Navigating GRA Requirements: D...

1. Donations and Contributions: Not All Giving is Tax Deductible

While giving back to the community is commendable, for your donations to be tax-deductible under Ghanaian law, they must meet strict criteria and often require prior approval or specific conditions related to the recipient.

GRA's Stance (Income Tax Act, 2015 - Act 896, Section 100 & GRA Practice Notes):

• "Worthwhile Cause" Approval is Paramount: A deduction is only allowed for contributions and donations made to a "worthwhile cause approved by Government." This isn't a blanket approval; specific categories and processes apply:

• Approved Charitable Organizations: The recipient must be a charitable organization that possesses an unexpired written approval issued by the Commissioner-General of the GRA, in accordance with Section 97 of the Act. This means the charity itself must be formally recognized by the GRA as tax-exempt.

• Scholarship Schemes: These require a written attestation from the Minister for Education, confirming the scheme as a worthwhile cause.

• Rural or Urban Development Activities: These need a written attestation from the Minister for Local Government, confirming the activity as a worthwhile cause.

• Sports Development or Promotion: Requires a written attestation from the Minister for Youth and Sports.

• The Commissioner-General may also consider other activities if they address identifiable socio-economic needs, are quantifiable, and non-discriminatory.

• Formal Application by Donor: As the donor (taxpayer), you must complete a specific "Claim form for deduction for contribution/donation to a worthwhile cause" and submit it to the Commissioner-General through your Tax Office.

• Proof of Receipt & TIN: Your application must be supported by a written acknowledgement from the verifiable beneficiaries, and crucially, these beneficiaries must have a valid Taxpayer Identification Number (TIN).

• GRA Review: The Commissioner-General will assess your application, potentially considering anti-avoidance rules, before granting approval for the deduction.

In essence, you can't just donate and deduct. You must ensure the recipient is a GRA-approved entity for tax purposes, and you need to formally apply to the GRA with comprehensive documentation.

2. Bad Debts Write-Offs: Proving Every Effort Was Made

For a bad debt to be tax-deductible in Ghana, it’s not enough to simply decide a debt is uncollectible. The GRA requires proof that you made reasonable efforts to recover the debt, and that you genuinely believe payment is not possible.

GRA's Stance (Income Tax Act, 2015 - Act 896, Section 9):

• "Wholly, Exclusively and Necessarily Incurred": The debt must have arisen from your normal business operations and be genuinely uncollectible.

• Commissioner-General's Satisfaction: The GRA's Commissioner-General must be "satisfied" that you have taken "all reasonable steps to pursue payment" and that you "reasonably believe payment will not be made." This is a critical hurdle.

• Evidence of "Reasonable Steps": You need to document your efforts. This typically includes:

• Issuing formal reminder notices or demand letters to the debtor.

• Engaging debt collection agencies (and documenting their efforts).

• Attempting to renegotiate payment terms.

• Demonstrating that the cost of legal action or litigation would be prohibitive compared to the debt amount, with no other cost-effective recovery option.

• Debtor's Circumstances: The debt can be considered bad if the debtor has:

• Died, become bankrupt, or is in liquidation.

• Cannot be traced despite diligent efforts, with no known assets for recovery.

• Non-Capital Nature: The debt must not be an advance or loan made on a capital account.

• Recovery Inclusion: If any amount from a previously written-off bad debt is later recovered, it must be included in your taxable income for the period it's received.

• Specific Rules for Financial Institutions: Banks and other financial institutions have additional stringent requirements, often needing sanction from their Board of Directors and even approval from the Bank of Ghana, particularly for specific provisions. Loans with collateral may have limited deductibility.

You must be prepared to demonstrate to the GRA, particularly during an audit, that you have diligently pursued the debt and have strong reasons to deem it uncollectible before claiming it as a deduction.

3. Obsolete Inventory Write-Offs: Documentation is Your Ally

While the GRA doesn't typically require pre-approval or witnessing for every obsolete inventory write-off, the principle remains: the loss must be verifiable, genuinely incurred, and properly accounted for.

GRA's Stance (General Deductibility Principles under Income Tax Act, 2015 - Act 896):

• Actual Sustained Loss: The inventory must have genuinely lost its value due to obsolescence, damage, or spoilage, and this loss must be formally recognized and written off in your financial records during the relevant tax year.

• No Compensation: The loss should not be covered or compensated by insurance or other means.

• Evidenced Transactions: Crucially, you need clear, robust documentation supporting the reasons for obsolescence (e.g., expiry dates, technological advancements making it unusable, evidence of damage) and the method of disposal (e.g., destruction logs, donation receipts, salvage sales records).

• Adherence to Accounting Standards: The write-off should be executed in accordance with Generally Accepted Accounting Principles (GAAP) or relevant accounting standards, and this should be clearly reflected in your financial statements.

• Audited Financial Statements: Having your financial statements audited by an independent firm provides an additional layer of credibility and external validation that these write-offs are legitimate and properly recorded. During a GRA audit, your records and the processes you followed will be scrutinized.

To reduce risk, maintain meticulous records of the obsolete inventory, document the cause of obsolescence, and formally write it off in your books. Be prepared to justify and substantiate these write-offs with robust evidence if questioned by the GRA.

Why Professional Guidance is Indispensable

Navigating these specific GRA requirements can be complex and time-consuming, especially with evolving tax laws and practice notes. Errors in these areas can lead to disallowed deductions, interest on underpaid taxes, and penalties, costing your business far more than the initial perceived savings of doing it yourself.

At TrustBooks Consult, we specialize in granular tax compliance and advisory for Ghanaian businesses. We ensure your deductions for donations, bad debts, and obsolete inventory are handled correctly, supported by the necessary documentation, and fully compliant with GRA regulations.

Don't risk your financial standing. Partner with TrustBooks Consult to ensure your tax planning is sound, compliant, and optimized for your business's success.