MSAF 606

TAXES & BUSINESS STRATEGY

Lesson 11 – Tax Exemptions, Concessions and

Personal Relief

College of Humanities
University of Ghana Business School
Department of Accounting
 Session  Overview  
Lesson Objectives:
§ By the end of this session you should be able to:
• explain tax exemption
• state or list income tax exemptions under the Act 896
• explain personal tax reliefs
• explain tax holidays
• explain the relationship between tax holidays, exemption
and reliefs
• discuss the various tax holidays/industry concession
• Cite location benefits of taxation
 Session Outline
§ The key topics to be covered in this session are as follows:
• Tax Exemption
• Tax Concession/ Holidays
• Corporate/Industry Tax Rates
• Personal Relief
 Reading  List
§ Amidu, M. (2019), Principles and Practice of Taxation, First
Edition, Digibooks, Accra. Ghana Chapter 17, (pages 543-
560)
§ Ali-Nakyea A. (2016), Taxation in Ghana-Principles, Practice
& Planning, Black Mask Ltd., 3rd Edition. Chapter 6, (pages
168-175)
§ Income Tax ACT, 2015 (ACT 896), Ghana Publishing
Company Limited, (Assembly Press), Accra, Ghana, Section
7, fifth and Sixth Schedules
 Topic  One

EXEMPTIONEXEMPTIONS
Tax Exemptions
§ Tax exemptions refer to incomes that are exempted or not taxed
until the exemption is revoked.
§ The following incomes according to Section 7 of Income Tax
Act, 2015 (896):
 Tax Exemptions
The President
§ The official emoluments of the holder of the office of the
President are not subject to tax.
§ That is, section 7 (1a) of the Income Tax Act, 2015 (896),
provides that, the salary, allowance, pension and gratuity of the
President are exempt from paying tax in accordance with
Article 68 (5) of the Constitution.
 Tax Exemptions
The Local Gov’t Authority
§ The income of a local authority, other than income from
activities, which are only indirectly connected with the local
authority’s status as a local authority is exempted from paying
tax.
 Tax Exemptions
Interest/Dividend Payment
§ The interest paid to an individual by a resident financial
institution; or to an individual on bonds issued by the
Government of Ghana is exempted.
§ Section 7 of Act 896 has also been amended to exempt from
tax, the income of an approved unit trust scheme or mutual
fund, and the income of an approved Real Estate Investment
Trust (REIT).
Tax Exemptions
Insurance compensation, Pension & Pilot/Captain

