It has been reported in the news that the Commissioner General (CG) of the Ghana Revenue Authority (GRA) is introducing rent tax starting by the end of this year. I wish to state that this reportage lacks the truth and validity in the face of the law. This is because, the CG has no authority to impose tax except by or under a legislation passed by Parliament.
The Income Tax Act, 2015, (Act 896) imposes an obligation on all income earners of a certain category to pay taxes on their earnings, including landlords or property owners. Thus, paying tax on rent is not novel. While so, some landlords demand from tenants the payment of rent beyond six months for a long term rent. This act is a an offence of misdemeanor contrary to section 25(5) the Rent Act and shall upon conviction liable to a fine not exceeding 500 penalty unit or to imprisonment for a term not exceeding two years.
In both theoretical and practical terms, taxation has no morality. This is because the CG will tax any income within the scope of the Income Tax Act, 2015, (Act 896) and allow any deduction within the scope of the Act – whether the transaction is legal or illegal – except for profit made from systematic crimes.
For instance, profit from advertising alcoholic beverages outside licensed hours or selling of aphrodisiac is taxable for the reason that these activities are under the category of trade or business and the state in taxing the individual with reference to certain facts; they are not partners of the crime. Nevertheless, a systematic crime such as armed robbery is not taxable for lack of the meaning in business, investment or employment in tax law.
Following on from this, the question one may ask is: do we want to use tax law to reinforce and promote offences such as the advance rent payment? The answer, in my considered opinion, is NO. Hence, in this article, the focus is to address the issue of the illegality in the advance payment of rent as it relates to rent tax and to also take a review at other taxes this year’s budget.
What is rent tax?
Rent income is an income which accrues to someone as a result of letting or leasing a property to another person. The tax paid on rent income is referred to as Rent Tax. Entities liable to pay this tax are businesses that receive income from letting or leasing properties and an agency that qualifies to withhold tax for rent.
Payment of rent tax
The rent tax must be paid within 30 days after the rent income is received by the landlord. The tax rate for residential premises is 8% and non-residential premises (business facilities) is 15% of the rent payment. Failure to pay tax on rent income by the due date will attract an interest of 125% of the statutory rate compounded monthly.
According to section 119 of Act 896, rent paid to an individual or a business is a ‘final withholding payment’. Thus, the tax is deducted at source by a withholding agent (a person qualified to deduct tax) and the income is not subject to any further tax or deductions. What this also means is that, you must be registered to be allowed to withhold tax from a business transaction.
The twist is that individuals (unless through a business) are not allowed to withhold tax in accordance with section 115 of Act 896. Now considering that rent on residential accommodation is mostly paid by individuals, e.g. professionals or workers, it means that no tax will be withheld from those payments.
The only way for GRA to go for the related rent is therefore to go after the landlord in accordance with section 119 of Act 896.
More so, Act 896 allows a taxpayer to pay tax on quarterly instalment upon self-assessment of a chargeable income if the person derives or expects to derive assessable income during a year. Therefore, a landlord who takes rent in advance for the purpose of paying tax at the end of the year is unjustified since he is permitted to pay quarterly instalment of the maximum six month he is required to demand payment for a long term rent.
Taxes in the 2021 fiscal budget
Since government has proffered the need for creative revenue mobilization measures to enable it to roll out its policies for the 2021 fiscal year, it has introduced some new taxes and adjusted existing ones upward to generate more revenue to take care of high expenditure in the 2021 budget. And these taxes are:
- New sanitation and pollution levy
- Energy Sector Recovery levy
- Financial sector clean-up levy with 5% extra income tax
- Road tolls revised
- COVID-19 health levy
- Gaming policy
Sanitation and Pollution Levy and Energy Sector Levy
Government proposed a Sanitation and Pollution Levy (SPL) of 10 pesewas on the price per litre of petrol/diesel under the Energy Sector Levies Act (ESLA) to embark on sanitation and pollution project. In addition, there is also 20 pesewas per liter Energy Sector Recovery Levy meant to defray the over $2 billion debt owed to Independent Power Producers (IPPs).
Already Ghanaians are saddled with too much to pay for petroleum products and this addition of SPL is going to intensify the burden. Fuel prices increased from GH₵ 4.7 per liter to GH₵ 6.3 per liter over the past two months. Obviously, the SPL is a tax incidence with a burden on the welfare of Ghanaians together the inflation of goods and services.
For that, I agree with Chamber of Petroleum Consumers (COPEC) that government should dedicate efforts to ensure that Tema Oil Refinery (TOR) functions well so that petroleum products could be processed locally which would effectively reduce the cost of fuel in the country.
Moreover, government should review the Price Stabilization and Recovery Levy (PSRL) under ESLA meant to cushion consumers from any further increases of fuel prices since it has not be upheld by government.
Financial sector clean-up levy with 5% extra income tax
According to government, the financial sector clean-up and the refund of monies to depositors have resulted in a huge cost of over GH¢21.0 billion to government; therefore, it introduced a financial sector clean-up levy of 5 per cent on profit-before-tax of banks to help defray outstanding commitments in the sector. In addition to that, banks are already liable to pay corporate tax and 5 per cent National Fiscal Stabilization Levy (NFSL) on the profit-before-tax.
Despite the fact that government would be able mobilize additional revenue for use for introducing this new tax, the downside is that cost of borrowing will go up which will have a lot of pass through effects on the final consumer.
Furthermore, some banks could actually cut down on staff in order to be efficient yielding to the loss of jobs crisis caused by the financial sector clean-up. This intricacy would affect investment, especially Foreign Direct Investment (FDI), if the ordination of the FDI has not tax exemption incentives from government.
Government has introduced a tax on online betting which it said it is because it is estimated that Ghana loses over GH¢ 300 million annually in revenue due to leakages in the sector. This tax is laudable and worthy of its introduction. I wish to state that the argument that online betting should be banned should not be encouraged.
This is because, the tax on online betting is a ‘sin tax’ or regressive tax imposed to discourage people from somewhat engaging in the activity. Much more, government cannot ban online betting in this day and age unless it does cyber monitoring of the online betting companies and block their Uniform Resource Locator (URL).
Even with that, there are Virtual Private Networks (VPNs). On top of that, online betting companies rely heavily on cashless system of transaction. So, if the Mobile Network Operators (MNOs) deny integration of these online companies, they will be surely banned. But that would look like killing a fly with a sledge hammer. It is both unnecessary and unsurmountable.
Total revenue for 2021 is projected at GH¢ 72 billion equivalent 16.7 per cent GDP. Domestic revenue is estimated at GH¢ 70 billion in 2021 with non-oil tax to constitute 74 per cent and amount of GH¢ 53 billion – equivalent to 12.4 per cent GDP. Essentially, revenue for this year’s budget leverages on domestic tax.
However, it is my considered opinion that for businesses to be able to recover from the COVID-19 pandemic effectively, domestic revenue mobilization (DRM) should be done in a way to reduce the tax burden on the taxpayer to generate more revenue, and it is important to know that this year’s budget is rather compounding hefty financial burden on the taxpayer.
The writer is a research assistant at Center for Data Processing and Geo-Spatial Analysis (CEDPA), and a graduate of GIMPA Law Faculty.