and not merely one that puts you in a position to earn income. The test
for distinguishing capital from revenue expenditure is that stated by Lord Keith in
British insulated & Helsey Cables Ltd. v Atherton [1926] AC 205 at 213:
When an expenditure is made not only once and for all, but with a view to
bringing into existence an asset or an advantage for the enduring benefit
of a trade, I think that there is a very good reason (in the absence of
specific circumstances leading to an opposite conclusion) for treating such
an expenditure as properly attributable not to revenue but to capital.
Thus three conditions must be satisfied before expenditure must be deductible:
(a) it must be revenue and not capital expenditure, and one that is not
prohibited by law;
(b) the expenditure must be incurred wholly, exclusively and necessarily
for the purpose of trade. For instance in producing the income or
profit;
(c) the expenditure must be for enduring benefit or an advantage of the
business.

58
In Vollambrosa Rubber Co. Ltd. v Farmer (1910) SC 519; 5 TC 529 at 536, Lord
Dunedin suggested that expenditure which is made once and for all is normally
capital, whereas recurrent expenditure is revenue expenditure:
In a rough way it is not a bad criterion of what is capital expenditure- as
against what is income expenditure- to say capital expenditure is a thing
that is going to be spent once and for all and income expenditure is a
thing that is going to recur every year.

Lord Keith carried the matter a stage further in the passage quoted in the British
Insulated Cables Ltd. case. In the British and Salinson Aero-Engineering Ltd. v
IRC, lord Greene MR stated that: “in many cases it is almost true to say that the
spin of the coin would decide the matter almost as satisfactorily as an attempt to
find reasons”

Whether an item of expenditure is capital or revenue is a mixed question of law

and fact. The cost of an item from a resale, of which a trader makes his profit, is
generally deductible. The item is part of the traders circulating capital. There is
however the important distinction between the purchase of the raw material of a
trade (revenue expenditure) and the purchase of an asset from which the trader
obtains his raw materials. In Stow Bardolph Co. Ltd. v Poole (1954) 35 TC 459,
the company who were dealers in sand and gravel claimed as a deduction the
cost of a contract given them exclusive right to excavate gavel; and imposed no
obligation on the company to excavate the gravel. The price was not related to
quantity of gravel excavated and there were options to acquire other reserves. It
was held that the cost of the gravel was capital expenditure.
This distinction was maintained in H. J. Rock Ltd. v IRC (1960) 39 TC 194,
notwithstanding that the payment in that case was normal and recurrent incident
of that case. And that since the purchaser had a lease of one year only, no
enduring benefit was obtained. It was held that: “they were not payments made

59
for purchase of coal but payments which put the company into the position to
get coal”.

But in Mitchel v B. W. Noble Ltd. [1927] 1KB 719, a lump sum was paid to a
director who though liable to dismissal agreed to retire to avoid undesirable
publicity. It was held that the lump sum payment was deductible since it was a
“payment to get rid of a servant in the interest of the trade is a proper deduction
[per Rowlatt J.] Similarly in Anglo-Persian Co. Ltd. v Dale [1932] 1 KB 124, a
lump sum paid by a principal to his agent for the cancellation of an onerous
agreement. The payment being in the course of charge of the principal‟s
business methods and to effect an economy in the business was allowed as a
deduction. In Southern v Borax Consolidated Ltd. [1941] 1 KB 111, cost incurred
by a company in defending its title to certain lands were allowed as a deduction.
In IRC v Carrot Co. Ltd (1968) 45 TC 18, the cost of obtaining a new charter
which provided a better administrative structure for the company was held to be
deductible:
What matters is the nature of the advantage for which the money was
spent. This money was spent to remove restrictions, which were
preventing profits from being earned, it created no new asset, it did not
open new fields of trading which had previously been closed to the
company [per Lord Reid at page 68].
These cases must be contrasted with the following cases. In Mallet v Stevenly
Coal and Iron [1928] 2 KB 405; 13 TC 772, in which a colliery company with
long-term mining leases found that some of the seams of the coal it had
contracted were unprofitable. The lessor agreed to release the company from its
obligations under the lease on a payment of a lump sum. It was held not to be
deductible: “the company was getting rid of a permanent disadvantage or
onerous burden arising with regard to the lease which was a permanent asset of
the business” [per Sargent LJ]. Also, in Associated Portland Cement
Manufacturers Ltd. v Kerr (1945) 27 TC 103, where a lump sum payment to

60
retiring directors in consideration of covenants that they would not thereafter
carry on a similar business, were held to be capital expenditure.

An important consideration is the meaning of outgoings and expenses wholly,

exclusively and necessarily incurred in any revenue income in the Act. The
distinction between capital and revenue expenditure is not scientific, all that the
law does is to classify some expenditures as allowable and others not allowable.
The law employs a general formula that the expenditure must be expended
wholly, exclusively and necessarily for the purpose of the earning profit from a
trade, employment or investment. The test has been set in Bentley and Stokes
Lowless v Deeson (1952) 33 TC 491, CA. The appellant, a firm of Solicitors had
incurred expenses in entertaining clients at lunches, during which legal advice
was sometimes given. The question arose whether such expenses were wholly or
exclusively incurred for professional purposes. The Crown contended that the
expenses could not be wholly divorced from the relationship of host and guest.
And that the wholly and exclusively test was not satisfied. But it was held that
the expenses were allowable18. This decision was given at the time necessarily
had not been added to the provisions, in both the English and Ghana statutes.
The sole question for consideration of the court was whether the expenditure in
question was exclusively made out for the business purpose having regard to the
fact that entertaining inevitably involves the characteristics of hospitality. The
views of Romer LJ are instructive:
It is quite clear that [business] purpose must be the sole purpose. The
paragraph says so in clear terms, if the activity been undertaken with the
object both of promoting business and also with some other purpose i. e
with the object of indulging an independent wish of entertaining a friend
or a stranger or of supporting a charitable or benevolent object then the
paragraph is not satisfied. Although in the mind of the actor the business
motive may predominate. For the statute so prescribes per contra if in

18
Note should be taken that in this case the relevant tax statute did not include the word necessarily then.

61
 truth the sole object is a business promotion, the expenditure is not
disqualified because the nature of the activity necessarily involve some
other result, or attainment or furtherance of the other object, since the
latter result or object is necessarily inherent in the act.

The court held that the primary purpose of the expenditure was a business
purpose and so allowed the deduction. It therefore follows from the principle
enunciated by Romer LJ that where the expenditure incurred is for a dual
purpose, one a business purpose and one not, no part of the expenditure is
deductible unless the non-business purpose is so insignificant. This was the
position in Bowden v Rusell and Rusell (1965) 47 TC 301, where a Solicitor
combining attendance at a foreign law conference with a holiday and no
deduction was allowed. Also in Lucas v Cottell (1972) TR 83, telephone
installations and rental charges incurred by a clerk to an executive council of a
National Health service who needed to be consulted out of hours on urgent
matters was held not to be exclusively incurred in performing the duties of his
office.

In all the above cases, the element of dual purpose must exist. With Bentley‟s
case presently British Tax Statutes no longer allow deduction of entertaining
expenses. Ghana‟s law permits some amount of apportionment between
business purpose and a private use. In any case the addition of the word
necessarily in section 13 (a) of the Act restricts the scope of the deduction. So
that if an expenditure is found to be wholly and exclusively incurred for business
purposes, it may be disallowed on the ground that it is not necessarily incurred
in the circumstances. For example in Nolder v Walters (1930) 15 TC 380, Rowlatt
J. held that a Pilot‟s expenses of installing a telephone, keeping a motor car,
special flying clothes, books and instruments and undergoing medical test were
all necessarily incurred. Bentley‟s case may be contrasted with Norman v Bolder

62
(1944) 26 TC 293, where a sick shorthand writer unsuccessfully claimed as a
deduction expenses involved in getting well. Lord Greene MR said:

It is quite impossible to argue that the doctor‟s view represent money

wholly and exclusively paid out for the purposes of a trade, profession,
employment or vocation of the patient. True it is that if you do not get
yourself well and so incur expenses to doctors you cannot carry on your
trade or profession; and if you do not carry on your trade or profession
you will earn no income; and if you do not earn an income the Revenue
will not get any tax. The same ting applies to the food you eat and the
clothes that you wear. But expenses of that kind are not wholly and
exclusively laid out for purposes of the trade, profession or vocation. They
are laid out in part for the advantage and benefit of the taxpayer as a
living human being.

Since the word wholly refer to quantum if an employee is paid a salary which is
exclusive regarding services he renders, the excess may be disallowed: see
Cobeman v Flood [1941] 1 KB 202. The same principle applies to excessive
pensions in an agreement to provide a pension may be ultra vires and void: see
Re W & M Roith Ltd. [1967] 1 WLR 432. In Morgan v Tate & Lyle [1955] AC
21, the taxpayer a company, which carried on the business of Supper Refiners of
Sugar, claimed to deduct for income tax purposes, expenses, incurred on a
propaganda campaign it mounted to oppose the threatened nationalization of the
Sugar Refining Industry.

Specific items of expenditure allowed under Act 592

(a) Interest: Under section 14 of the Act, interest incurred during the period
in respect of a borrowing employed by that person in the production of
the income is an allowable deduction.

63
(b) Rent: Under section 15 of the Act, rent in respect of land or building
occupied by that person to the extent that the land or building is occupied
by that person for the purposes of producing the income. There is no
indication in the section whether land or a building used for a dual
purpose (business and domestic) there will be an apportionment in which
the part used for business is allowed and that for domestic purposes not
allowed. In the previous tax statute (SMCD 5), a subsection gave the
Commissioner of Income Tax (CIT) the power to allow a deduction on
such part of the rent as is attributable to the business i. e rent is
apportioned between business user and domestic or private user.
(c) Repairs: Any outgoings or expense incurred in respect of repairs of any
premises, plant, machinery, or fixtures, implement; or any renewal, repair,
or alteration of any implement, utensil, or article is an allowable deduction
under section 16 of the Act provided such items or premises are used in
the production of the income. This section has resolved the position in the
old law in which a distinction was made between repairs of fixed assets as
an allowable deduction and renewals and improvements that were not
allowable. The current legal position therefore is that repairs, renewals or
alterations are all allowable deductions.
(d) Rental of Premises: Under section 17, rents received in respect of
residential or commercial premises as an income from investment are
allowed deductions in respect of:
(i) rates incurred or paid to local, urban, city or district councils;
(District Assemblies).
(ii) mortgage interest incurred from borrowing to construct or
acquire the premises and;
(iii) a standard allowance of 30% of the aggregate rent received in
respect of the premises

64
 However, were other necessary outgoings or expenses of the rents and
mortgage interest in excess of 30% have been incurred a deduction shall be
allowed in respect of such excess.

(e) Bad Debts: Are defined as a debt claim of which all reasonable steps has
been taken to pursue payment and it is reasonably believed that it will not
be satisfied. Under section 18 of the Act such debts are an allowable
deduction. Under the regulations, Banks regulated under the Banking Law
of 1989 (PNDCL 225 now amended by the new Banking Act) are required
to apply the standards of the Bank of Ghana in determining and writing of
debts that are considered bad. However, under the Internal Revenue
(Amendment) Regulations of 2003 (LI 1727), for a debt claim to be
considered as a Bad Debt it must be a specific debt claim that the
Commissioner of the Internal Revenue is satisfied has become bad.
Further, if such debts written off or allowed previously are recovered they
will be treated as receipts of the business and charged to tax for that
period.

In Uganda Co. Ltd. v The Commissioner [1957] EALR (East African law
Reports )450, the taxpayer was a company registered in Uganda and carried
on business there until June 1951 when it ceased to trade. The taxpayer
continued to derive income from Uganda after that date. For purposes of his
income tax assessment for the tax year 1951, the taxpayer was allowed to
deduct a sum of £18, 526 as a reserve for bad or doubtful debts incurred in
Uganda. In 1952 the taxpayer recovered £12, 023 in respect of such amounts
previously allowed for bad or doubtful debts. In 1953 a further £1, 000 was
recovered. These two sums were treated as income for the two years
(1952/53). The taxpayer objected to the assessment for the two years. It was
held per Bennett J:

65
 I can find nothing in the language of section 8 (1) [the equivalent of
section 18 of Ghana‟s Act] to suggest that profit from a trade which
ceased to be carried on, at the time when the profits are received are
liable to tax. It is common ground that the receipts which is now sought
to tax are resultant upon the recovery of the debts incurred at the time
when the company was trading. At the time when these debts were
incurred they were ordinary trade debts. In my view they do not change
their character of trade debt on account of the fact that the appellant
company had ceased to trade. In my judgment they are debts incurred in
trade [within the meaning of the relevant Ugandan statute]. And the
receipts recovered upon their discovery are to be treated as receipts upon
their trade for the year in which the money was actually received. I am
also of the opinion that these receipts are gains or profits from a trade …
notwithstanding that at the time when the monies were received by the
company, the appellant company had ceased to trade. For these reasons
the appeal is dismissed.

