THE LAY OF THE LAND

Ghana 2016 | EXECUTIVE GUIDE | REVIEW: ACCOUNTANCY

KMPG Ghana runs through all the details an investor will need to know about the business environment and the tax setup, as well as sector-specific details.

After a turbulent few years, Ghana appears to be on an uneven road to recovery. The primary trigger for the recent macroeconomic difficulties was the rapid depreciation in Ghana's fiscal position in the wake of the 2012 election, which prompted a reduction in capital inflows at a time when the current account deficit was widening. Although the real gross domestic product (GDP) growth rate improved marginally to 4.1% in 2015, concerns exist regarding the government's ability to adhere to a stringent fiscal consolidation program backed by the IMF.

Overview of social indicators

The population of Ghana is increasing rapidly and a greater percentage of the population, about 57%, is within the working class group (age 15-64).
Although, Greater Accra has the least land area coverage; it is the second most populous region and, for that reason, has the highest population density. Density levels have grown substantially over the last three census periods.

The discovery of the oil fields in the Western Region has led to some boost in economic activity in the Western region. Announcements by the ruling government of its commitment to developing existing infrastructural facilities in rural areas could also possibly slow down the trend of increased migration to the key regional centers of the country in the long run.

Prevailing business environment

The ruling government continues to reiterate its commitment to implementing policies that will reduce the general cost of doing business in Ghana and to promote investor confidence in the country. With a stable multi-party government that is committed to market liberalization, Ghana has consistently been ranked as an attractive location for doing business in Africa. For instance, Ghana was ranked top for the West Africa Sub-Region in the 2016 World Bank Ease of Doing Business rankings.
Ghana ranks highest in terms of the easiest place to do business compared with the selected countries and the country was ranked 11th in the whole of Africa.
Other factors that currently make Ghana a competitive business destination include:
• Immediate access to all markets of the Economic Community of West African States (ECOWAS)
• 100% foreign ownership is permitted
• On-going privatization in key economic sectors
• On-going infrastructure development
• Expanding stock market
• Competitive labor force
• Availability of skilled and trainable labor
• Quota-Free access to US & EU markets.
• Export-free zones where goods traded with other countries are exempt from customs duties and some laws
Owing to a number of economic growth impediments including a weak currency and large fiscal deficit, the business environment has been tougher to navigate in recent times. Going forward, it is expected that technical assistance and policy oversight from the IMF will improve Ghana's overall macroeconomic position.
Tax Environment
Ghana's tax regime is regulated by an act of Parliament known as Income Tax Act, 2015 (Act 896) as amended by Income Tax (amendment) Act, 2016 (Act 907). The Act replaced the old act Internal Revenue Act, 2000 (Act 592). The Act regulates the tax requirements of all business and individual incomes earned in or outside Ghana and also provides for capital allowances and incentives.
Ghana has had a favorable tax regime over the past few years with The World Bank ranking the country higher than its peers in the West African Sub-region in its annual Doing Business report for 2016. Out of the total of 189 countries surveyed, the country placed 106th position in the Ease of Paying Taxes category. This category measures the number of times taxes are paid in a year and the hours spent in paying those taxes.
Compared with the selected peers in the West African Sub-region, Ghana was ranked number 1 as the place easiest to pay your taxes. In the wider African continent, the country was ranked 15th in this category.
Snapshots of New Tax Act
The tax types that investors will encounter in Ghana are Corporate Tax, Withholding Tax, Capital Gains Tax, Value Added Tax, National Health Insurance Levy (“NHIL"), Employment Tax, Dividend Tax, Customs and Excise Duties, and Communication Service Tax.

Key highlights of the new tax laws are as follows:

Corporate Tax
Resident companies are taxed on their global income, i.e. from incomes from any business; investment incomes from both Ghanaian and non-Ghanaian sources are taxable.
Non-resident companies are taxed on incomes with a Ghanaian source only.
Employee Tax
Employees are taxed on all incomes earned from employment, irrespective of where the employment contract is exercised
The income of a non-resident individual from exercising employment in Ghana is taxable as employment income to the extent that he/she is resident in Ghana. Otherwise, the income received by the non-resident employee is subject to withholding tax (WHT) at 20%.

Value Added Tax (VAT) & National Health Insurance Levy (NHIL)

VAT is charged at 15% and NHIL at 2.5%
Capital Gains
Gains from the realization of assets and liabilities (Capital Gains under Act 592) of an individual are now included in chargeable income.
Withholding Tax
Withholding taxes from the supply of goods, services, and works are taxed at 3%, 7.5%, and 5% respectively.
Thin capitalization
Thin capitalization ratio has been increased from 2:1 to 3:1
Tax and investment Initiatives
Tax Identification Number
Government initiated the process of identifying taxpayers through the issue of Tax Identification Number (TIN) by domestic tax offices. These numbers are required to be quoted on a number of key documents by importers, exporters, and agents to ensure tax obligations are met.
Eventually, Tax Identification Numbers will become a major requirement for clearing goods from the port.

