Corporate Taxation

 Corporate taxation applies to the net profit of

incorporated businesses
 This tax applies to total corporate profit as
produced by the financial statements
 Not all expenses incurred in the course of
trading are deductible in computing the
annual profits or gains for tax purposes
For expenditure to be allowed as a deduction
when calculating business or investment income
for tax purposes:
 the expenditure or outgoing must not be of a capital nature
 the expenditure or outgoing must be wholly, exclusively and
necessarily laid out and expended for the purpose of
producing the income
 Capital expenditure has examples in the form of fixed assets,
cost of forming a company, pre-incorporation expenses etc
 “Wholly” refers to quantum. The total amount
should be for business purposes. Thus where an
amount spent includes a private expenditure,
the private element is not allowed as deduction
 “Exclusively” means the expenditure should be
for business purposes only. Thus where
expenditure is incurred for a dual purpose(one
a business purpose and one not,) no part of the
expenditure is deductible
“Necessarily” Connotes relevance. The
expenditure incurred should be relevant to the
business of the taxpayer, that is an expenditure
without which the income could not have been
earned. It also implies that the expense should
be such that it cannot be avoided if the business
is to earn income
 Deductions allowed

 Research and Development: Additions to business

product and processes but excludes any
expenditure incurred for the acquisition of an
asset for R &D
 Bad Debts:
1. Debt claim should have been included in
ascertaining the person’s assessable income.
2. The bad debt arises in the normal course of
business other than advances.
3. General provisions for bad debt are not allowed
but specific debts proved to be debts are allowed
 Donations:
1. Contributions to a charitable institution or fund approved
by the government such as GNTF, OSU Children Home etc
2. Contributions to a scholarship scheme approved by the
gov’t for technical, professional or other course of study
3. Donations for rural and urban development approved by
gov’t
4. Donations for sports development and promotion
approved by gov’t
5. Donations to government for worthwhile causes
approved by the commissioner-General such as the
stadium disaster
 Rent Paid for Business Premises: The rent paid for the
use of the premises must be used exclusively for the
business only. Any portion of the rent used for
domestic purpose is disallowed
 Repairs of Fixed Assets: Normal repairs of any
premises, plant, machinery, fixtures, renewal,
alteration of any implement, utensils or article is
allowed but repairs involving improvement or
additions constitutes capital expenditure and would
be disallowed
 Advertising: Normal advertising in the media, both
print and electronic, is allowed however, advertising
by a permanent signboard, or neon sign is treated as
capital expenditure
 Defalcations on the part of employees are normally
allowed but one on the part of managing director is
not allowed
 Legal and professional expenses are allowable
provided they are incurred in connection with the
trade and are not related to capital items. Legal
expenses allowed:
1. Defending rights or title to say, fixed assets
Legal Expenses disallowed
1. Formation of companies or partnerships
2. Sale of property or acquiring new assets
3. Income tax appeals
4. Breaches of the Law
5. Fees arising as a result of issuing new shares of a
company
Removal Expenses are not allowed if the removal is
due to an expansion scheme. Force removal or
voluntary or cost of dismantling and re-erecting of
fixtures are allowed
 Subscriptions are allowed if they are connected
with business
 Welfare Expenditure: Running cost of
recreational grounds, canteen services are
allowed but not the structures put up for the
provision of such service is not allowed
 Travelling Expenses. Cost of travelling for normal
business operation is allowed but cost of private
travelling is disallowed
 General Expenses: Capital items or private
expenditures are disallowed
 Loans. Advances made in the normal course of
business are allowed if they prove irrecoverable
 Fines and Penalties: Cost in connection with breach
of law are not allowed
 Interest
 Salaries and Wages paid to employees are allowed.
But if a self-employed paid such to his wife,
children or family relatives, then there is the need
to scrutinise the age, qualifications and respective
grades of such associates
 Capital Allowance
 Foreign Exchange Losses: Normal foreign currency
exchange losses other than a loss that is capital in
nature is an allowable deduction. Debt claimed or
debt obligation or foreign currency holding are
allowed on prior notification of the commissioner-
general. Hedging contract foreign currency losses
are allowed where the amount of losses exceeds
the part of the gain included in the assessable
income of that person.
 Carryover of Losses: Losses incurred by persons
engaged in farming, manufacturing, mining
business, agro-processing, tourism, information
communication technology, energy and power
business shall be deductible for a period of five
years
 Losses by Venture Capital Investment: Financial
institutions, which invest in venture capital
subsidiaries, are entitled to a chargeable income
tax deduction equal to 100% of their investment
 Interest Expense: The Act 896 provides that interest expense
should have maximum thin capitalization of debt to equity ratio
of 3:1 (75%:25%). The debt capital must be exceed 75% of the
total business capital to qualify for the full interest allowance in
the accounts
 Stock Valuation: Section 41(2) of Act 896 recognize the use of
FIFO and Weighted Average cost method of stock valuation to
value closing stocks, and the costing technique used is
absorption costing
 Financial Cost Allowable: The Act 896 provides that financial
cost is allowable for deduction if the financial gain plus 50% of
adjusted chargeable income equals or exceed the financial cost.
Any excess financial cost is not allowable as a deduction and
may be carried forward for the next five years of assessment
 Deductions Disallowed
 Capital Expenditure
 Any Domestic or private expenses
 Non-trading losses
 General provisions for bad debt
 Depreciation of any fixed asset
 Income tax payments, profit tax and penalties on income
tax
 Penalties incurred by a trader for breaches of the law
committed in the course of business are not allowed
 Drawings
 A person engage in mining operations shall not allowed a
deduction for expense
 Industry Concessions