(f) Research and Development Expenditure: Expenses incurred in research and

development is an allowable deduction under section 19 of the Act. Section 19
(2) defines research and development expenditure to include:
any outgoings or expense incurred for purposes of developing that
person‟s business and improving business products or process but does
not include any outgoings or expense incurred for the acquisition of an
asset in relation to which that person is entitled to a capital allowance
under section 20.
In addition to the above, other expenses that are allowable include:
- capital allowances; foreign exchange losses under specified conditions;
and carry over losses. (the loss is carried over to the profits of the
next year).

66
Expenses not allowed
Under section 23 of the Act the following expenses are not allowed as deductions
for tax purposes:
- domestic and private outgoings;
- expenses of a capital nature;(e.g. the purchase of a capital asset)
- recoverable expenses under any insurance or contract of indemnity;
- any income tax, profit tax, or other similar tax incurred in or outside
Ghana provided it is not one exempt under a double taxation
agreement; and
- depreciation of any fixed asset.
Domestic and private outgoings or expenses are defined to include:
- travel between home and work;
- maintenance of the person, his family or home;
- acquiring clothing worn to work other than clothing not suitable
outside work; and
- education that is not directly relevant to the persons business and
education leading to a degree irrespective of whether it is relevant
directly to the person‟s business.

(a) Traveling Expenses

On the issue of traveling expenses the general principle is that cost of traveling is
generally deductible. All that the Act does is to specifically disallow expenses
incurred in traveling between home and place of work.(this is seen as a domestic
expense which is not allowable. However traveling from the office to any other
place is allowable). In Rickets v Colquhoen [1926] AC 1, a recorder of
Portsmouth who was a Barrister practicing in London claimed to deduct from his
emoluments as a recorder the traveling expenses between Portsmouth and
London and Portsmouth and the hotel expenses. It was held that traveling
allowances were attributable to the recorder‟s own choice of residence, and were
not necessary to the office as such, nor were any of the expenses incurred in the

67
performance of his duty as recorder. As regards his hotel expenses Viscount
Cave LC said “a man does not eat to sleep in the course of performing his duties.
But either before or after the performance”[of his duties].

In determining whether a traveling expense is deductible or not, one has to

consider the base from which the taxpayer operates. Expenses to and from the
base are not allowable deductions. In Newson v Robertson [1953] Ch D 7 or 33
TC 452, the taxpayer, a barrister exercised his profession partly at home and
partly at his chambers in London. His home was at the country side. When the
court was sitting he did the greater part of his work in his chamber, but
otherwise he did his work at home except occasional journeys to his chambers.
He claimed a deduction for income tax purposes for traveling expenses between
his home and his chambers. It was held that the expenses were not deductible:

In other to decide into which category to put the cost of traveling, you
must look to see what is the base from which the trade, profession or
occupation is carried on. In the case of a tradesman the base of his
operation is his shop, in the case of a barrister it is his chambers, once he
gets to his chambers, the costs of traveling to various courts is incurred
wholly and exclusively for purposes of his profession. But it is different
with the cost of traveling to his home and back. That is incurred because
he lives a distance from his base. It is incurred for the purposes of his
living there and not for purposes of his profession, at any rate not wholly
or exclusively; and this will be so whether he has a choice in the matter or
not. It is a living expense as distinct from a business expense [per Lord
Denning).

In Pook v Owen [1970] AC 44, TC 571, a general medical practitioner in

Fishguard also held two part time hospital appointments as Obstetrician and
Anesthetist fifteen miles away. Under the appointments he was on stand-by duty

68
to deal with emergency cases. He was also required to be available by
telephone. His responsibility for the patients began from the moment he received
a call, but not every call resulted in a visit to the hospital. He was paid traveling
expenses at a fixed amount per mile up to a single 10 mile journey. He bore the
cost of traveling the additional five miles from Fishguard. It was held
distinguishing Rickets v Colquhorn (supra), first, that the duties of his office were
performed in two places. Namely in the hospital and the place he received the
telephone calls and that the traveling expenses from one place to another were
incurred in the performance of his duties. Second, that the traveling allowance
paid by the hospital was a re-imbursement for actual expenditure expended by
him and was not assessable emoluments.

It has to be noted that on traveling expenses, the general idea is that business
commences when an employee or a businessman gets to his office or place of
work and expenses incurred on traveling from his office or place of business to
any other place are deductible expenses.

(b) Medical Expenses

In Murgatroyd v Evans-Jackson [1967] 1 All ER 881; 43 TC 581, the taxpayer
was a Trade Mark Agent and was advised to have treatment in the hospital. He
was offered a bed in the hospital under the National Health Service but declined
it because of the lack of a telephone and restricted facilities for visiting which
would have prevented him from carrying on his business. Instead he entered a
Nursing Home as a private patient where he was provided with all the facilities
for carrying on his business. He held conferences with Clients there, saw his staff
members each day and dealt with correspondence. The taxpayer contended that
60% of his expenses at the nursing home should be allowed as business
expenses. The sole question raised on appeal was whether in computing the
profits of the respondents‟ said profession for the purpose of assessment to
income tax, he was entitled to deduct a 16, 200 being a proportion of expenses

69
incurred by him while receiving a treatment in the nursing home. It was held by
Ploughman J:
It seems to me that the claim by E. J. for 60% of his expenses is really
fatal to his case. Because implicit in a claim for only 60% of the expenses
must be an admission that the expenses involved a dual purpose, namely
as to 60% expenses for conducting an office and as to 40% something
else … the whole object of going into a nursing home was to receive
treatment for injury which he has sustained and it seems to me that it will
offend commonsense to say that at any rate one of his motives or
purposes in going to the nursing home was not to receive treatment for
that injury, treatment that will inure to his benefit not the time he was
carrying on his business. But Lord Greene MR said in a passage I have
already read from Norman v Bolder „as a living human being in those
circumstances both on the ground that deduction is prohibited by section
137 (a) of the Act [dealing with wholly and exclusively] and on the ground
that it is prohibited by section 137 (d) [dealing with private and domestic
expenses] I must allow the appeal in favour of the Revenue.

(c) Telephone expenses

Telephone expenses, in terms of costs of installation and calls, are not allowable
unless it can be proved it was wholly or exclusively incurred for purposes of the
business. In Lucas v Cattle (1972) TR 83, 48 TC 353, the taxpayer was a Clerk to
a County Executive Council of the National Health Service. In the opinion of the
Council it was necessary to have a phone in his home so that he might be
contacted outside office hours for urgent matters. The Clerk had a telephone
installed. The number of incoming and out going calls, relative to his
employment was about half of the total. The cost of the outgoing business calls
was reimbursed by his employer but not that of the installation of the telephone
or the installation charges. The taxpayer claimed an allowance for the whole of

70
the rental as wholly, exclusively or necessarily incurred for the running of the
business. It was held by Brightman J:
When one analyses the situation it seems to me that in a case such as the
present, it is not really possible for the Revenue to allow the rental as a
deduction „the word exclusive cannot in my view be satisfied when part of
the expense has no reference to the performance of the duties of the
office. The rental payable for this telephone rendered it available for
official calls and also rendered it available for private calls. The private
calls predominated by a very large margin indeed. Construing the section
it seems to me that the court in a case like this is bound to look at what is
got for the payment. What is got for the rental cannot in my judgment be
described as wholly and exclusively referable to the performance of the
taxpayer‟s duties. I therefore feel bound to reject the appeal … indeed the
Revenue seems to me from the stated case to have made what is in my
view a perfectly reasonable apportionment of the telephone
apportionment.

In general, legal and other professional charges or costs of tax appeals arising
out of a disputed assessment of trading profits are not allowable. In Smith‟s
Potato Estates Ltd. v Bollard [1948] AC 508, 30 TC 267, the legal and
accountancy expenses incurred by a trader in contesting the amount of an
assessment to excess profit tax were held not to be deductible in computing
profits for the purposes of a subsequent assessment to income tax or excess
profit tax. They were held not to have been wholly and exclusively laid out and
expended for the purposes of the trade. In as much as they were incurred at any
rate, to determine current amount of tax and not to earn gain.

Dr. Benjamin Kunbuor

Lecturer

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[Note: This is work in progress and should not be cited]
LECTURE FOUR

BASIS OF COMPUTING ASSESSABLE AND CHARGEABLE INCOME

Meaning of Assessable and Chargeable income

Lord Dunedin explained the process of determining liability to income tax in
Whitney v IRC (1925) 10 TC 88 in the following words:

Now, there are three stages in the imposition of a tax: there is the
declaration of liability that is the part of the statute which determines
what persons in respect of what property are liable. Next, there is the
assessment. Liability does not depend on assessment. That ex hypothesis
has already been fixed. But assessment particularizes the exact sum which
a person liable has to pay. Lastly, comes the methods of recovery, if the
person taxed does not voluntarily pay.

The Assessable income of a person is the income upon which a person is

chargeable to tax within the tax year. Income chargeable with tax may be
assessable over one or more years of assessment in which case the income may
be apportioned within the relevant years of assessment.

Section 6 of the act defines the assessable income of a person for a year of
assessment to include income from the business, employment or investment (in
the case of a resident person) accruing in, brought into or derived from, or
received in Ghana during the basis period of the person. In the case of a non-
resident person it includes such income accruing in or derived from Ghana during
any basis period of the person.

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Under Section 6 (2) of the Act a number of income categories are deemed to be
income brought into or received in Ghana notwithstanding the fact that the
source of such income might have ceased. These categories include:
(a) income accruing in or derived from outside Ghana but is remitted to or
transmitted to Ghana;
(b) income accruing or derived from outside Ghana but is applied in whole
or partial satisfaction of any debt incurred in Ghana; and
(c) income accruing or derived outside Ghana but is applied to purchase a
movable property which is brought into Ghana.

Assessment to tax is a yearly affair as a general rule. For tax purposes section 24
of the Act designates the 1st of January to the 31st December as the year of
assessment. The year of assessment is the basis period of the taxpayer. In the
case of an individual or a partnership, the Act considers 1st January to 31st
December as their basis period. In the case of companies or body of persons
their Accounting Year is the basis period. A company or body of persons cannot
change their accounting year without approval from the Commissioner of the
Internal Revenue Service. And such approval can be revoked by notice in writing
if they fail to comply with the conditions of approval.

To determine the assessable income of a taxpayer one has to aggregate the full
amounts of income from each source specified in section 6 of the Act for that
year of assessment. As stated in Schedule One Step 8 of L/I 1675 this is:

Any income from a business, employment, or investment for a basis

period ending within the year that has the necessary connection with
Ghana and that is not exempt income is the assessable income of the
person from the business, employment, or investment for the year.

73
The chargeable income of a person is any income that can be charged with tax
under the Act. Section 5 of the Act provides that:
Subject to this Act, the chargeable income of a person for a year of
assessment is the total of that person‟s assessable income for the year
from each business, employment, and investment less the total amount of
deductions allowed to that person for the year under sections 13 to 22
(relating to general and specific deductions), 39 (relating to life
insurance), and 60 (relating to contributions to retirement funds).

To determine the chargeable income of a person you aggregate the assessable

income of the person for the year from each business, employment, and
investment. This aggregate is reduced by deductions such as contributions to
charities, scholarships, donations for rural development, promotion of sports and
for worthwhile causes as provided in regulations 2 to 6 of LI 1675. In the case of
individual taxpayers there is provision for further deductions in section 39 of the
Act for personal reliefs, section 57 for insurance premiums, and in section 60 for
contributions to a retirement fund. The resulting amount after the aggregation
and deductions is the person‟s chargeable income for the year.

Computation of chargeable income

Taxation of Individuals
Under section 38 of the Act the chargeable income of each individual is
determined separately. Under section 39 of the Act the assessable income of an
individual for each year of assessment is reduced by the following amounts:

(a) In the case of a taxpayer with a dependent spouse or at least two

dependent children, 30 currency points;
(b) In the case of a disabled individual 25% of his or her assessable
income from any business or employment;

74
 (c) Persons who are sixty years or above and derive an assessable income
during the year from business or employment, the lesser of 30
currency points or the total of that income;
(d) An individual sponsoring the education of children or wards in a
recognized registered educational institution in Ghana, 24 currency
points per child or ward for up to three children or wards. Where two
taxpayers are entitled to the relief for the same children or wards only
one of them can claim the relief;
(e) In the case of a person with a dependent relative, other than a child or
spouse, who is over sixty years, 20 currency points. But relief can only
be claimed in respect of two dependent relatives and only by one
taxpayer; and
(f) The cost of individual training if it is to update the professional,
technical or vocational skills or knowledge of the person, 50 currency
units.

The Act defines a dependant child, spouse, or relative in respect of an individual

as such person for whom that individual provides the necessaries of life and who
does not have income for the year exceeding 20 currency points.

