The Finance Minister, Seth Terkper has justified the need to tax allowances and pensions under the new income tax law, Act 896, 2015.
According to Mr. Terkper, allowances and incomes form part of what is generally considered income.
Speaking at the first Graphic Business Breakfast Series for this year, Mr. Terkper insisted that allowances must be taxed to prevent people from evading tax payment.
“Yes allowances must be taxed. Allowances are income. The issue I know is a very difficult one, it’s about taxing income and if you do not define income broadly, you will have tax payers either through avoidance or hiding the income in areas which are not taxed. It’s a thorny one. But remember that as you make your social security contributions, they are exempted from tax even though it is part of your income,” he explained.
He argued that the new tax law had become necessary because some tax payers were either avoiding or evading tax by hiding their incomes in allowances and areas not taxed.
Ghana’s new tax law (Act 592) , allows for employee allowance and retiring benefits to attract a 20 per cent tax.
The Act 896, which took effect on January 1, 2016, replaced the Internal Revenue Act, 2000 (Act 592), which had been in operation for 16 years.
The repealed law had been criticized for failing to consolidate the country’s tax laws, a challenge the new Act is expected to address.
As part of its mandate, the new tax regime will address revenue leakages resulting from illicit financial flows.
However, the introduction of the law was met with some agitations from a large section of the public.
Meanwhile, Citi Business News has gathered that the Ministry of Finance has already tabled some memoranda to Parliament to amend some of the provisions in the new law to readdress areas of interest earned on managed assets, and the withholding tax thresholds.
By: Norvan Acquah – Hayford/citibusinessnews.com/Ghana