- 20 Marks
Question
The Swiss-Ghanaian Chamber of Commerce is organising a fair for some Swiss investors who intend to establish a chocolate manufacturing plant in Ghana. The investors intend to manufacture chocolates for the domestic and international markets.
Required
As an expert in strategic tax planning, the Chamber has invited you to speak on the tax incentives available for such investments and whether the location of the factory would have an impact on the tax incentives the investors can enjoy.
Answer
Tax Incentives for Chocolate Manufacturing Plant in Ghana
Tax Incentives
- Ghana Investment Promotion Centre (GIPC) – Act 865:
- Section 26: Enterprises can apply for exemptions from import duties on plant, machinery, or equipment not zero-rated under the ECOWAS Common External Tariff.
- The GIPC Board may negotiate specific incentive packages for strategic investments, with presidential approval, in addition to standard tax and customs benefits.
- Free Zone Act, 1995 (Act 504):
- Requires exporting at least 70% of annual production (Section 23(1)).
- Incentives:
- Non-application of import laws in free zones (Section 21).
- Exemption from income tax on profits for the first 10 years from operation start (Section 28).
- Post-concession tax rate of 15% on export income (First Schedule, Income Tax Act, 2015 (Act 896)).
- Shareholders exempt from withholding tax on dividends from free zone investments (Section 28).
- Income Tax Act, 2015 (Act 896):
- Agro-Processing Incentives: If the chocolate plant uses locally produced raw materials, it qualifies as an agro-processing business (Paragraph 1(4), Sixth Schedule).
- Tax rate of 1% for 5 years from commercial production start (Paragraph 1(2), Sixth Schedule).
- Locational Incentives (First Schedule):
- Agro-Processing Incentives: If the chocolate plant uses locally produced raw materials, it qualifies as an agro-processing business (Paragraph 1(4), Sixth Schedule).
| LOCATION | RATE OF INCOME TAX |
|---|---|
| Accra and Tema | 25% |
| Regional Capitals | 25% rebate on tax rate [18.75%] |
| Outside Regional Capitals | 50% rebate on tax rate [12.5%] |
- Post-Concession Rates (after 5-year 1% period, per Income Tax (Amendment) (No. 2) Act, 2016 (Act 924)):
| LOCATION | RATE OF INCOME TAX |
|---|---|
| Accra and Tema | 20% |
| Other Regional Capitals outside the Northern Savannah Ecological Zone | 15% |
| Outside other Regional Capitals | 10% |
| The Northern Savannah Ecological Zone | 5% |
Impact of Location
- If classified as agro-processing, the plant enjoys a 1% tax rate for the first 5 years regardless of location.
- After the 5-year concession, location impacts tax rates (e.g., 5% in the Northern Savannah Ecological Zone vs. 20% in Accra/Tema).
- Strategic location outside Accra/Tema or in the Northern Savannah Ecological Zone reduces long-term tax exposure.
- Topic: Strategic Indirect Tax Management
- Series: AUGUST 2020
- Uploader: Samuel Duah