The individual taxpayer is further entitled to additional personal reliefs in respect

of insurance premiums paid on a Life Insurance Policy and contributions made to
a retirement fund (in the case of an employee) in sections 57 and 60
respectively. Under section 57 the reduction in tax for premiums paid shall not
exceed the lesser of 10% of the sum assured or the amount calculated as:
(a) 10% of the individual‟s total assessable income for the year; less
(b) reductions in the individual‟s assessable income for the year under
section 60.
Under Section 60 a person is entitled to a deduction for a contribution made
under a retirement fund in respect of an employee if only the contribution is

75
included in the person‟s income. But the said deduction is not available to a
person on retirement on account of old age, sickness, or other infirmity.
Contributions made by an employer to the retirement fund of an employee shall
be included in ascertaining the income of the employee for the year of
assessment.

The assessable income of an employee shall be reduced by contributions made

by an employer in respect of the employee and by the employee under the Social
Security Law, 1991 (PNDCL 247). The said reductions in the assessable income
shall not exceed the total of 17.5 % of the individual‟s income from each
employment and 17.5% of the individual‟s income from each business. In
addition, payments made on retirement or under a retirement fund on account of
old age, sickness, or other infirmity to an employee is exempt from tax under
sections 61 and 62 of the Act.

Taxation of Partnerships
Section 3 (1) of the Incorporated Private Partnership Act, 1962 (Act 152) defines
a partnership thus:
Partnership means the association of two or more individuals carrying on
business jointly for the purpose of making profit
Section 3 (3) states that:
[…] the sharing of the net profit of a business shall be prima facie
evidence of a partnership.
Where a taxpayer claims he is in a partnership with others, especially persons
closely related to him, the Commissioner must satisfy he or herself that the trade
is truly operated on a partnership basis.

For purposes of income tax the existence of a partnership is tested only by the
existence of a business carried on. In Waddington v O‟callaghan (1931) 16 TC

76
187, W. who carried on practice as a Solicitor[with his son] told his son on
December 31, 1928 that he intended to take him into his partnership as from
that date (the son was working in his father‟s Solicitor‟s practice). Instructions for
the drafting of the partnership deed were at once given. On May 11, 1929 a
deed was executed expressed to have effect from the previous January. Rollatt J.
held that the fact showed clearly that there was no partnership unless and until a
deed was agreed upon between the father and son “it was a contemplated
future partnership, the account of which were to relate back”. It was found as
fact that there was no partnership before the date of execution.
See SAYWELL V. POPE (1979) STC 824 PER SLADE J. This is a recent authority.
His view of the cut-off period for a partnership is that if the partnership did not
exist as a fact on a certain date, then that will not be used as a basis for tax
computation purposes. So it is the time when the partnership is effected that is
used to compute tax liability.

Thus a partnership agreement is not effectual for tax purposes prior to the date
on which it was executed, unless a partnership in fact existed before execution,
in which case a deed may operate to confirm such a relationship. In that case
such persons will be treated as partners for tax purposes from the date from
which they became so notwithstanding the partnership agreement may provide
that the partnership may be deemed to have existed from a prior date.

On the same principles, the fact that a partnership has ceased to exist is a
question of both mixed law and fact. A declaration by the partners that the
partnership has terminated or will be terminated on a specified date is not
necessarily conclusive. Generally, if traders decide to sell off their stock with a
view to discontinuing, they will be deemed to be trading as a partnership until
the stock is sold off (see O‟Kane & Co v CIT supra).

77
SEE STEKEL V. ELLICE (1973) I AER 465 PER MEGARRY J. this case says mere
labeling of something as a partnership does not make it so.

The method of assessing partners to tax is provided in sections 40 to 43. Section

40 of the Act provides that a partnership is not liable to pay tax on its income but
is taxed to the income of the individual partners. In other words the partnership
is not taxed as an entity. The assessable income of a partner from a partnership
is normally computed as though it were income from a business, employment or
investment carried on by him. Therefore, as provided in section 41, the
partnership income for a basis period is the assessable income of the partnership
for the year of assessment and calculated in accordance with sections 5 and 6
without regard to personal reliefs in section 39, premiums on life insurance
policies in section 57 and retirement funds in section 60.

Losses of the partnership are not allocated to the partners but are carried over
and taken into account in ascertaining the partnership income in a subsequent
basis period in accordance with section 22 of the Act in dealing with carry over
losses.

For purposes of ascertaining the income of a partner from the partnership, there
shall be included the partner‟s share of the partnership income. And any taxes
withheld from payments made to the partnership are allocated among the
partners according to each partner‟s share of the partnership income. A partner‟s
share of the partnership income is defined in section 42 (5) as that equal to the
partner‟s percentage interest in the income of the partnership as set in the
partnership agreement. However where the allocation of income in the
partnership agreement does not reflect the contribution of the partners to the
partnership‟s operations, a partner‟s share of the partnership income shall be
equal to the partner‟s percentage interest in the capital of the partnership.

78
Illustration

Abate, Beyuo, Conata and Derbie form a partnership BRAVO LAW

CONSULT, sharing profit in the ratio of 3: 3: 2: 2 respectively. The net
profit for the year 2003 after deducting ¢300, 000.00 for depreciation was
¢4, 800, 000.00. Abate and Beyuo received salaries of ¢600,000.00 and
¢400,000.00 respectively and Conata and Derbie were credited interest to
their capital at ¢40, 000.00 each. Compute the Chargeable income of each
partner?
Net profit as per Account 4, 800, 000.00
Add back depreciation* 300, 000.00
____________
5, 100, 000.00
____________

Less Capital Allowance 100, 000.00

____________
Being adjusted net profit 5, 000, 000.00
____________
Add back (a) partnership Sal. 1, 000, 000.00
(b) Interests on K 80, 000.00
____________
1, 080, 000.00
Adjusted Profit for
Distribution 6, 080, 000.00
____________
Abate Beyuo Conata Derbie Total

*
Under the third schedule to Act 592 provision is made for pools of capital allowances and not
depreciation therefore depreciation value is added back and capital allowances provided for. For purposes
of the illustration we have chosen an arbitrary figure of ¢100,000.00 as capital allowances.

79
Profit 1, 500,000 1, 500,000 1, 000,000 1, 000,000 5,000,000

Salary 600,000 400,000 ---------- ----------- 1,000,000

Interest on K -------- -------- 40,000 40,000 80,000

Assessable Y 2,100,000 1,900,000 1,040,000 1,040,000 6,080,000

K means Capital and Y means Income.

Capital Allowances
In a bid to encourage investments, incentives by way of capital allowances are
made available in respect of capital expenditure incurred in any year of
assessment. Under section 20 of the Act it is provided that in ascertaining the
income of a person for the year there shall be deducted the capital allowances
for the business calculated in accordance with the third schedule to the Act. The
schedule provides further that a person shall be granted capital allowances for
each year of assessment in respect of depreciable assets owned by that person
and used in carrying on a business during that period. A depreciable asset is
defined in the schedule as an:
[Asset] to the extent to which it is used in carrying on business, which
asset is likely to lose value because of wear and tear, obsolescence, or the
effluxion of time, but does not include trading stock.

Depreciable assets have been classified into six different categories, which range
from computers, automobiles, mineral rights, buildings, plant and machinery,
aircrafts to intangible assets. Most of these assets such as plants and machinery
have not been defined in the Act. However Lindley J. in Yarmouth v. France
(1887) 19 Q.B.D 647 at 658 defined plant to include:

80
 Whatever apparatus is used by a businessman for carrying on his
business- not his stock in trade … but all goods and chattels fixed and
movable, life or dead, which he keeps for permanent employment in his
business.
Applying Lindley J‟s test, the following items were held by the courts to be
plants:
(a) Movable office partitioning in Jarold v. John Good & Sons [1963] 1 All ER
141;
(b) Knives and Last used in manufacturing shoes in Hinton v. Maiden and
Island Ltd. [1959] 3 All ER 356;
(c) Swimming Pools in Cooke v. Beach Station Caravans Ltd. {1974] 3 All ER
159.
However, in Daphne v. Shaw (1926) 11 TC 256, it was held that a Law Library
of a Solicitor was not a plant. But this decision has been criticized since the latter
decision in the Maiden Island Ltd. Case (supra).

In Ross and Co. (Wallpaper and Paints) v. Campbell (1967) 44 TC 500,

expenditure on pattern books with a minimum useful life of two years was held
not to be capital expenditure and therefore not plants.

Capital allowances notwithstanding the form they are rendered in a statute come
under a number of typologies:

(a) Initial Allowance is the capital allowance granted for the first year in
which expenditure was incurred by a trader, partnership or a company in
the acquisition of the capital asset. Whether the asset is new or second
hand it attracts an initial allowance granted in the year in which it was
acquired

81
 (b) Investment Allowance are capital allowances that the Commissioner may
grant for particular areas of investment under the Investment Code. Such
expenditures could be industry or other sectors of the economy.
(c) Annual Allowances are granted where the owner of an asset is granted a
capital allowance at the appropriate rate per centum of the residue of the
expenditure (at the end of the basis period) of that year of assessment.
But this form of allowance that was provided for in the old tax statutes is
not provided for in Act 592.
(d) Balancing Allowance is made if the disposable value of the asset is less
than the written down value of the asset i. e the asset is sold at a loss.
The purpose of the balancing allowance is to give the taxpayer such
further allowance as may be necessary to make the total allowances
granted equal to his actual capital loss by depreciation.
(e) Balancing Charge arises where the asset is disposed of at a higher price
than its written down value. The purpose is to take back from the owner
of the asset tax allowances already granted which has been found to be
in excess of that loss. The balancing charge shall not exceed the total of
any allowances made in respect of such assets.

However, under Schedule Three to the Act, depreciable assets in classes 1,2,3
and 4 are to be placed in separate pools for each class of asset and capital
allowances granted for each pool for each year and calculated according to the
following formula:

A x B x C/365

Where,
A is the written down value of the pool at the end of the basis period
B is the depreciation rate applicable to the pool; and
C is the number of days in the period.

82
The depreciation rates applicable to the pools of depreciable assets in classes 1
to 4 are as follows:

Class Rate
1 40%
2 30%
3 80% of the cost base of the assets added to the pool
during the basis period and 50% of the balance of the
pool, if any
4 20%
The written down value of a pool at the end of a basis period is the total of:
- the written down value of the pool at the end of the preceding
year after allowing for capital allowances as above;
- with respect to a pool of Class 3 depreciable assets, 5% of the
cost base of assets added to the pool during the preceding
year; and
- the cost base of assets added to the pool during the period,
reduced, but not below zero, with respect to each asset from
the pool realized during the period by the consideration received
from the realization of the asset.

However, where the amount of consideration received exceeds the written down
value of the pool, the amount will be disregarded and any excess added in
ascertaining the person‟s income from the business in which the asset was used
for that year of assessment. But if the written down value for the pool for that
year after allowing for capital allowance, is less than ¢50, 000, a capital
allowance is granted for the year in which the period ends for the amount of the
written down value and that value shall be reduced to zero.

83
Where all the assets in a pool are realized before the end of the basis period, a
capital allowance is granted for the year of assessment in which the period ends
for the amount of the written down value of the pool as at the end of that
period. The cost base of a depreciable asset is added to a pool in the basis
period in which the asset is first used in carrying on the business. For purposes
of the schedule, the cost base of a road vehicle, other than a commercial vehicle,
shall not exceed ¢150 million. The schedule defines commercial vehicles as a
road vehicle designed to carry loads of more than half a tonne or more than
thirty passengers, or vehicle used in a transportation or rental business.

Capital allowances for class 5 depreciable assets are calculated using the
following formula:

A x B x C/365
Where,
A is the cost base of the asset;
B is the rate of 10%; and
C is the number of days in the basis period.
While the capital allowances for class 6 depreciable assets is calculated according
to the following formula:
A/D x C/365
Where,
A is the cost base of the asset;
C is the number of days in the basis period; and
D is the useful life of the asset in whole years calculated at the time the
asset is acquired by the person.

However, the total capital allowances granted to a person for classes 5 and 6
depreciable assets for one or more years should not exceed the cost base of the
asset. And where a person realizes a class 5 and 6 depreciable asset during a

84
basis period within a year of assessment there shall be included in ascertaining
his income for the year he used the asset any amount if any or there shall be
granted to the person capital allowance calculated using the following formula:

E–F
Where,
E is the lesser of the consideration received from the realization or the
cost base of the asset; and
F is the written down value of the asset.
The written down value (WDV) of an asset for purposes of capital allowances of
a depreciable asset means the cost base (CB) of the asset as reduced by the
total of any capital allowances granted to the person for the asset. In algebraic
form it is:

WDV = CB – TCA
Where,
WDV is the written down value;
CB is the cost base of the asset; and
TCA is total capital allowances

Taxation of Companies
Under section 44 of the Act a company is liable to tax separately from its
shareholders. Subject to other provisions of the Act, in terms of ownership of a
company by virtue redeemable shares and dividend stripping under section 55, a
dividend paid by a resident company to another resident company is exempt
from tax; where the company receiving the dividend controls directly or
indirectly, 25% or more of the voting power in the company paying the dividend.