Tax concessionary rate of 5% on chargeable income

1. Farming Business
 Tree crop. Tax concession of the first ten(10) years from
1st harvest
 Livestock . Tax concession of the first five(5) years from
commencing
 Cattle farming. Tax concession of the first ten(10) years
from commencement
2. Agro-Processing Business. Exempt from first five (5) years
from commercial production
3. Company producing cocoa by-products from cocoa waste:
Exempt from first five(5) years from commencement of
commercial production
 Industry Concessions Cont’

4. Certified companies that construct low cost

residential premises for sale or letting are exempt
from first five(5) years
5. Processing of waste for agriculture or commercial
purpose: Exempt from tax for the first seven(7)
years from commencement of the business
6. Rural Banking: Exempt from first ten(10) years
from establishment of business
 Industry Concessions Cont’

7. Approved Unit Trust Scheme and Mutual Fund:

Exempt from first ten(10) years from
commencement of operations
8. Venture Capital Financing Company: Exempt
from first ten(10) years after company first
qualifies
9. Manufacturing companies located in
regional capitals are granted tax rebates of
25% (18.75%) either Accra/Tema, whiles those
sited elsewhere are granted tax rebates of
50% (paying 12.50%)
 Taxation of Free Zone Enterprises: A free zone
developer or enterprise granted a license under
the free zone Act, 1995 (Act 504) is exempt from
the payment of income tax on profits for the first
ten years from the date of commencement of
operations.
 Young Entrepreneurs engaged in the business of
Manufacturing, information and communications
technology, agro processing, energy production,
waste processing, tourism and creative arts,
horticulture and medicinal plants has five years
concession
 Industry Concessions Cont’
 Young Entrepreneur businesses described above have further incentive
based on location for the next five years after the concession period as
follows:
Accra and Tema 15%
Other regional capitals outside the five Northern regions 12.5%
Outside other regional capitals 10%
The five northern regions 5%
 Privately owned universities are exempted from tax when
they plough back 100% of their profit after tax into business
 There is also Fresh Graduate incentives according to the
income tax schedule
 Fresh graduate according to the Act 896 means a person
from a tertiary institution for the first time, whether or not
that person was previously employed