ECOWAS Common External Tariff (CET)

The ECOWAS Common External Tariff (CET), which is a major platform for a Customs Union that is expected to facilitate free trade and ensure greater economic integration within the region, is proposed to be implemented early next year (2017).

Ghana Investment Promotion Center

The Ghana Investment Promotion Centre is the statutory body in Ghana responsible for the promotion, regulation, and facilitation of investment into Ghana. The GIPC Act, 2013 (Act 965), which regulates the activities of GIPC, also requires companies to register with the GIPC before starting operations in Ghana. GIPC offers a number of incentives, depending on the levels of investments made. These generally include liaising and assisting prospective and existing investors address issues with the various Ministries, helping obtain immigration and work permits for employees depending on levels of investments made, assisting with the provision of support services to obtain permits for the establishment and operation of enterprises, help obtain tax exemptions for the importation of plant, machinery, equipment, and spares, which are not zero rated for registered companies and help negotiate specific incentive packages for investors that have invested in certain major sectors or have undertaken strategic investments.

Agriculture, Agro-Processing, Forestry, and Fishing

As Ghana's most important economic sector, agriculture is an unexploited investment opportunity. The major strengths of this sector include a diversity of commodities, well-endowed drainage basin, a well-established agricultural research system, and relative proximity to the European market. Ghana has a big share of the African quota of the EU market in fruits and vegetables exports. Despite reductions in the sector's contribution to GDP, the Ministry of Food and Agriculture is committed to exploiting the potential for agricultural business to develop into a multi-billion dollar industry, especially in the areas of processing and value addition.

Banking and Finance

Currently, there are 29 banks operating in the formal banking sector, all regulated by the Bank of Ghana. Competition in the Ghanaian banking sector continues to deepen with many of the banks competing not only on products but price and distribution channels. Going forward, it is anticipated that the Bank of Ghana's requirement for the publication of the charges and interest rates of commercial banks will lead to intense price competition among the banks. Some of the financial institutions may require additional capital to build up internal resources that will enable them to fund major and long-term deals.
There is a concessionary tax rate of 1% for rural banks, approved unit trust scheme, and mutual funds and venture capital financing.

Information Communication and Technology

The ICT Industry comprises telecommunications operators, internet service providers, VSAT data operators, software manufacturers, broadcast institutions, ICT education providers, internet cafes, and so on. Generally, the Ministry of Communications and the National Communications Authority (NCA) oversee activities in the sector. They have established the necessary legal and regulatory framework, which guarantees the safety of investments in the ICT industry. This sector is regarded as one that could generally drive technological developments and fundamentally change traditional ways of doing business, and could make investments that bring the required transformational changes in that space.

Oil & Gas

The Ghanaian upstream sector involves the exploration, development, and production of resources. Ghana discovered its first large scale, commercially viable oil field in June 2007.
The Petroleum Commission (PC) regulates, manages, and coordinates the activities of all upstream operators, whilst the Ghana National Petroleum Corporation (GNPC) is Ghana's national oil company mandated to explore on its own or partner all contractors in the exploration and production of petroleum in Ghana. The two oil producing fields in Ghana are Saltpond and Jubilee. Being an infant player in the oil and gas sector, there is enormous potential for related business opportunities in this space.
Within the downstream sector, Oil marketing Companies (OMC's), Oil Trading Companies (OTC's), and Bulk Distributors (BDC's) act to facilitate the distribution and sale of petroleum products. As with the upstream sector, there is remarkable opportunity for the development of related business activities.

Why invest in Ghana

Ghana attracts the attention of well-known international investors because the country possesses the necessary social, political, and economic environment in which investors can invest, grow, and become successful.

Ghana's wealth of resources, democratic political system, and dynamic economy make it undoubtedly one of Africa's leading lights. Despite the contraction in economic growth experienced recently, international agencies such as Business Monitor International forecast increased economic activity and opportunities as the effects of increasing oil production, improving electricity generation, and diminishing deficits come into effect.

Conclusion

Overall, the outlook for the Ghanaian economy and business environment appears positive. IMF forecasts provide evidence for single-digit inflation as well as steady rises in GDP over the 2017-2020 period. The government has also expressed its commitment to addressing the existing infrastructural deficits to ensure the country remains a viable investment destination for international investors.