Under section 45 the Commissioner has the power to treat a reasonable part of
undistributed income to shareholders which distribution has been unreasonably

85
delayed as distributed dividends for tax purposes. Before the Commissioner can
make such a determination, the company in question must be controlled by not
more than five persons and their associates; it must be after the end of the basis
period of the company; and this must be done by a notice in writing. The
Commissioner will however have to take into consideration current requirements
of the company‟s business by making adjustments as to transfer pricing under
section 70 and general anti-avoidances provisions under section 112. The
Commissioner has to further take into consideration other requirements
necessary or advisable to the maintenance and development of the business.

From year to year some tax incentives by way of tax reliefs are made to
companies in budget statements, which affects the corporate tax regime. For
example in the 2004 Budget Statement, corporate tax reliefs have been granted
in respect of companies listing on the Ghana Stock Exchange for the first time,
Agro-processing and Waste Management companies, and companies located in
particular geographical areas in the country. Most of these reliefs are in relation
to rates of tax. The details will outlined when we consider rates of tax.

Rates of Income Tax

Rates of tax are generally graduated upwards with regard to income chargeable
with tax. The saying is that “the higher the taxpayer‟s income the more he can
afford to pay”. This is not a legal principle but a social one. Section 1 (2) of the
Act prescribes the rates of tax payable by various categories of persons-
individuals or corporate bodies. The section states that:

The income tax payable … for a year of assessment shall be calculated by

applying the rates of tax under the relevant Part of the First Schedule to
the chargeable income of that person for the year and from the resulting
amount there shall be subtracted any tax credits allowed to that person
for the year.

86
Part I of the First Schedule provides for income tax rates applicable to resident
individuals. Previously, chargeable income not exceeding ¢1,200,000 attracted a
nil rate of tax but this has been increased to ¢1,500,000 under the 2004 Budget
Statement. Chargeable income above the ¢1,500,000 threshold attracts rates of
tax ranging from 5% to ¢7, 950,000 plus 30%. The rate of tax applicable to non-
resident individuals is 20%. Part II of the schedule provides for the rate of tax on
companies as follows:
- rates applicable to incomes of companies other than those in
the hotel industry for the export of non-traditional goods19 is
8% and other income is 32.5%20;
- Companies involved principally in the hotel industry have a tax
rate of 25%;
- Income of financial institutions derived from loans granted for
farming and a leasing company have a tax rate of 20%;
- Companies listed on the Ghana Stock Exchange (GSE) have a
tax rate of 30%21;
- Companies in manufacturing business located outside Accra and
Tema and in the regional capitals in Ghana have a tax rate of
75% and elsewhere in Ghana a tax rate of 50%22; and
- The income tax rate for companies located in the three
Northern Regions (Upper East, Upper West and Northern
Regions) irrespective of their location will attract zero tax
rates23.

19
Non-traditional goods are defined in the schedule to include horticultural products, processed and raw
agricultural products produced in Ghana other than Cocoa Beans, wood products other than lumber and
logs, handicrafts and locally manufactured goods.
20
The 2004 Budget has reduced this to 30%.
21
The 2004 Budget provides for a tax rate of 25% for first Listing Companies on the GSE.
22
The 2004 Budget provides a tax rate of 25% for new Agro and Waste Processing companies in addition
to 5 years tax holidays. And after the 5 years tax holidays, such companies located in Accra and Tema will
a tax rate of 20%, other regional capitals 10% and outside regional capitals zero.
23
2004 Budget Statement [p. 207 par. 754]

87
In Part III of the schedule the rate of tax applicable to bodies of persons is
32.5%

Part IV of the schedule provides for withholding tax rates on payments to

resident persons under sections 2,82,83 and 84 as follows:

- rates applicable to interest payment under section 82 is 10%;

- rates applicable to dividend payment to a resident person under
section 2 (1) (a) and withholding tax under section 83 is 10%;
and rates applicable to section 2 (1) (b) and 84; 15% for
section 84 (1) (a-d); 7.5% for section 84 (1) (e); and 5% for
section 84 (2)

Under Part V of the Schedule the rates of tax applicable to payment to a non-
resident person or partnership of section 3 (2) and rate of withholding tax
applicable to such payment under section 85 is:
- in the case of dividends and interests, 10%
- royalties, natural resource payments, and rents 15%
- management and technical service fees 20%.

In the case of branch profits in Part VI of the Schedule the rate applicable to a
non-resident person under section 66 is 10%. In the case of Transportation and
Communication income of a non-resident person under section 67 is 15%. In
Part VII of the schedule, withholding tax on payments of non-resident persons
for goods and services under section 86 is 20%24.

Double Taxation Arrangements, Reliefs and Tax Credits

24
Also see L/I 1675, Regulation 25 on Tax Installment Payments by members of Associations under
Schedule Two; Regulation 26 to 30 on Withholding Tax from Employment; and Regulations 39 to 41 on
Withholding Tax from other amounts on Goods and Services, and Premium Payments.

88
The 1992 Constitution empowers the government of Ghana to enter into treaties
and conventions with other countries25. These treaties or conventions involve
entering into arrangements with other countries with a view to affording reliefs
from double taxation and prevention of fiscal evasion. Sections 68 and 111 of the
Act make provisions for double taxation arrangements and reliefs arising
therefrom.

Section 111 makes provision for international arrangements for reciprocal

assistance between Ghana and other countries in the collection of taxes. The
Commissioner is empowered to collect any tax due and owing to another country
for onward transmission to that other country if he is so requested by a
competent authority of that country. Where a tax defaulter to the other country
fails to pay same the Commissioner can enforce the recovery of such tax as if it
were a tax due under the Act and laws of Ghana.

Under section 68 of the Act the chargeable income of income derived from
outside Ghana shall be reduced by any tax paid on the said income from that
foreign country. In the same measure a resident person is entitled to a tax
credit, referred to in the Act as foreign tax credit26 for any income tax paid in
respect of the income that is chargeable with tax in Ghana. Foreign tax credits
are calculated separately for taxable foreign income from each business,
employment, or investment. But this shall not exceed the average rate of
Ghanaian income tax27 of that person for the year of assessment. However,
where a taxpayer opts to relinquish his foreign tax credits he will not be entitled
to the deductions in section 68.
Generally the basic right of sovereign nations to impose taxes on extra-territorial
basis leads to conflicts between tax jurisdictions.

25
See Article 75 of the 1992 Constitution.
26
Taxable Foreign Income is defined in the Act as a person’s income from any business, employment or
investment accruing or derived from outside Ghana and included in the assessable income of that person.
27
Defined in section 68 (7) of the Act as “the percentage that the Ghanaian income tax payable by that
person for the year before any foreign tax credit is, is of the chargeable income of that person.

89
There are no rules of international law which forbid double taxation, but three
types of jurisdictional conflicts could arise from such taxation:
(a) Conflicts of personal and ad rem jurisdictions i. e the most common cause
of double taxation is the coincidence of the claim of the taxpayers country
of residence to tax his entire worldwide income with the claim of the
country of source to tax all forms of income arising within its territory.
(b) Conflict of resident rules i.e. where an individual may be regarded as
resident for tax purposes in more than one state and his income from
each state concerned as well as his income from all sources will be taxed
twice. Such conflicts result from diverging definitions of residence in
national and external tax laws.
(c) Conflicts of source rules i. e two or more states may regard certain
income as realized within their territories with the result that tax liability
arises from both countries. It is however generally agreed that the
country within which the income originates (country of source) is entitled
to tax the income. But the question is at what rate?

Preferential profits tax or differential net benefits or burdens will affect the
location of economic activity and tend to draw resources from their most
efficient uses. The problem is how to arrange the taxation of international
Investment income so as not to be a disincentive to investment. Double
Taxation Agreements should lead to efficiency of capital allocation on
worldwide basis i.e. international neutrality.

Some double taxation reliefs are unilateral and others are bilateral (by treaty)
and in time may even be multilateral. In unilateral double taxation reliefs two
principal measures for the avoidance of double taxation that are applied by
some capital exporting countries are :
(a) exemption of foreign income; and

90
 (b) allowance of foreign tax credit.
The former are used by scheduler system countries like France, which exempts
foreign income, of its corporations with permanent establishments abroad.
The credit system is used by global or unitary tax systems like the United States
of America, UK, Germany, Canada and Ghana, where credit is given for source
country tax against home country tax. The credit may be a direct one i. e taxes
imposed on a foreign investor or indirect i. e deemed paid foreign tax credit for
profit, taxes paid by subsidiaries of domestic corporations to the extent that such
profits are distributed. But note should be taken of the fact that under Ghanaian
tax law the Commissioner could determine that undistributed profits are deemed
to be distributed and taxed.

Other methods of double taxation reliefs include the following:

(a) Preferential rates, such as in Belgium where income realized from abroad
is taxed at a lower rate;
(b) Tax deferral, as in the USA, where tax is differed until profits are remitted
home;
(c) Investment allowance, where a percentage of capital invested is given as
a credit against tax;
(d) Reciprocal exemption provisions in the tax laws of various countries
exempting on mutual basis; and
(e) Deduction of foreign tax from income before tax is imposed.

Bilateral double taxation relief is accomplished by means of treaties, in which one

jurisdiction gives up claim to tax under certain categories of income or agree to
reduction of tax rate or both. A good example is the Ghana/ United Kingdom
double taxation agreement

Tax sparing is another method of double taxation relief in which most developed
countries give a tax credit to developing countries normally by way of a treaty,

91
not merely for taxes paid but also for taxes waived by the developing country to
encourage development.
NB! The Vienna Convention on Treaties is also a helpful guide in the
interpretation of international treaties regarding double taxation. See particularly
article 31 (1) of the Convention in full. See also the comments of the general
rapporteur of the Convention.
See SAUNDERS V. MNR
SEE ALSO STICKLE V. MNR [1972] 72 DTC 6.
IN THE SAUNDERS CASE THE COURT HELD THE VIEW THAT LIBERAL
APPROACH TO INTERPRETATION IS PREFERABLE SINCE IT IS IN THE
INTEREST OF THE INTERNATIONAL COMMUNITY TO DO SO.
SEE ALSO STUBAT INVESTMENT LTD V. R [1984] 84 DTC 6, @ 305.
All the above cited cases are to indicate the ambivalence of the Canadian court‟s
approach to interpretation.
See also US V. BURBANK [1975] 525 SECOND CIRCUIT OF THE CA. This follows
the broad approach to interpretation.
See also [1990] STC 285. This case is a recent one that seems to suggest the
trend in modern times.

[Note: This is work in progress and should not be cited]

LECTURE FIVE
IMPOSITION OF TAX ON CAPITAL GAINS AND GIFTS

CAPITAL GAINS TAX

We have earlier considered the important distinction between receipts that are of
a revenue nature and therefore fall within the legal regime of income tax and
receipts that are a return to capital and therefore outside the income tax regime.

92
Tax on capital gains fall under the latter category. This distinction was clearer
when income tax and capital gains tax were provided for under separate
statutes28. Under the current law both income tax and capital gains tax are
provided for in one statute albeit in different chapters29.

Capital gains tax was first introduced in Ghana in 1965 by Act 289. It was
repealed in 1967 by NLCD 197, re-introduced by NRCD 347 and amended in
1976 by SMCD 46. Currently capital gains tax has been provided for in Chapter 2
of Act 592. Capital gain with respect to the realization of a chargeable asset is
defined in section 104 of the Act to mean the amount computed in accordance
with section 98 of the Act. Therefore the definition of what amounts to capital
gain can be understood in relation to section 98 of the Act.

Under the old law (NRCD 347) it was defined as “profit not subject to tax under
the Income Tax Decree [SMCD 5] … and computed in accordance with the
Decree [NRCD 347]”. This definition was considered to be inadequate since it did
not relate the profit to capital i. e profit or gain of a capital nature. At the time
the general view was that note ought to have been taken of Lord Macnaughten‟s
dictum in London City Council v Attorney-General [supra], to the effect
that income tax was tax on income. Therefore capital gains tax ought to be a tax
on capital gain or profit.

Section 95 of the Act provides that capital gains tax is payable by a person at the
rate of 10% of capital gains accruing to or derived by that person from the
realization of a chargeable asset owned by that person unless it is exempted
under section 97 of the Act.

28
SMCD 5 of 1975 and NRCD 34 7 of 975as amended respectively.
29
Chapter 1 and chapter 2 of Act 592 respectively.

93
Realisation
Section 96 of the Act provides for a number of circumstances in which a
chargeable asset is held to have been realized:

- Parting with ownership of the asset through sale, exchange, surrender, or

distributed by the owner, or redeemed, destroyed or lost;
- Where a person begins to use the asset in a way that it ceases to be a
chargeable asset; and
- The owner was a resident which made the asset a chargeable later ceased
to be a resident.

However, a gift or disposals of shares during liquidation of a company are not a

realization of a chargeable asset.

