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Ato Forson: Gov’t has no plans to tax pensions

Government says media reports that it plans to tax pensions are false.

Deputy Finance Minister Ato Forson was emphatic that “we do not tax pensions in Ghana and we do not have any intention to tax pensions”.

At the Stanbic Bank-Daily Graphic Executive Breakfast Meeting Tuesday, the Finance Minister, Seth Terkper was reported as saying that government had slapped a 20% tax on retirement benefits.

According to reports, the new Income Tax Act allows for the taxing of allowances and pension benefits.

But dismissing the reports as false, Ato Forson explained that the Finance Minister’s comments have been misrepresented.

The minister was only responding to questions posed by a journalist who wanted to know how the government was tackling the problem of tax avoidance in Ghana.

According to Ato Forson, the Finance Minister was simply making the point that, because some countries do not tax pensions, some individuals exploit the law by pushing more of their incomes into allowances and pension savings. This leaves their incomes the only monies available for taxation.

Some countries, however, tax an employer’s contributions to pension savings.

Using a scenario, the Deputy Finance minister said an employee receiving ₵6,000 may ask that ₵4,000 be allocated to pensions and ₵2,000 as his income.

In this case and according to the law, government can only tax the ₵2,000 which is the person’s income.

Ato Forson explained that Seth Terkper had called for a proper definition of what is income so that people cannot exploit the law to avoid paying the appropriate tax.

But this call for a discussion on what constitutes income tax appears to have been reported to mean, the government has plans to tax pensions.

“Looking at it does not mean you are bringing a new income tax law to define what an income is,” Ato Forson said.

Ato Forson dismissed concerns about taxing pensions in Ghana saying that the “new income tax law exempts pensions. Pensions in this country are not taxable”.

But he backed the minister’s call for a review of the definition of incomes to block tax avoidance loopholes.

“Because we exempt pensions, others take advantage, others are paying more into their pensions to avoid paying income tax,” he said.

Ato Forson however, suggested that Ghana could follow countries that tax employer contributions to pension saving.

While pension savings are not taxable, other allowances are taxable according to the Income Tax Act 2015.

On this issue, the Finance minister said “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 evading … hiding the income in areas which are not taxed.”

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