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Tax Update: COVID-19 Tax Incentives

Tax Updates

Tax Updates

The Commissioner-General (C-G) of the Ghana Revenue Authority (GRA) on Tuesday, 12 May 2020, issued directives concerning certain tax incentives related to the taxation of withdrawals from Personal Pensions and Provident Funds – Tier Three, the remuneration of selected health workers, and deductions for COVID-19-related donations.1

The Minister for Finance, in his statement to Parliament on Monday, 30 March 2020, on the economic impact of COVID-19 on the Ghanaian economy, had outlined several tax incentives for taxpayers in Ghana.2 However, to operationalise most of these incentives, a written directive from the Commissioner-General (C-G) of the GRA or the passage of a legislative instrument was required.

This GMS Flash Alert provides an update on the guidelines adopted by the GRA and the implementation of the tax incentives.

WHY THIS MATTERS

The impact of the novel coronavirus (COVID-19) has been wide-ranging, with dire consequences at both the “micro” and “macro” levels for economies around the world. The situation in Ghana is no exception.

At the micro level, the potential impact of COVID-19 could lead to a significant decline in profits of private businesses, erosion of individual disposable income, and high propensity of employment losses, amongst other impacts. Hence, at the micro level, the negative effects on individuals of the virus may be considerable.

In response to the adverse effects of the pandemic, the government has implemented various reliefs, which should help with cash-flow difficulties and incentivise individuals.

1. Waiver of Income Tax on Withdrawals from Provident Funds and Personal Pension Schemes – Tier Three

Contributions to the Provident Fund or Personal Pension Schemes must be managed under a National Pensions Regulatory Authority (NPRA) approved scheme in order to be exempt from tax. This notwithstanding, the National Pensions Act, 2008 (Act 766) specifies that withdrawals from the Provident Fund or Personal Pension Schemes on or before, respectively, the tenth or fifth anniversaries of the fund by contributors in the formal and informal sectors3 and before retirement, should be subject to tax at the appropriate income tax rate.

In view of the above, the Income Tax Regulations, 2016 (L.I 2244) specifies a rate of 15 percent tax on such withdrawals.

With the introduction of the new incentive, funds drawn from the Provident Fund or Personal Pension Schemes before maturity consequent to a permanent loss of employment or capital, due to the COVID-19 pandemic, shall be exempted from income tax.

Eligibility for the waiver will, however, be determined by the NPRA in the form of a certification covering qualification for such withdrawals.

The NPRA on 13 May 2020, issued the following directives in response to the above:

 Self-employed individuals who are members of Personal Pension Schemes can withdraw all amounts in their personal savings accounts.

 Withdrawals can also be made from Provident Fund Schemes by members who have permanently lost their employment.

 NPRA has spelt out the procedure for applying for the above benefits, which includes the employer submitting a letter to the Trustees stating its inability to pay its workers as a result of the COVID-19 pandemic. The applicant must also complete a prescribed form and attach the relevant documents in support of the relief application.

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