Chargeable Assets
Section 97 of the Act provides for the type of assets that are considered to be
chargeable assets as follows:
- Buildings (permanent or temporary) situated in Ghana;
- Business and its assets, including goodwill of a Permanent Establishment
(PE) situated in Ghana;
- Land situated in Ghana;
- Shares of a Resident Company;
- Part of, or any right or interest in, to or over any of the above assets.
In addition the above assets of a resident person are chargeable assets if they
are not situated in Ghana but situated wherever. It is further provided in the
section that regulations made under section 114 can add to the above list of
chargeable assets. The following assets are however not considered to be
chargeable assets:
- Securities listed under the Ghana Stock Exchange during its 15 years of
existence;

94
 - Agricultural land situated in Ghana; and
- Trading Stock or Classes 1,2,3 and 4 depreciable assets.

Computation of Capital Gains Tax

Section 98 provides the basis for computing capital gains tax as follows:

The amount of a capital gain accruing to or derived by a person from the

realization of a chargeable asset owned by that person is the excess of
the consideration received by that person from the realization over the
cost base at the time of realization (emphasis mine).
The section can therefore be represented in by the following algebraic formula:

KG = CR- CB

Where,
KG is Capital Gains
CR is Consideration Received; and
CB is the Cost Base.

Section 99 of the Act defines the Cost Base of an Asset to include the following:
- Costs, including incidental cost such as costs of construction or production
incurred in acquiring ownership of the Asset;
- Costs in alteration and improvement of the asset between the date of
acquisition of the asset and the date of its realization; and
- Costs of realization.

Other factors that have to be taken into consideration in arriving at the Cost
Base include the following:

95
 - Where under chapter 1 (on income tax) of the Act a person in acquiring a
chargeable asset is treated as deriving an income, the additional income is
treated as additional cost in acquiring the asset equal to such income;
- In non-arms length transaction of acquiring an asset, the Cost Base of the
Asset is the market value of the Asset;
- Where an asset was initially not used as a chargeable asset and later
became a chargeable asset, the Cost of acquiring the Asset is its Market
Value as at the date it became a chargeable asset;
- Where the assets of a Non-Resident person were not chargeable assets
but became chargeable when the person becomes a resident person, the
cost of acquiring the asset is the Market Value of the asset at the date
such a person became resident;
- Where a Capital gain is exempt from tax under section 101 of the Act, a
person who acquires ownership of the asset, the cost of acquiring the
asset is the Cost Base of the asset as at the time of its realization; and
- If part of an asset is realized, the Cost Base of the asset is an
apportionment between the part retained and the part realized in respect
of their Market Values at the time of realization, but the cost incurred in
the realization shall not be so apportioned.

Consideration Received

In the old law, the amount received as consideration in the realization of a

chargeable asset was referred to as the realized sum. Under section 98 of the
Act the amount is referred to as consideration received or receivable.
Consideration received or receivable is defined in section 100 of the Act to
include:

- The sum of all amounts received or receivable by that person or associate

of that person in the realization of a chargeable asset;

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 - Where a chargeable asset is transferred to an Associate or in a non-arms
length transaction, the consideration received is equal to the Market Value
of the Asset at the time of realization;
- A resident person who becomes a Non-Resident person and therefore is
treated as realizing a chargeable asset under section 96 (c), consideration
received is the Market Value of the asset at the time; and
- Where a chargeable asset and non-chargeable assets are realized in a
single transaction and consideration for each asset is not specified, the
total consideration received is apportioned to their Market Values at time
of transaction.

Under section 104, amounts received or receivable is defined as money or the

market value of the property received or to be received in respect of the
realization. Cost incurred in acquiring ownership of the asset means money paid
and the market value of a given property. Owner with respect to a chargeable
asset means:
- In the case of an asset held by a partnership, the partners; and
- In the case of an asset held by a company or body of persons, that
company or that body only.

Under section 101 0f the Act, a number of capital gains in the realization of
capital assets are exempted from tax. These include:

- Gains of up to 50 currency points;

- Mergers, amalgamations, re-organisation of a company where there is still
25% ownership of the asset;
- Transfers to a spouse, child, parent, brother, sister, aunt, uncle, nephew
or niece;
- Transfer between former spouses as settlement or as part of a separation
agreement;

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 - Capital realized and consideration received used in acquiring the same
asset within a year (replacement asset); and
- Where part of Consideration received is used to acquire the replacement
asset the part used is exempt.
However, the Commissioner can extend the one year requirement for a
replacement asset if the circumstances for such an extension are reasonable.

Procedure Relating to Capital Gains Tax

Under section 102 of the Act, a person to whom accrues or derives a capital gain
from the realization of a chargeable asset, shall within 30 days furnish the
Commissioner with a written return containing the following information:
- Description and location of the chargeable asset;
- The Cost Base of the asset immediately prior to realization and how that
Cost Base is calculated;
- The Consideration Received by that person from the realization;
- The amount of capital gain and tax payable with respect to that capital
gain and tax;
- The full name and address of the new owner of the asset; and
- Other information prescribed by regulations made under section 114 of
the Act.
Where a person brings into Ghana or receives a capital gain from the realization
of chargeable assets situated elsewhere as provided in section 97 (1) (b) of the
Act he shall furnish the Commissioner with the following information:

- Amount of capital gain brought into or received in Ghana and tax payable
with respect to that amount; and
- Any other information prescribed by regulations made under section 114
of the Act.
However, capital gains tax does not apply to gains accruing in or brought into
Ghana if such gains in total do not exceed 50 currency points.

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Any returns that are made in respect of capital gains shall be accompanied with
the amount of tax as computed and payment of same is due at that date.
The Commissioner has discretion to take into consideration any other available
information together with the returns filed and make an assessment on the
amount of capital gain of that person and tax same. And such tax is payable
within one year from the date the return was filed. Where a return is made
under section 78 of the Act (self assessment) such assessment is deemed to be
an assessment by the Commissioner and such self assessed tax is payable. Rules
of furnishing returns under section 72 and additional assessment under section
79 of the Act applies with such modifications as are necessary and consistent
with returns filed under section 102.

GIFT TAX
Under Section 105 gift tax is payable by a person on the total value of taxable
gifts received by that person by way of gift within the year. And such tax shall be
calculated in accordance with the Fourth Schedule to the Act. Under the Fourth
Schedule, a gift not exceeding ¢500, 000.00 attracts a nil tax rate while gifts
exceeding ¢500, 000.00 attract a tax rate of 10% of excess over the ¢500,
000.00.

However, the total value of the gift does not include gifts received:

- by that person under a will or upon intestacy;

- by that person from that person‟s spouse, child, parent, aunt, uncle,
nephew, or niece;
- by a religious body which uses the gift for the benefit of the public or a
section of the public; or
- for charitable or educational purposes.

Under section 106 of the Act, a taxable gift means any of the following:

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 - Buildings of a permanent or temporary nature;
- Land;
- Shares, bonds, and other securities;
- Money, including foreign currency;
- Business and business assets; and
- Part of, or any right or interest in, to, or over any of the above assets.
Section 107 of the Act provides that the value of a taxable gift is the Market
Value of the gift at the time of the receipt.

Under section 108, a person who receives a taxable gift, shall within 30 days of
receipt furnish the Commissioner with the following information:

- The description and location of the taxable gift;

- The total value of the gift, how it is calculated and tax payable with
respect to the gift;
- The full name and address of the donor of the gift; and
- Any other information required by the Commissioner.
Gifts, the value of which does not exceed 50 currency points, are exempted from
tax. Where a person is required to furnish returns on gifts received, that person
shall remit to the Commissioner the amount of tax calculated as payable and
such payment is due at that time.

And such tax is payable within one year from the date the return was filed.
Where a return is made under section 78 of the Act (self assessment) such
assessment is deemed to be an assessment by the Commissioner and such self
assessed tax is payable. Rules of furnishing returns under section 72 and
additional assessment under section 79 of the Act applies with such modifications
as are necessary and consistent with returns filed under section 108.

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 Dr. Benjamin Kunbuor
Lecturer

LECTURE SIX

TAX AVOIDANCE AND TAX EVASION

Resistance to tax is of two main kinds. These are tax evasion and tax avoidance.
The general view is that tax evasion involves illegality and judges have always
abhorred it, while tax avoidance on the other hand to use the words of Professor
Quitcroft, is “the act of dodging tax without breaking the law”30. This position is
tenable only in situations were there are no anti- tax avoidance legislation. In

30
[1955 18 MLR 209.

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recent times most jurisdictions have anti-avoidance legislation of one kind or the
other and a breach of the provisions of such anti-avoidance legislation amounts
to illegal conduct. Section 112 of the Act defines tax avoidance schemes to
include “an arrangement, one of the main purposes of which is the avoidance or
reduction of liability to tax”.

Lord Norman has warned on tax avoidance in Vestry‟s Executors v IRC [1949] 31
TC 1 at 90 in the following words:

Tax avoidance is evil but it will be greater evil if the courts were to stretch
the language of the statute in other to subject to taxation people whom
they disapprove.
There has therefore been a lot of controversy over the limits of legitimacy of tax
avoidance since it is an admitted evil.

Approaches to Tax Avoidance

There are three main approaches by the courts to tax avoidance schemes. These
include:

(1) The traditional approach,

(2) The Modern approach, and
(3) The doctrine of Form and Substance.

The Traditional Approach

This approach was echoed by Lord Cains in Pattington v Attorney-General [1969]
LR 4 HL 100 at 122 in the following words:

As I understand the principle of fiscal legislation it is this- if the person

sought to be taxed comes within the letter of the law he must be taxed
however great the hardship may appear to the judicial mind to be, on the

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 other hand if the Crown seeking to recover the tax cannot bring the
subject within the letter of the law the subject must be free however
apparently within the spirit of the law the case might otherwise appear to
be.

Spirit vrs Letter of the Law

In the Classic expression of Rollatt J. a masterly revenue lawyer he said in Cape
Brandy Syndicate v IRC (supra):

In the taxing Act one has to look at what is clearly said. There is no room
for intendment; there is no equity about tax. There is no presumption as
to tax. Nothing is to be read in, nothing is to be implied, one can only look
fairly at the language used.

In Ayshire Pullman Motors Services v IRC [1929] 14 TC 754 at 763 case Lord
Clyde L.P declared that:

No man in this country is under the smallest obligation, moral or other so

as to arrange his legal relations to his business or property so as to enable
the Inland Revenue to put the largest possible shovel into his stalls.
Lord Tomlin sealed it all in IRC v Duke of Westminster [1936] AC 1 at 19 as
follows:

Everyman is entitled if he can, to order his affairs so that the tax attaching
under the appropriate Act is less than it otherwise would be. If he
succeeds in ordering them so as to secure this result then however
unappreciative the Commissioner of Inland Revenue or his fellow
taxpayers may be of his ingenuity he cannot be compelled to pay an
increased tax.

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In contrast to the above position, the advent of the Second World War caused
judicial sympathy to shift dramatically from the taxpayer to fiscal policy
considerations. In 1941 Lord Greene MR issued a stern warning to would be tax
avoiders in the following words:

For years a battle of maneuver has been waged between the legislature
and those who are minded to throw the burden of taxation off their own
shoulders onto those of their fellow subjects. In that battle the legislature
has often been wasted by skill, determination and resourcefulness of its
opponents of whom the present appellants has not been the least
successful. It would not shock us in the least that the legislature is
determined to put an end to the struggle by imposing the severest of
penalties. It scarcely lies in the mouth of the taxpayer who plays with fire
to complain with finger burns.

Modern Approach

It is the post wartime approach in British Courts. After the War the pendulum
swung back- there was a shift back, there was a boom in the tax avoidance
industry and a whole host of tax avoidance transactions of varying degrees of
complexity were carried out. Lord Denning was an outstanding exponent of the
anti-avoidance campaign. In Griffith v J. P Harrison (Watford) Ltd. [1963] AC 1,
Lord Denning delivered a portentous dissenting judgment describing tax avoiders
as:

Prospectors digging for wealth in the subterranean passages of the

revenue, searching for tax repayments.

Despite Lord Denning‟s description there appears to be an unceasing judicial

hostility to the tax avoider. In recent years, the reversal of the Court of Appeal

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decision in Ransom v Higgis [1974] 3 All ER 949 may mark the turning point of
the judicial tide to legal tax avoidance. The tenor of their Lordship‟s judgment in
this case appears to herald a more even handed attitude for the future.

It may be hard [said Lord Simmonds of Glaisdale expressing the real

feelings of the entire House] that a cunningly advised taxpayer should be
able to avoid what appears to be his inevitable share of the general fiscal
burden, and cast it on the shoulders of felloe citizens. But for the courts to
stretch the law to meet hard cases is not merely to make bad law, but run
the risk of subverting the rule of law itself.