§ Capital sums paid to a person as insurance compensation or a

gratuity in relation to:
• personal injuries suffered by that person; or
• the death of another person
§ Also, all pension incomes are tax exempt
§ Again, the income of non-resident person from any business of
operating ships or aircraft, provided the commissioner is
satisfied that an equivalent exemption is granted by that
person’s country of residence to persons resident in Ghana.
 Tax Exemptions
Public Corporation
§ The income of a public corporation where that public
corporation is not set up as a business or where the income is
from an activity that is directly connected with the status of that
public corporation is tax exempt.
§ For example the income of Ghana Broadcasting Corporation
(GBC) is tax exempt.
 Tax  Exemptions
Students
§ Tax exemptions are granted to the income of a person receiving
instruction at an educational institution from a:
• scholarship,
• exhibition,
• bursary, or
• similar educational endowment
§ For instance, a student who receives UGBS/ACCA best
Accounting student award will not pay tax.
 Tax  Exemptions
Students
§ This provision covers such payment as the:
• Social Security and National Insurance Trust;
• Student Loans Scheme;
• Ghana Cocoa Board Scholarships;
• Scholarships and bursaries granted by the Scholarship Secretariat,
etc.
 Tax Exemptions
Diplomats
§ Tax exemptions are granted on the income of an individual
entitled to privileges under:
• the Diplomatic Immunities Act, 1962 (Act 148) or
• a similar enactment to the extent provided in the Act or
• similar enactment or under Regulations made under the Act or a
similar enactment.
 Tax  Exemptions
Privileges  &  Immunities  of  the  United  Nations
§ The income of an individual entitled to privileges under an
enactment giving effect to the Convention on the Privileges and
§ Immunities of the United Nations and the Convention on the
Privileges and Immunities of the Specialized Agencies of the
United Nations of the extent provided in that enactment are
exempted from tax.
§ This covers UN Staff in UN agencies like UNDP, UNICEF,
UNFPA, WHO, etc but not Ghanaian staff working in these
agencies;
 Tax Exemptions
Bilateral Agreement
§ Tax exemption is granted on the income of an individual to the
extent provided for an agreement between the Government of
Ghana and a foreign government or a public international
organization for the provision of technical service to Ghana
where:
• the individual is a non-resident person or
• an individual who is resident solely by reason of performing
that service
 Tax Exemptions
Foreign Public Service Employment
§ Tax exemption is granted on the income of a person from an
employment in the public service of the government of a foreign
country provided that person is either:
• a non-resident person or
• an individual who is resident solely by reason of performing
that service of employment
Note:
• That person must not exercise any other employment or carry
on any business in Ghana.
• The income is also payable from the public funds of the
foreign country.
• Therefore the income is subject to tax in the foreign country.
 Tax Exemptions
Cocoa/ Cocoa Farmer
§ The income from cocoa and of a cocoa farmer is exempted from
tax.
§ A cocoa farmer who generates or derives income from cocoa
farming and that of cocoa itself is not subject to tax.
Tax Exemptions
Diplomatic Officers Cost of living allowance
§ Members of the Ministry of Foreign Affairs and officers attached
to official Ghana diplomatic or consular missions abroad are
exempt from income tax in respect of cost of living allowances
for services rendered outside Ghana.
§ However, their training allowances paid in lieu of salary are not
exempt.
Tax Exemptions
Government Contract Officers
§ Individuals who are not citizens of Ghana and whom the
Government employs on a temporary basis are exempt from
income tax with respect to any income from the employment
which is expressed to be exempt from income tax under the terms
of the employment contract and paid by the Government out of
the Consolidated Fund.
 Tax Exemptions
State Educational & Research Institutions
§ The income of a state-owned or state-sponsored educational
institution are exempted from paying tax.
§ Similarly, the income of an institution or trust of a public
character established by an enactment solely for the purpose of
scientific research will not pay on the income.
 Tax Exemptions
Private Universities
§ The amended Act introduces paragraph 11 of the first schedule to
Act 896 exempts private-owned universities from tax when they
plough back a hundred percent of their profit-after tax into the
business.
 Tax  Exemptions
Granting  of  Additional  Exemptions
§ Note that under Section 7 (2) of Act 896, the Minister responsible
for Finance may, subject to the prior approval of Parliament by
resolution in accordance with clause (2) of article 174 of the
constitution grant a waiver or variation of tax imposed by this Act
in favour of any person or authority.
 Tax Exemptions
Quick Quiz
1. List five public corporations that are exempted from paying tax
on their income in Ghana.
2. Explain briefly why University of Ghana will not pay tax on its
income.
3. Explain briefly why a graduating student in Accounting will not
pay tax on the award.
4. What is the exemption period of income of a cocoa farmer?
 Topic  Two

TAX  CONCESSIONS
 Tax  Holidays/Industry  Concessions
§ Tax holidays are periods within which a person or entity will not
be required to pay taxes.
§ This is offered to attract investments in certain sectors of the
economy
§ Unlike tax exemption (unless it is revoked), the persons or
entities will start paying taxes after the holiday period.
§ The Act 896 as amended provides incentives for investments in
certain sectors of the economy.
 Tax Holidays
Farming Business
Tree crops
§ The income of a person from the business of tree crop farming in
Ghana enjoys a concessional tax rate of 1% for a period of ten
years of assessment
§ Commencement of 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 business occurs.
§ The tree crops are defined to include coconut, coffee, oil palm
and Shea nut.
 Tax Holidays
Farming Business
Cash crops
§ These are crops other than cattle or fish or farming livestock.
§ They enjoy a concessional tax rate of 1% for a period of five
years of assessment from the commencement of the farming
business.
§ The cash crops have been defined to include cassava, maize,
pineapple, rice and yam.
 Tax Holidays
Farming Business
Cattle farming
§ They enjoy a concessional tax rate of 1% for 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.
§ That is it commences when the person establishes the business to
engage in cattle farming.
Tax Holidays
Agro-processing Business
§ The income of a company from a processing business in Ghana is
taxed at a concessional rate of 1% for the period of five years of
assessment from the year in which commercial production
commences.
§ It should be noted that this provision is also applicable to
companies in the processing of cocoa by-product.
§ Cocoa by-product business means a business that uses on
commercial basis cocoa by-products using as its main raw
material substandard cocoa beans, cocoa husks and other cocoa
waste (See Section 1 (3) of Sixth Schedule)
 Tax Holidays
Agro-processing Business
• For those companies engaging in agro-processing or cocoa by-
products, after the five-year tax holiday,
• The additional incentive to them is that the income tax rate
applicable to their chargeable income is as follows:

