Question Tag: Farming

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  • 4 Marks

TX – May 2019 – L3 – Q3C – Tax Planning

Discuss the tax benefits associated with investing in farming and agro-processing businesses in Ghana.

c) Your senior brother has stayed in the United Kingdom for more than 20 years and would like to return to Ghana and establish a business. He is confused as to which area to invest to maximise the benefits from tax planning.

He has been told that you are undertaking a course in Taxation and would like to have your explanation and the tax benefits, if any, from investing in the following areas:

i) Farming (2 marks)
ii) Agro-Processing Business (2 marks)

i) Farming

  • The income of farming activity or business conducted wholly in Ghana shall be subject to tax temporary concessions. The following constitutes farming activities:
  • In the case of farming tree crops (i.e., coconut, coffee, oil palm, rubber, and shear nut), income from the business for a period of ten years of assessment commencing from and including the year during which the first harvest of crops occurs.
  • In the case of farming livestock (excluding cattle), fish or cash crops, income from the business for a period of five years of assessment commencing from and including the year during which the business commences.
  • In the case of farming cattle, income from the business for the period of ten years of assessment commencing from and including the year during which the business commences.
  • The above activities are subject to tax at the rate of 1% during the temporary concessions of each of them when they make income.

ii) Agro-Processing Business

  • The income of a person from an agro-processing business conducted wholly in Ghana is subject to tax at the rate of 1% for a period of five years of assessment commencing from and including the year in which commercial production commences.
  • Agro-processing business means the business of processing crops, fish, or livestock produced, caught, or raised in Ghana from their raw state into an edible, canned, or packaged product.
  • 6 Marks

AT – April 2022 – L3 – Q2c – Tax planning | Business income – Corporate income tax

Explain tax incentives for farming, agro-processing, and rental income from cocoa farming activities.

Tax incentives have traditionally been used by governments as tools to promote a particular economic goal. They are preferential tax treatments offered to a selected group of taxpayers and may take the form of tax exemptions, tax holidays, preferential tax rates, and others.

Required:
Explain the tax implications of the following:
i) A person engaged in Farming activity
ii) A person engaged in Agro-Processing activity
iii) The rental income of a person engaged in Cocoa Farming activity

i) A person engaged in Farming activity:

  • Farming activities such as tree crops, cattle ranching, and livestock farming are eligible for tax holidays.
  • For tree crops and cattle farming, there is a 10-year tax holiday, while for other farming activities, there is a 5-year tax holiday.
  • During these periods, the taxpayer pays a concessional rate of 1%.

ii) A person engaged in Agro-Processing activity:

  • Agro-processing businesses enjoy a 5-year tax holiday. After this period, they are taxed at a concessional rate of 1%.
  • Additional locational tax incentives are available based on the region of operation. For example, companies operating in Accra and Tema are taxed at 20%, whereas those in regional capitals are taxed at 15%.

iii) Rental income of a person engaged in Cocoa Farming activity:

  • Rental income from residential properties is taxed at 8%, while rental income from commercial properties is taxed at 15%.
  • For individuals or companies engaged in cocoa farming, rental income earned from leasing residential properties will be taxed at the standard rate, while commercial rental income is subject to the corporate tax rate of 25%.
  • 6 Marks

AT – Mar 2024 – L3 – Q2b – Tax administration in Ghana

Identifying categories of persons benefiting from locational tax policies and their respective tax benefits.

Location of certain businesses creates value addition to owners of businesses. In light of the government agenda to accelerate development across certain geographical locations, tax policies are often used to create that drive in response to the 1992 Constitution that requires balanced growth of the country.

Required:
Identify THREE (3) categories of persons that stand to benefit from locational incentives and state their respective benefits.

Categories of persons and their benefits include:

  1. Farming, Agro-processing, and Cocoa by-products businesses
    • Tax rate varies based on location:
      • Accra/Tema: 20%
      • Regional capitals outside the northern savanna ecological zone: 15%
      • Other areas outside the northern savanna ecological zone: 10%
      • Northern Savanna Ecological Zone: 5%
  2. Young entrepreneurs up to 35 years old in specific industries (e.g., manufacturing, agro-processing, waste processing, ICT, tourism, creative arts, farming, energy, horticulture, and medicinal plant)
    • Tax rate varies based on location:
      • Accra/Tema: 15%
      • Regional capitals outside northern regions: 12.5%
      • Other areas outside northern regions: 10%
      • Northern regions: 5%
  3. Manufacturing Concerns
    • Tax rebate based on location:
      • Accra/Tema: 25%
      • Regional capitals: 18.75%
      • Other areas: 12.50%
        (6 marks)
  • 4 Marks

AT – Dec 2023 – L3 – Q3b – Tax planning

Discussing the tax implications and benefits available to companies engaged in farming and agro-processing sectors in Ghana.