Whose Jobs is it to fill the gap

Lord Denning restated his position on tax avoidance more effectively in Seaford
Court Estates v Agher [1949] 2 … 151 as follows:

When a defect appears a judge cannot simply fold his arm and blame the
Draftsman. He must set to work on the constructive task of finding the
intention of parliament and must do this not only from the language of the
statute but also from considerations of special conditions which gave rise
to it, and the mischief with which it was passed to remedy … A judge
must ask himself how if the makers of the Act have themselves come
across the suck of the texture of it, they would not straighten? He then do
as they would have done. The judge must not alter the material of the Act
it is woven with, but he can and should iron out these greases.

Lord Denning reiterated the above position in Magor & St. Mellons RDC V
Newport [1951] only to be taken to task on appeal by a unanimous decision of
the House of Lords in which Lord Simmonds described the Denning approach as

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“a naked usurpation of the legislative function. If a gap is disclosed the remedy
lies in amending the law”.

The Doctrine of Form and Substance

Before a taxing statute can be applied in relation to any given transaction the
revenue or court must first ascertain the effect of the transaction as between the
parties‟ i. e the rights and obligations created by the transaction, must first be
determined in accordance with the general principles of law. An important case
to illustrate this point is IRC V Duke of Westminster [1936] AC 1 at 19. The facts
of the case are that the Duke had executed a series of seven-year deeds of
covenant in favour of his employees, under which the employees received the
same amount they would have received as wages and salaries whilst receiving
payment under the deed. The rational of the scheme was to mitigate the Duke‟s
liability to surtax. The covenanted payment would run as annual payment and as
such could be deducted from the Duke‟s total income for the purpose. The
Revenue contented that although the transaction was in the form of a grant of
an annuity or annual payment, in substance, the transaction was an agreement
by the employee to continue in his service at his normal salary. The Court of
Appeal and the House of Lords rejected the Revenue‟s contention that the
payment were in substance remuneration for services rendered to the Duke.

Lord Tomley stated the position as follows:

It is said that in revenue cases there is the doctrine that the courts may
ignore the legal position and regard what is called the subset of the
matter and that here the sub-set of the matter is that the annuitant was
serving the Duke for something equal to his former salary or wages and
that therefore while he is serving, the annuity must be treated as salary or
wages. This suppose doctrine seem to rest its support on the
misunderstanding of the language used in the earlier cases. The sooner
this misunderstanding is dispelled and the doctrine given its quietus the

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 better it will be for all concerned … The so called doctrine of substance
seems to me to be nothing more than an attempt to make a man pay
notwithstanding that he has so ordered his affairs that the amount of tax
sought from him is not legally claimable.
The Duke‟s case, however, did not destroy the doctrine of substance altogether
but broadly refuted the allegation that judges should fill the gap. A number of
settled rules crystallized collectively became the modern version of the doctrine.

Rule 1
Descriptions attached to a transaction by the parties to it are not decisive of its
true nature as in Secretary of State in Council for India v Seoble [1903] AC 209,
in which installment payments were described as a annuity but was held that it
would not determine the rate of the payment for tax purposes.

Rule 2
Rights and liabilities created by sham transactions are utterly disregarded, as in
Johnson v Jewith [1961] 40 TC 231, in which a flagrant attempt to create an
artificial loss was rejected by the Court of Appeal as a cheap exercise of “fiscal
conjuring and bookkeeping fantancy” per Donovan LJ. This rule is in accord with
section 112 of Ghana‟s Act 592.
*See also section 69, 70, 71 of Act 592. NB! Sections 112 provides the general
anti-avoidance rule while section 69-71 deal with the specific aspects of tax
avoidance that have become recurrent.

Rule 3
Whilst rights and liabilities created by genuine transactions cannot be
disregarded, the surrounding circumstances are used in determining those rights
and liabilities31. Yet Lord Denning and other judges in the United Kingdom have
stood by the doctrine of substance that substance prevails over form. There are

31
See IRC V Horrocks [1968] 3 All ER 296; Saighason v Roberts [1969] 45 TC 612.

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recent developments on the doctrine that suggests a redefinition of aspects of
it32.

Anti-Tax Avoidance Legislation

Lord Morton once described the struggle between parliament and the taxpayer‟s
advisers as undignified game of chess:

Parliament imposes a charge; the adviser finds a way to avoid it.

Parliament enacts anti-avoidance legislation, advisers‟ device a more
elaborate avoidance as in Chapman v Chapman [1942] AC 429 at 468 per
Lord Morton.

The debate is still on as to whether anti-avoidance legislation are not

pregnant with the danger of affecting innocent bystanders as well as
intended victims. And that in some cases it might disrupt the business
plans of bona fide taxpayers. Yet Countries like Canada, Australia, and
South Africa are known to have elaborate anti-tax avoidance legislation
against schemes designed to secure tax avoidance. Due to the relatively
low standard of tax administration and lowly motivated and inefficient
staff, Ghana cannot at the present afford detailed regulations on tax
avoidance. There are however some improvements in Act 592 on anti-tax
avoidance, as was previously the case under SMCD 5. These provisions
can be found in sections 112, 69 to 71 relating to general provisions
against tax avoidance and specific rules on income splitting, transfer
pricing and thin capitalization.

Section 112 of the Act makes a general provision rule as a guide to anti-
avoidance as follows:

32
See Crave v White; IRC V Bowater Property Dev. Ltd.; Baylis v Gregory [1988] 3 WLR 423 HL.;
Piggot v Staines Investment Ltd. [1995] STC.

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 112 (1) For the purpose of determining liability to tax under this
Act, the Commissioner may re-characterise or disregard an
arrangement or part of an arrangement that is entered into or
carried out as part of a tax avoidance scheme which is,
(a) fictitious or does not have a substantial economic effect,
or
(b) The form of which does not reflect its substance
(emphasis mine).

Income Splitting
Under section 69 of the Act, where a person attempts to split income with
another person, the Commissioner has a discretion to adjust the
chargeable income of both persons to prevent a reduction in their tax
position as a result of splitting their income. A person is treated as having
attempted to split an income if:
- he transfers income, directly or indirectly, to an associate, or
- Transfers property, including money, directly or indirectly, to an
associate with the result that the associate receives or enjoys the
income from that property.
In either of the above cases the reason or one of the reasons for the
transfer is the lowering of the total tax payable upon the income of that
person and the associate. The value given by the associate for the
transfer is an important consideration in determining whether there is
income splitting or not. Transfers to an associate through the interposition
of one or more entities are considered as an indirect transfer.

Transfer Pricing
For a proper appreciation of transfer pricing one has to understand the
nature of the arrangements vis-à-vis the particular legal rules involved.

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And this goes for both domestic and international business transactions.
First it has to be understood that a transfer or company price is a price set
by a taxpayer when selling to, or buying from, or sharing resources with a
related person (for the purpose of Ghana tax law an associate).

For example, if Company P manufactures goods in country A and sells

them to its foreign affiliate, F, organized in Country B, the price at which
that sale takes place is called a transfer price. A transfer price is normally
contrasted with a market price, which is the price set in the market place
for transfer of goods and services between unrelated persons.

Second, unless prevented from doing so by anti-avoidance legislation,

related persons engaged in such transactions can avoid income tax
through their manipulation of the transfer prices. For example, in the
example above, company P might avoid paying tax in Country A by
setting a price on the sale of its manufactured goods to F that results in
earning little or no profit. Therefore in a well-designed income tax system,
the tax authorities should have the power to adjust in appropriate cases
the transfer prices set by the related persons.

Under section 70 of the Act the Commissioner has the power, in

transactions between associates, to distribute, apportion or allocate
inclusions in income deductions, credits and personal reliefs between
them to reflect their chargeable incomes or tax payable by them if their
transaction were conducted at arms length (not between associates). This
is more the case in transactions between an Associated Resident Entity of
a Non-Resident Entity through income splitting.

In the case of a Permanent Establishment (PE) of a Non-Resident person,

if the CIT is not satisfied with its return filed under section 72 of the Act,

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she can adjust the income of the PE so that it reflects the following
amounts:
- Total Consolidated income of the Non-Resident and all associates of
that Non-Resident except individuals irrespective of residence;
- Take into account the proportion which the Turn Over (T/O) of the
PE bears to the total consolidated T/O of the Non-Resident and
those associates; and
- Take into account any other relevant considerations in determining
the proportion of the total consolidated income which should be
attributed to the PE.
The CIT is however enjoined to re-characterize the source of income and
the nature of any payment or loss as revenue, capital or otherwise.

Thin Capitalisation
Investments are normally financed through the capital assets of a
company (equity) or through borrowing (debt). In most cases investments
are financed through a mix of both debt and equity. The quantum of debt:
Equity ratios in investments have a number of implications for tax
purposes. In normal corporate transactions interest is paid on any debt
incurred while a dividend is a return paid to equity shareholders. In Ghana
as in most other jurisdictions interest paid on a debt incurred for
producing an income is an allowable deduction, while dividend paid to a
shareholder is a taxable income. In addition, the company pays a
corporate tax just as its individual shareholders pay tax on their earnings
as dividends.

Therefore when you finance an investment through equity you are

exposed to many more levels of taxes than if the investment were
financed through debt (such as a loan). In the latter case you are entitled
to a deduction of the interest paid from your income on the loan. In the

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context of Ghana tax law (as the hypothetical table below shows),
financing a resident company with debt is considerably more effective in
reducing the source country tax than financing with equity. The major
reasons being that interest is an allowable deduction, where as dividends
are not deductible. In addition a resident company can repay a loan
(redeem shares or reduce capital) at any time without triggering tax,
whereas a company may not be able to repay equity investments without
triggering a taxable dividend.

The table below illustrates the point:

Debt Equity
Corporate income before payment
Of interests and dividends 100 100

Deductions of interest 100 nil

Taxable income nil 100

Corporate Tax (20%) nil 20

Dividend nil 40

Total Tax nil 20

Therefore most companies, to avoid tax, prefer a higher debt to equity

arrangement in business financing. Several countries including Ghana
have developed thin capitalization rules as a response to the bias in favour
of debt compared with equity. Under these rules, the deduction for
interest paid by a resident company is denied to the extent that the
company is financed excessively by debt.

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 Under section 71 of the Ghana Revenue Act, an Exempt-Controlled
Resident Entity (which is not a financial institution), which has an Exempt
debt-to-exempt equity ratio in excess of 2:1, will not be allowed a
deduction for any interest paid or any foreign exchange loss incurred by
that entity on the part of the debt or loss otherwise deductible.

An Exempt-Controlled Resident Entity is defined by the Act to mean a

Resident Entity in which an Exempt person holds 50% or more of
underlying ownership or control. The Act further defines an exempt
person to include:
- Non-Resident, and
- Resident person for whom interest paid to that exempt person by
an Exempt-Controlled Resident Entity (ECRE) or for whom any
foreign exchange gain realized with respect to debt claim against a
ECRE:
(a) is exempt income or
(b) Not included in ascertaining the exempt persons Annual
Income.

Underlying ownership is defined in section 166 of the Act in relation:

(a) An entity, as an interest held in or over the entity directly or indirectly
through one or more interposed entities by an individual or by an entity
not ultimately owned by individuals; or
(b) To an asset owned by an entity, is determined as though the asset is
owned by the persons having underlying ownership of the entity in
proportion to that ownership of the entity.

Tax Evasion
Since tax evasion is by its very nature an illegal act a number of provisions are
provided in Part III of Division II of subdivisions B and C for interest, penalties

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and offences as a deterrent to tax evasion. These constitute part of the
administrative mechanisms for ensuring compliance with ax laws.

Failure to comply with certain provisions of the Act attracts penalties and
interest. Notable provisions are sections 141 to 146 as follows:

- Failure to maintain records under section 122 attracts a penalty of

5% of the tax payable;
- Failure to furnish a return within the time required attracts an
interest of the Bank of Ghana rediscount rate plus 5% of amount of
unpaid tax;
- Failure to pay tax on the due date;
- Understating or underestimated tax payable by installment;
- Making false or misleading statements; and
- Aiding and abetting respectively.
Under section 147 of the Act the CIT has the power of assessment of the amount
of interest and penalties that are payable.

Sections 148 to 154 make provisions for offences by individual taxpayers and
Entities. These offences include:

- Failure to comply with the provisions of the Act (Act 592);

- Failure to pay tax;
- Making false or misleading statements;
- Impeding Tax Administration;
- Offences by authorized and unauthorized persons;
- Aiding and Abetting; and
- Criminal liabilities of tax entities.
Provision is made in the Act in section 155 giving the CIT the power to
compound an offence, except offences under section 152 committed by

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authorized and unauthorized person to facilitate tax evasion. A offence is
compounded where the CIT permits the offender to pay an amount not
exceeding the amount of fine specified by the offence in lieu of prosecution.

Tax Clearance Certificate

A tax clearance certificate is one of the mechanisms by which tax evasion is
prevented. The possession and production (if required) of the said certificate is a
prerequisite for a number of important business transactions. Section 118 (7)
defines a tax clearance certificate as a certificate issued by the CIT to a person
stating that no tax is due under this Act by that person in respect of the periods
stated in the certificate or that that person has made arrangements satisfactory
to the CIT for payment of the tax.