Location Rate
Accra and Tema 20%
Other regional capital except Northern 10%
Upper East and Upper West
Northern, Upper East and Upper West 0%
Outside regional capitals 0%
Tax  Holidays
Waste  processing  Business
§ Tax rate at 1% concessional rate for Seven years is granted on the
income of a company whose principal activity is the processing of
waste including:
• recycling of plastic and polythene material for agricultural or
• commercial purposes
Note:
§ The concessional tax rate of 1% is granted for a period of seven
years of assessment
§ Commencing from and including the year in which the basis
period of the company ends being the period in which commercial
production commences
Tax  Holidays
Banking  Business  of  Rural  Banks
Income of rural banks also enjoys a concessional rate of 1% for
the ten years of assessment commencing from and including the
year in which the basis period ends, being the period in which
operations commence.
 Tax Holidays
Real Estate Business
§ Income of Real Estate Company enjoys a concessional rate of 1%
for a period of five year of assessment
§ Commencing from and including the year in which the operation
commenced.
§ Real Estate Companies that will partner the government to
provide affordable housing or low cost housing will only enjoy
the concessional rate.
 Tax Holidays
Free Zone Company
§ Within the Ghanaian tax jurisdiction, companies located in Free
Zones areas have special incentives and different rules applying
to them with respect to taxation.
§ An enterprise granted a licence under the Free Zones, Act 1995
(504) is exempt from the payment of income tax on profit for first
ten years.
§ It should be noted that the chargeable income of a free zone
enterprise from the export of goods and services outside the
national customs territory for a year of assessment
§ After concession period is taxed at the rate of 15%.
Tax Holidays
Fresh Graduate
§ A fresh graduate is a person who has graduated from a tertiary
institution for the first time, whether or not that person was
previously employed.
§ The employers who engage fresh graduate are entitled to additional
allowable deduction.
§ The additional allowable deduction is to enable them increase the
tax loss or reduce the chargeable income.
§ The mechanism is provided as follows:
 Tax  Holidays
Deduction  for  Employment  of  Fresh  Graduate
§ The additional allowable deduction is to enable them increase the
tax loss or reduce the chargeable income.
§ The mechanism is provided as follows:

Percentage of fresh graduates in Additional deduction

workforce
Up to 1% of fresh graduate in workforce 10% of salaries

Above 1% but not more than 5 % 30% of salaries

Above 5% of fresh graduate in workforce 50% of salaries

 Tax  Holidays
Tax  Relief  for  Young  Entrepreneurs
§ Tax reliefs are granted on income of a young entrepreneur for a period of
five-basis period and from business of:
• Manufacturing
• Communication technology
• Agro processing,
• Energy production
• Waste processing,
• Tourism and creative arts
• Horticulture and medical plant
§ The other tax incentive is carrying forward an unrelieved loss for a period
of five basis period.
§ The Act defines “young entrepreneur” as an entrepreneur who is not
more than thirty-five years old.
Tax  Holidays  
Quick  Quiz
1. What is tax holiday available to the oil palm plantation farmer?
2. What are the tax incentives available for a company whose fresh
graduates constitute 1% of the total workforce?
3. What is the tax incentive available to a real estate developer, a
fish farmer and a printing press?
Tax  Holidays
Corporate/Industry  Tax  Rates
Table 17.1: Summary of corporate tax rate
No. Corporate Tax Rate %
1 Hotel/Hospitality 22
2 Export of non-traditional goods 8
3 Financial institutions from loans granted to farming enterprises 20
4 Financial institutions from loans granted to a leasing company 20
5 Free-zone company after the concession period (export of goods) 15
6 Free Zone Enterprises after 10years tax holiday (domestic sales) 25
7 Petroleum operations 35
8 Mineral operations 35
9 Income of a Trust 25
10 Income from rent of Commercial Property 15
11 Income from rent on residential property 8
 Tax  Holidays
Corporate/Industry  Tax  Rates
Table 17.1: Summary of corporate tax rate after tax holidays
Items (%)
Agro processing business conducted wholly in the country for the first (5) 25
years
Cocoa-by product business wholly in the country for the first five (5) years 25
Tree crop farming for the first ten (10) years 25
Cash crops or livestock (excluding cattle) for first five (5) years 25
Cattle farming for first 10years 25
Waste processing business for first 7 years 25
Low cost housing company low cost housing company 25
Young entrepreneurs:*
Accra and Tema 15
Other regional capitals outside Tema and Accra 12.5
Outside Accra, Tema and other regional capitals 10
Note: The
The three businesses
northern regions pay 1% tax during their tax holidays 5
Tax  Holidays
Corporate/Industry  Tax  Rates
Location incentive
§ For manufacturing company located outside Accra/Tema has
tax rebate. Tax rebate is a discount on the tax rate.
§ For example manufacturing company located in other district
capital has a rebate of 50%.
§ This means that a company located in Bawjiase will attract tax
rate of 12.5%.
Location Rate of income tax
Manufacturing business located in the 75% of the rate of income tax
regional capitals of the country. applicable to other income
Manufacturing business located 50% of the rate of income tax
elsewhere in the country. applicable to other income
 Topic  Two