Adom Ltd intends to commence business in the following areas:

  • Farming
  • Agro-processing

The management of Adom Ltd has indicated that it wants to conduct the business in the most ethical manner possible but at the same time make the maximum possible profit with minimum tax liability.

Required:
Discuss the tax implications in these sectors of the economy.

Tax Implications for Farming and Agro-processing:

  1. Farming:
    Farming businesses, particularly those engaged in tree crops, livestock, and cash crops, benefit from special tax incentives and temporary concessions in Ghana.

    • Tree Crops: For tree crops (such as cocoa, rubber, oil palm), there is a 10-year tax concession starting from the year of harvest, during which the company pays a reduced tax rate of 1%.
    • Livestock (other than cattle) and cash crops benefit from a 5-year tax concession starting from the commencement of operations, with a 1% tax rate during the concession period.
    • Cattle farming enjoys a 10-year tax concession starting from the commencement of operations, during which the company pays 1% tax.
      After the concession period, farming operations are taxed at the standard corporate tax rate, subject to locational incentives if applicable.
  2. Agro-processing:
    Companies engaged in agro-processing (the transformation of agricultural products into semi-finished or finished goods) enjoy a 5-year temporary tax concession.

    • During the concession period, the company is taxed at a reduced rate of 1% on its profits.
    • After the concession period, standard corporate tax rates apply, but locational incentives may reduce the tax burden based on the area of operation. For example:
      • Accra/Tema: Tax rate of 20%
      • Regional capitals (outside Accra/Tema): Tax rate of 15%
      • Other areas outside regional capitals: Tax rate of 10%
      • Northern Savannah Ecological Zone: Tax rate of 5%
  3. Locational Incentives:
    After the temporary concessions for both farming and agro-processing, companies can benefit from locational tax incentives that reduce the standard corporate tax rate depending on their location.

    • Companies operating in Accra/Tema face a standard tax rate of 20%.
    • Companies located in regional capitals (outside Accra/Tema) enjoy a reduced tax rate of 15%.
    • Companies located in rural areas outside regional capitals enjoy a further reduction, with a tax rate of 10%.
    • Those located in the Northern Savannah Ecological Zone benefit from a significant tax reduction, with a tax rate of 5%.

Summary:
Adom Ltd, by engaging in either farming or agro-processing, will benefit from significant tax incentives and temporary tax concessions in the early years of operation. These incentives include reduced tax rates and tax holidays, which will help minimize the company’s tax liability, particularly if the business is located outside Accra and Tema.

(Marks evenly spread – 4 marks)

  • 10 Marks

TF – Nov 2016 – L3 – Q3b – Business income – Corporate income tax

Advise on the tax implications of investing in farming versus agro processing in Ghana.

b) John Smith, a prospective investor in Ghana, is undecided whether to invest in farming or agro processing. He has contacted you on the tax implications of the two businesses he intends to invest in.

Required:
What advice would you give to John Smith to enable him to make a firm decision? (10 marks)

Tax Implications for Farming vs. Agro Processing in Ghana:

  1. Tax Holidays for Farming:
    • Tree Crops: A 10-year tax holiday starting from the first harvest.
    • Cattle: A 10-year tax holiday starting from the commencement of business operations.
    • Livestock, Fish, and Cash Crops: A 5-year tax holiday starting from the commencement of business operations.
    • Cocoa Farming: Income from cocoa farming enjoys an indefinite tax exemption.
  2. Tax Holidays for Agro Processing:
    • Businesses Established Before 2004: A 3-year tax holiday.
    • Businesses Established After 2004: A 5-year tax holiday starting from the commencement of business operations.
    • Companies Producing Cocoa By-products: A 5-year tax holiday starting from the commencement of business operations.
  3. Post-Holiday Tax Rates:
    • For Agro Processing Companies:
      • Located in Accra and Tema: Taxed at a rate of 20%.
      • Located in Regional Capitals (excluding Upper East, Upper West, and Northern Regions): Taxed at a rate of 10%.
      • Located in Upper East, Upper West, and Northern Regional Capitals: Enjoy a 0% tax rate.
  4. Other Incentives:
    • Carryover of Losses: Both farming and agro-processing businesses can carry over losses for up to 5 years following the year in which the loss was incurred.
    • Employee Housing: For farming businesses, the rent element for employees residing on the farm is excluded from the determination of their income for tax purposes.

Definitions:

  • Tree Crops: Includes crops like coconut, coffee, oil palm, rubber, and sheanut.
  • Cash Crops: Includes crops like cassava, maize, pineapple, rice, and yam.
  • Processing Business: Refers to the business of converting crops, fish, or livestock produced in Ghana into edible canned or other packaged products other than in their raw state.
  • Farming Business: Refers to the business of producing crops, fish, or livestock.

Advice Summary:

  • If John Smith is looking for long-term tax exemptions, farming offers extended tax holidays, especially for tree crops and cocoa. However, agro processing provides significant incentives, particularly if located in specific regions, with lower tax rates post-holiday.

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