Section 118 of the Act provides for a number of situations in which a tax
clearance certificate is required:

(a) An alien who has been resident in Ghana or has a tax liability due under
the Act or has income which accrued in or is derived in Ghana chargeable
to tax is not permitted to depart from Ghana unless he produces a tax
clearance certificate to the Immigration Officer at the port of departure;
(b) The Commissioner of Customs, Excise and Preventive Service (CEPS) shall
not permit any importer or any other person to clear goods in commercial
quantities or used for commercial purposes from any port or factory if the
person fails to produce a tax clearance certificate; and
(c) Any authority or person empowered by law to register a document
conferring a title to land shall not effect that registration unless the
person registering the title produces a tax clearance certificate issued in
that year of assessment.

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There are similar provisions made in other enactments such as the production of
a tax clearance certificate before one is eligible to register to contest presidential
and parliamentary elections.

Dr. Benjamin Kunbuor

Lecturer

LECTURE SEVEN

TAX ADMINISTRATION
Tax administration has been described by Professor Shoup as the key to tax
policy. Generally a tax administrator sets as his goals the efficient assessment,
collection and enforcement of taxes legally due, without undue cost to the

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government or the taxpayer in terms of money, time or convenience. The
objectives necessary to achieve these goals are:

(a) To facilitate and encourage voluntary compliance with the

requirement of the tax laws;
(b) To deter tax evasion and avoidance;
(c) To maintain public confidence in the integrity of the tax system; and
(d) To administer tax legislation fairly, uniformly and impartially as well as
with diligence, courtesy and efficiency.

Administrative Authority
The Internal Revenue Service Law, 1986 (PNDCL 143) sets up the Internal
Revenue Service (IRS), which converted the former Central Revenue Department
into a statutory body and an agency of the government. The Law establishes the
Internal Revenue Board as its governing body with a mandate to enforce and
collect taxes. The functions of the Board are specified in section 4 of the Law.
Section 9 of the law makes the Commissioner of Income Tax (CIT) responsible
for the day to day running of the Administration of the Service. And Section 10
creates the post of three Deputy Commissioners with specific functions.

The position of the CIT as the administrative head of the Service has been
reiterated in section 113 of Act 592 of 2000. Of particular relevance to tax
administration is the power of the CIT to by notice in the Gazette or in writing
authorizes any person in or outside Ghana to perform or to assist in the
performance of a function imposed upon him by the Act. However, the CIT
cannot delegate the power under:
(a) Section 2 (4) to direct that appropriate taxes be paid on the
capitalization of profits and the CIT‟s discretionary powers on
undistributed company profits under section 45 (2) of the Act;

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 (b) Section 84 (2) exempting a person from withholding tax on the
payment of goods and services to resident persons;
(c) Section 155 to compound an offence;
(d) Section 158 remits any penalties.

However the CIT has a power to delegate his power in limited areas to specified
officers of the Service above or on the rank of a Senior Inspector of Taxes (SIT):
- The power to extend the date for the payment of or vary the
amount of installments under section 80 of the Act;
- General powers except those specifically exempted under
section 113 (4);
- Authorization of an officer under sections 124 and 125 on
access to books, records or computers and notice to produce
information or evidence respectively.

Procedure in Tax Administration

Procedures in tax administration generally commences with the filing of returns
to the CIT. Section 72 (subject to section 73) of the Act requires every person
chargeable with tax to deliver a return of his income for the year of assessment
not later than 4 months after the end of the basis period of that person to the
CIT on Income Tax Form No. 21 (I.T 21).

The return shall contain a declaration that the return is complete and accurate
and shall be signed by the person making it. The return shall be furnished
together with a separate income and expenditure statement, a statement of
assets and liabilities for each business undertaking carried on within that
business by the person.

Where the return is prepared by a person for remuneration (lawyer, accountant

etc) or any of the accompanying documents such as expenditure and income

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statements, balance sheets and other relevant documents, such person shall sign
the return certifying the following:
- That the books of account and other relevant documents have
been examined, and
- To the best of the Examiner‟s knowledge, the return or
document correctly reflects the data and transactions it relates
to.
- Where such an Examiner refuses to sign the said return and
certify same he must indicate in writing the reasons for such a
refusal.

The CIT has the discretion to require a return to be furnished even before the
end of the basis period of a person. This would be the case where:
- A person dies,
- A person Becomes bankrupt, is wound up or goes into
liquidation,
- A person is about to leave Ghana indefinitely,
- A person is otherwise about to cease activity in Ghana, or
- Where the CIT considers it appropriate to do so.

The CIT can direct by a notice in writing that such a person furnishes the return
in person or by his trustee by a specified date. Where such a person fails to
furnish the return as directed the CIT can direct any person to furnish the return
and it will be deemed to have been furnished by the person originally required to
furnish same. The CIT is at liberty to request that a person who furnishes a
return should provide fuller and further return of income in issue.

Except the CIT by notice in writing requests that a return be filed, the following
categories of persons are not required to file a return:

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 - A non-resident person who has no income accruing in or
derived from Ghana or where is such a person or has paid
withholding tax under section 85 of the Act,
- A resident individual whose sole income is from an employment
and tax has been withheld under section 81 (7) or has no
chargeable income for the year or his chargeable income
attracts a nil tax rate under the Act.

A person required to furnish tax under section 72 of the Act may apply to the
CIT for an extension of time on the due date for furnishing such return. Where
the CIT is satisfied that the inability to furnish the return was due to absence
from Ghana, sickness, or other reasonable cause the said extension may be
granted for a period not exceeding two months. Where a person is dissatisfied
with the CIT‟s decision to grant an extension of time to furnish a return, he can
challenge the decision under the objection and appeal procedure provided in the
Act. The granting of an extension by the CIT does not alter the due date as
provided under section 134 of the Act.

Assessment to Tax

Provisional Assessment
Even though section 72 of the Act requires every person chargeable to tax to file
a return of his income, section 76 of the Act empowers the CIT to proceed after
each year of assessment to make a provisional assessment, computed to the
best of his judgment33 on a person chargeable with tax. Thus the CIT can assess
a person on the basis of a presumptive income without waiting for him to submit
a return of his actual income. A provisional assessment does not affect the
liability of a person for a neglect or failure to file a return.

33
The phrase best judgment has been defined in section 167 of the Act in relation to the assessment of a
chargeable income by the CIT as the discretion of the CIT to make an assessment in the absence of returns
or in cases where returns are incomplete or are rejected by the CIT.

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Where the CIT makes a provisional assessment it shall be served on the person
stating the following information:

- Estimated chargeable income,

- Estimated tax payable,
- Amount and timing of tax instalments to be paid in accordance
with section 80 of the Act, and
- Time place, and manner of objecting to the assessment.

In addition, the CIT has the power to make a provisional assessment of tax of
any person he believes or is of the opinion has not been assessed to tax, within
the year and from time to time as may be necessary based on his best
judgment. In the latter situation all rules and procedures such as notices,
objections shall apply to such an assessment.

Final Assessment
Subject to section 78 (on self assessment) the CIT on receiving a return that has
been filed by any person shall proceed to make a final assessment of the tax
payable. In addition, where a person defaults to file a return or has filed a return
the CIT is not satisfied with it, he can proceed to make a final assessment of the
tax payable based on his best judgment. However, the CIT must include in the
notice of assessment the reasons why he is not satisfied with the return. Further,
if any of the circumstances mentioned in section 72 (7) of the Act (death,
departure from Ghana etc.) occurs, the CIT can proceed to make a final
assessment of the tax payable for the year during which the basis period ends.

Where a final assessment has been made by the CIT he shall serve a notice of
assessment on the person stating the following:
(a) The amount of chargeable income,

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 (b) The amount of tax payable,
(c) The amount of tax paid if any, and
(d) The time, place and manner of objecting to the assessment
Self Assessment
Unlike in previous tax legislation in Ghana, provision is now made in a limited
number of cases for self assessment to tax. For a person to qualify for self
assessment his name has to be published in a notice in the Gazette or in the
print media by the CIT for the particular year of assessment. Persons who pay
tax by instalment under section 80 of the Act must furnish estimate of their
chargeable income and in respect of the tax to be paid. The said estimate must
be in a form prescribed by the CIT. The estimate so furnished shall remain for
the whole basis period unless it is subsequently revised by the taxpayer with
reasons assigned for the revision.

Additional Assessment
Section 79 empowers the CIT to make additional assessment within three years
after an assessment and after a notice of assessment has been served on a
person. The situation of an additional assessment can arise because, in the
opinion of the CIT the person has been under-assessed due to fraud, gross or
willful neglect by, or on behalf of, a person or the discovery of new information
in relation to the tax payable for any year of assessment. However the CIT
cannot make an additional assessment amending a previous assessment if the
previous amendment has been amended pursuant to an order of the High Court,
unless such an order was obtained by fraud. An additional assessment operates
as an assessment under the Act.

Service of Notices
Section 120 of the Act provides various situations in which service of notices and
other documents on a person under the Act should be made. In the case of:

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 (a) A person being resident or a resident individual in Ghana, other than in a
representative capacity is considered sufficiently served:
- If he is personally served,
- If notice is left at the person‟s usual or last known place of
abode, office, or place of business in Ghana, or sent by
registered post to that place of abode, office, or place of
business, or that person‟s usual or last known address in Ghana,
or
(b) Any other person is considered sufficiently served if the notice-
- Is left at or sent by registered post to the registered office of
that person or that person‟s address for service of notices under
the Act,
- where there is no such office or address, it is personally served
on or sent by registered post to the usual or last known
business or private address of a nominated officer of that
person or,
- Where there is such office or address, it is left at or sent by
registered post to the usual or last known business, office or
other address of that person.

Where a notice or other document is served by registered post it shall be treated

as served on the day after the day on which the addressee of the registered
letter containing the notice would be informed in the ordinary course that the
letter is available. A notice or other document issued or served is considered
properly authenticated if the name or the title of the CIT, or authorized officer, is
signed or written on the notice or document.

For purposes of service of notices or other documents under the Act, a

nominated officer means:
(a) In the case of a partnership, a partner or manager of the partnership;

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 (b) In the case of a company, a director or manager of the company; and
(c) In the case of a body of persons, manager of the body.
For purposes of service of a notice or other document under the Act a person
includes a partnership.

From the wording of section 120 it would seem that there is no distinction
between the service of notices and other documents as against service
specifically of a notice of assessment as in previous legislation. Under section 41
of SMCD 5 of 1975, notice of assessment was required to be served either
personally on the taxpayer or by registered post. However under section 75 of
the repealed decree provision was made for service of other documents other
than notice of assessment by ordinary mail or on adult inmates within premises.

The important issue on service of notices is to bring the contents contained

therein to the knowledge of the taxpayer as the cases below depict. In A. C
Arghrou v CIT TR. 1/67, 6th December 1974 (unreported). The appellant
challenged the validity of a number of additional assessments and further
contended that he was not duly served with a notice of refusal to amend the
additional assessment, because the notice of refusal was discovered in an
envelop under a flower pot in his garden after it had been given to a Cook-
Steward of his neighbours. The Court per Justice J. H Griffiths-Randolph sitting
as Tax Commissioner held that:

Indubitably, the object of serving a Notice of Refusal on a taxpayer is to

make him aware of the confirmation by the Commissioner of Income Tax
of the assessment to which he has objected, so that if he still thinks it is
excessive or unreasonable he can appeal against it in a manner provided
in the N.L.C.D 78, otherwise in time the assessment will become final and
conclusive and he will be liable to pay the amount due on the assessment.

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Also in CIT v. A (Case No. 27 1965, Kenya Civil Suit- Nairobi No. 526), where a
demand notice for payment of tax was sent by registered post and was returned
unclaimed. The taxpayer argued that he was not served, though the CIT had a
receipt of the registration of the postage of the demand notice. It was held that
he was deemed to have been properly served since he gave his address to the
CIT and the Post Office has issued slips to the taxpayer. As Connell J. observed:

A notice served by registered post shall be deemed to have been served

not later the seventh day succeeding the day on which the notice would
have been received in the ordinary course of post. The envelope contains
a number of dates on the back and one can surely take judicial notice of
the facts that on these dates reminder slips must have been sent to the
defendant.

In Michael Dane v CIT (1969) HC Cape Coast (unreported), the government

issued a statement that no foreigner should do diamond business. The Taxpayers
were at Akim Oda where the Diamond Board had a list with names of persons
who sold diamond to the Board were entered, which included the name of the
taxpayer. He was therefore assessed to tax and the notice was served on him by
registered post. The taxpayer objected that he was not served and the receipt of
the slip was produced and his objection was struck out.

Objections and Appeals

Section 128 of the Act provides that a person who is dissatisfied with an
assessment made under the Act may lodge an objection to the assessment with
the CIT within 30 days of the service of the notice of assessment on him. And in
the case of a provisional assessment 9 months of the commencement of the
basis period to which the assessment relates.