PERSONAL  RELIEFS
Personal  Reliefs
§ A tax relief is legally approved deductible allowance intended to
reduce tax payer’s taxable income and thereby lessens the tax
burden.
§ This means that tax reliefs are concession, provisions and
conditions made available to taxpayers.
§ They serve as: motivations and encouragement; and means of
reducing the tax liability and also lessons the tax burden on
taxpayers.
§ Personal relief therefore serve as a strategic tool use by taxpayer
in tax planning process.
 Personal  Reliefs
Type Limit Value (GHS) 2016 Value (GHS)  2020
Dependent Relief Spouse or at least two 200 1,200
children

Disability Relief Disability 25% of assessable income 25% of assessable

from business or
income from business
employment
or employment

Old Age Relief 60years and above 200 1,500

Children Education Maximum of 3children 200 per child 600  per  Child
Aged-Dependent Maximum of 2 relatives 100 per relative 1,000 per relative
=>60yr

Education Relief Maximum of GHS400 Cost of Training up to 400 2,000

Contribution to retirement
funds Based on Basic Salary 5.5% of basic salary

Slide  45
 Personal  Reliefs
Quick  Quiz
1. What reliefs are available to a wife aged 50 years, looking after a
niece and grandson both in SHS. Occasionally, she sends money
to his uncle in the village and has a motor insurance policy with
SIC?
2. What is the tax rate for rural bank after the concession period?
3. What is the reliefs available for a husband aged 65 years who
take care of his mother?
4. What is relief granted to an individual who proves to the
satisfaction of the Commissioner that he or she is disabled?
 Discussion Questions and Problems
Question 11.1
Tax planning is the analysis of a financial situation or plan from a
tax perspective. The purpose of tax planning is to ensure tax
efficiency, with the elements of the financial plan working together
in the most tax-efficient manner possible.

Required:
Briefly explain the following terms with respect to tax planning:
1. Tax Holiday
2. Tax Exemptions
3. Tax Reliefs
4. Tax Rebates/Refund
 Discussion Questions and Problems
Question 11.2
The following information is an extract of projected financial performance of YZ Ltd a
manufacturing company that intends to go into operation with a basis period from
January to December. Management is contemplating operating in either Kumasi or
Konongo but the results are expected to be the same irrespective of the location. The
following projected results from January to December Year 1 are worth analysing.

Kumasi Konongo
(Regional Capital) (District Capital)
GH¢ GH¢
Revenue 3,000,000 3,000,000
Cost 1,200,000 1,200,000
Gross Profit 1,800,000 1,800,000
Expenses 1,000,000 1,000,000
Net Profit 800,000 800,000
 Discussion Questions and Problems

The following additional information is relevant:

A building to be bought on 1 March Year 1 for GH¢400,000 has been
granted full year’s depreciation at the rate of 20% and same has been added
to projected cost above.

Required:
i. Compute the projected tax payable on the above and state where
management is likely to site the entity and why? (4 marks)
ii. What other TWO (2) factors apart from what has been identified in (i)
above may dictate siting a manufacturing business in a regional capital?
(1 mark)