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An objection to an assessment should be in writing to the CIT to review and
revise the assessment in which the grounds for the objection shall be stated
precisely. The CIT has discretion, on an application made by the objector in
writing to extent the time for lodging the objection if he is satisfied the delay in
lodging the objection was due to absence from Ghana, sickness or any
reasonable cause. After determining the objection the CIT may allow the
objection in whole or in part and amend the assessment accordingly or disallow
it as the case may be.

As soon as is practicable after the CIT has made his decision on the objection he
shall serve the objector with a notice of his decision. But where the CIT has not
made any decision within 90 days after the objection was lodged, the objector
can elect by notice in writing to treat the objection as disallowed. The objector‟s
election will therefore be treated as a notice of the decision of the CIT to disallow
the objection with effect from the date the notice of election is lodged with the
CIT.
Provision is made in section 129 of the Act for an appeal to the High Court by a
person who is dissatisfied with an objection decision. The appeal is by means of
a notice of appeal lodged with the Registrar of the Court within 30 days after the
service of the notice of the decision. The period for lodging appeals may be
extend for reasonable cause or due to sickness or absence from Ghana. The
notice of appeal so lodged shall be served on the CIT within 5 working days. An
appeal against the decision of the Commissioner shall be instituted in the name
of the Attorney-General.

The Rules of Court Committee of the Supreme has reached a advanced stage in
the preparation of High Court (Civil Procedure) Rules on Tax Appeals. The draft
proposals that are due to be submitted to parliament provide the details of the
rules of procedure on Appeals from the decision of the CIT to the High Court.
The draft rules provides that an appeal shall be commenced by filing five copies

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of the notice of appeal together with five copies of all relevant documents with
the Registrar of the High Court within 30 days on receipt of the service of the
decision or order of the CIT. The appellant can apply for an extension of time of
this period if he satisfies the court he was absent from Ghana, Sick or show any
reasonable cause for the delay in filing the notice of appeal. An application for
extension of time has to be made within three months after the expiry of the
period fixed for filing appeals. No application for the extension of time shall be
entertained after the above stated three months expiry date.

The notice of appeal should set out in consecutively numbered paragraphs, a

concise statement of the facts and any points of law upon which the appellant
intends to rely in support of his appeal. Any ground of appeal shall not be vague
or general in form. The grounds of appeal are to be accompanied with a copy of
the assessment or decision of the CIT appealed against and certified by him.
On receipt of the notice of appeal the Registrar shall enter same in a register of
tax appeals to be kept by the Registrar and a copy served on the CIT. The CIT
shall reply to the grounds of appeal within 15 days of service of the notice of
appeal. The CIT shall send copies of certified documents used in the assessment
to be served on the appellant not latter than 15 days after the service of the
CIT‟s reply. The Registrar on receiving the CIT‟s reply shall serve same on the
appellants and shall within 7 days fix a day for the hearing of the appeal. He
shall also serve notices of the date for hearing the appeal on the parties within
21 days from the date fixed for hearing the appeal.

The Court on hearing the appeal may take evidence or seek expert assistance
and confirm, reduce, increase or annul an assessment on which the decision was
bases and may make other decisions as the court may deem appropriate. The
Tax Appeals Rules make provision for other rules of procedure to be used with
the necessary modifications. For the purpose of tax appeals the record of appeal

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are all the documents submitted by the parties and put together in a folder by
the Registrar.

A further appeal against the ruling of the High Court can be made to the Court of
Appeal but only on a matter of law. And an Appeal against the decision of the
Court of Appeal shall lie as of right to the Supreme Court. Appeals to the Court of
Appeal and the Supreme shall be within 30 days after the decision to which it
pertains.

Payment of Tax
Under section 131, where a person lodges a notice of objection to an assessment
under section 128, in respect of a provisional assessment, an amount not less
than the amount payable in the first quarter of that year shall be paid pending
the determination of the objection or appeal. No court shall entertain any
application, action or appeal in respect of an objection unless the person has
paid the above mentioned tax. In a case where the payment of tax is held over
pending a decision on an objection or an appeal the tax outstanding shall be paid
within 30 days from the date of service of the notice of the decision of the CIT or
the court.
The burden of proof in an objection to an assessment or on an appeal is on the
person assessed to proof on the balance of probabilities, the extent to which the
assessment made by the CIT is excessive or erroneous.

Section 133 provides for other procedural issues on tax administration to the
effect that when a document purporting to be made, issued or executed under
the Act:
- Shall not be quashed or deemed void or voidable for want of
form;
- Shall not be affected by reason of any mistake, defect, or
omission in the document.

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If the said document in substance and in effect is in conformity with the Act and
the person affected by it is designated in it according to common intent or
understanding. For purposes of the Act a document includes an assessment,
ruling, notice, or certificate. Copies of books, records and information stored in a
computer that are made by the CIT or an authorized officer and certified by the
CIT or such officer is admissible in evidence and has the same probative value as
the original book, record or information if it is proved in the ordinary way.

The above provision is slightly different from the former provision in section 53
(2) of SMCD 5 (as amended) where it was provided that in a suit to recover tax
in the Special Tax Tribunal, the production of an extract from the list of
assessment under the hand of the CIT shall be sufficient authority for any court
to give judgment for the said amount. This was the position in CIT v Winfred
Arthur Ellis (Suit No. 28/1958) by the Divisional Court in Sekondi. It has to be
noted that this was decided based on the legal position under section 66 (2) of
the Income Tax Ordinance of 1943.

Collection of taxes
Before any tax can be collected it must be due and owing to the tax collection
agency. Under the old tax statute (SMCD 5 as amended by PNDCL 80 of 1984) a
tax could only be due and owing where an assessment was final and conclusive.
Section 43 of the said law provided that an assessment was final and conclusive
where:
- no valid objection has been lodged within the specified time
against assessment, and
- amount of chargeable income has been agreed or determined
under an objection or revision.
Under the present Act, however there is no mention or use of the phrase final
and conclusive in relation to assessment.

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Section 144 of the Act provides for the due date and payment of tax when a
person assessed with tax is served with a notice of assessment in the following
situations:

(a) For a person subject to self assessment under section 78 of the Act the
due date is when he furnishes a return of his income;
(b) In the case of persons who have died or are about to leave Ghana
permanently under section 72 (7) the due date is the date specified in the
assessment;
(c) In the case persons who pay tax on instalment basis the due date is the
time specified for such taxpayers in Division III of Part X of chapter 1;
and
(d) In any other case the due date is within 30 days from the date of service
of the notice of assessment.

The CIT has discretion to allow payment of tax due by instalments if the
taxpayer shows a reasonable cause. But where there is a default in the payment
of any instalment the whole outstanding tax shall become immediately payable.
Payment of tax due by instalments does not precluded the charging of interest at
the rediscounted Bank of Ghana rate plus 5% on the amount unpaid from the
date the tax became payable as provided for in section 143 of the Act.
Section 135 further provides that when a tax is due and payable, it is a debt due
to the IRS and payable to the CIT, who can sue and recover same in any court
with full costs of the suit paid by the person sued. Beyond instituting legal action
to recover tax due and payable provision is made in the Act for other modes of
recovering such tax by the CIT.

Tax Debt Execution Processes

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Distress Proceedings
Under section 136 of the Act the CIT can recover unpaid tax by distress
proceedings against the movable property of a tax debtor. This can be done by
issuing an order in writing specifying the person against whose property the
proceedings are authorized; the location of the property and the tax liability to
which the proceedings relate. Should the need arise he may require the presence
of a police officer while the distress is being executed. For purposes of executing
the distress the CIT can enter any premises or house described in the order of
the distress proceedings. Goods that are not perishable shall be kept for 10 days
at a place considered appropriate by the CIT at the cost of the tax debtor. And
where the tax debtor fails to pay the tax together with the distress costs:
(a) In the case of perishable goods, they shall be sold by the CIT within a
reasonable time and depending on the condition of the goods by auction
or in any other manner as he directs, and
(b) in the case of any other goods within 10 days after the distress is levied
and same shall be sold or otherwise disposed off in the manner
mentioned in (a) above.

The proceeds of the disposal is to be applied by the auctioneer or seller towards

the cost of taking, keeping, and selling the property distrained, then towards the
tax due and payable, and the remainder of the proceeds given to the tax debtor.
The Commissioner can still proceed legally against the tax debtor if the proceeds
of the distress do not fully satisfy the cost of distress and the tax due and
payable. The cost of the distress can be recovered by the CIT in the same
manner as if it was a tax due and payable to him. A property that is the subject
of distress proceedings shall be identified by the pasting or hanging of a piece of
cloth or ribbon as determined by the Commissioner on a conspicuous part of the
property.

Landed Property as Security for Unpaid tax

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Under section 137, where a person who owns a land or building situated in
Ghana fails to pay tax when it is due and payable the CIT may by a notice in
writing direct and notify that person of the intention to apply to the Chief
Registrar of Lands for the property to be the subject for security for the unpaid
tax. On receipt of this notice, if the defaulting taxpayer fails to pay the tax the
CIT shall within 30 days after service of such notice on him, issue a notice of
direction, directing the Chief Registrar of Land that the land or building, to the
extent of the person‟s interest in it be the subject of security for unpaid tax. The
Registrar on receipt of the notice of direction, shall register the said land or
building as if it were an instrument or mortgage over, or charge on the property.
Such registration shall be subject to a prior charge or mortgage operates in all
legal respects as a legal mortgage over or charge on the property to secure the
amount of unpaid tax. When the whole amount of unpaid tax has been paid the
CIT will serve notice on the Registrar canceling the direction and the Registrar
shall duly effect the cancellation.

Recovering Money from the Creditor of Tax Debtor

Where a tax debtor has not paid his debt the CIT may by a notice in writing
require any other person:
- owing or who may owe money to the tax debtor;
- hold or who may subsequently hold money for or on account of
the tax debtor;
- hold or who may subsequently hold money on account of a
third person for payment to the tax debtor; or
- having the authority from a third person to pay money to the
tax debtor,
to pay the money to the CIT on the date set out in the notice, up to the amount
of tax due. The CIT can only issue such a notice to creditors of the tax debtor on
tax, which is due but not payable on a reasonable suspicion that the debtor will

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not pay the tax on the due date. The CIT is further enjoined to also serve the
notice on the tax debtor. Any such creditor who is unable to pay the amount of
unpaid tax demanded shall by notice inform the CIT in writing of the reasons for
his inability to pay on receipt of the notice to so pay before the date due for
payment.

The CIT by notice in writing may accept and cancel or amend the notification or
reject it. And a person dissatisfied with the CIT‟s decision on the notification may
challenge it under the rules of procedure pertaining to objections and appeals.
The creditor of the tax debtor who satisfies the tax debt of his creditor is
indemnified from further liability and any criminal or civil action, and all
processes, judicial or extra-judicial notwithstanding any law, contract or
agreement to the contrary.

Duties of Receivers and tax liability

A receiver shall notify the CIT in writing within 30 days on being appointed a
receiver or of taking possession of an asset situated in Ghana. An executor of a
deceased person‟s estate or a legal representative of an incapacitated person
shall complete and submit returns required under the Act whether or not the
return is required on matters prior to his appointment. The CIT may in writing
notify a receiver of the amount which appears to him to be sufficient to provide
for any tax which is or will become payable by the person whose assets came
into his possession.

The receiver shall realize out of the assets sufficient moneys to set aside for tax
of the person due or will become due and payable. The receiver is liable to the
extent of the amount set aside for tax of the person whose assets are in his
possession. The amount of tax notified by the CIT is a debt due to the Service
within the meaning in the Act and has priority over all other debts of the tax
debtor notwithstanding any enactment to the contrary.

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For purposes of the Act a receiver in respect of an asset situated in Ghana
includes:
- a liquidator of a company,
- receiver appointed out of court or by a court,
- a trustee for a bankrupt‟
- a mortgagee in possession,
- an executor of a deceased individual‟s estate, or
- a person conducting the affairs of an incapacitated person.
Recovery of Tax from Agent of a Non- Resident
Under section 140 of the Act the CIT may in writing require a person who is in
possession of assets or money of a non-resident person to pay tax on behalf of
such a non-resident person up to the market value of the asset but not
exceeding the amount of tax. The captain of a ship or aircraft is deemed to be in
possession of an asset for purposes of this Act. The rule applies to the tax
liability of a partner in section 42 and a beneficiary in section 49 of the Act.

An agent of the non-resident who makes any payment pursuant to the notice by
the CIT is deemed to have done so on the authority of the non-resident. And he
is indemnified against all proceedings, civil or criminal, and all processes, judicial
or extra-judicial, notwithstanding any law, agreement or contract to the contrary.
Notwithstanding the above provisions for enforcing tax collection, provision is
also made for refunds, remission and set-off of tax already paid in excess or the
inability to pay due to poverty etc34.

Dr. Benjamin Kunbuor, Lecturer

34
See sections 158 and 159.

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