The government’s effort to widen the tax base, in recent times, has seen a robust drive to get all income-earners to acquire a Tax Identification Number (TIN). A very laudable effort, if Ghana is to ensure good tax mobilization for development. The TIN, accordingly to the State, will be required for activities such as opening a bank account (corporate or individual), clearing goods from the ports, property registration, business registration, obtaining a driver’s licence, passport, among others. In effect, in a matter of time, a person cannot be economically functional without a TIN.
This article focuses on the TIN and its importance to the real estate market, focusing on capital gains tax & stamp duty tax.
Ghana’s real estate market has seen lot of transactions undertaken with little or no input from professionals such as land administrators, valuers, surveyors and/or lawyers. Over the years, there is a common practice where property sales & purchases are carried out between parties; informally with payments of large sums of money in cash (which may be difficult to prove or trace). The deeds that are executed between the seller and purchaser usually understate the consideration for the property (a situation encouraged even by the purchaser), with the intention of avoiding ‘huge’ taxes, thus stamp duty.
Stamp duty, capital gains tax, rent tax, property rates, and gift tax are some examples of taxes; which will be required to pay in the process of a transaction or as a result of having interest in a property. Of the many real estate transactions that take place in Ghana, a very important question remains to be answered sincerely. Are the tax requirements fulfilled by the parties as required by law? Will the enforcement of TIN be the sole solution, towards the realization of real estate taxes? These taxes could be a great source of revenue for the State, if we start to realize TIN is not the ultimate factor to mobilize revenue, but rather the availability real estate market data.
In a typical real estate transaction in Ghana; the purchaser is given deeds document, with the following details: nature of interest, tenure, location (site plan), consideration, signatories to the agreement and witnesses. Reference made to the Stamp Duty Act - 2005 (ACT 689), section 13 & 14 talks about the obligations relating to land transaction. Stamp duty is a prerequisite for all land transaction registration being freehold, lease, sub-lease, mortgage, tenancy etc. Without stamp duty compliance, the deeds document is not recognized as a legal document and therefore cannot be tendered in court as evidence of purchase. Purchases comply with the Stamp Duty Act not because they want to discharge their tax obligation; but adhere because it happens to be requirement to register your property. The law makes it easy for Ghana Revenue Authority (GRA) to mobilize Stamp Duty, as provided in the Stamp Duty Act - 2005 (ACT 689. Another critical question remains, is GRA mobilizing the right stamp duty from property sales? Which data is been relied on as the basis for stamp duty assessment. Does TIN has a correlation, with purchases paying the right stamp duty?
On the part of the seller, GRA is unable to mobilize capital gains tax, for several reasons. Some factors for GRA inability to mobilize capital gains tax are as follows; lack of national addressing system, lack of national identification, dearth of information in the real estate market, delays in property registration, consideration for properties been accepted by cash, to mention few. From the equitable principle point of view, GRA must ensure that all parties (seller & purchase) honour their tax obligation.
The implementation of TIN, is one of practical approach to identify tax payers’; does it actually identity payers when it comes to real estate transactions. Upon conclusion of a real estate transaction in Ghana, the buyer has to pay stamp duty to be able to register the deed. The sellers, in most cases, do not pay capital gains tax for the reasons discussed earlier. Assuming a seller assigns his interest in a property worth GHS1,000,000.00 at Airport residential area, the buyer is expected to pay a stamp duty of GHS10,000.00 as stamp duty tax. Stamp duty tax in this case, is 1% of the value of the property and this is assessed by valuers at the Land Valuation Division. The seller is For example, if a property was acquired in 2011 for GHS700,000.00 and its disposal value was GHS1,000,000.00 in 2018; capital gains tax to GRA will be 15% of (GHS 1,000,000.00 –GHS 700,000.00),thus GHS 45,000.00. How will the successful implementation of TIN help the GRA to mobilize capital gains tax, if no one is keep records of historical data? Capital gains can be calculated if we have a repository of real estate market data. From these data, values can assess the profit made in a transaction (Purchase price2 - Purchase price1). This profit margin can then be attributed to a citizen, as a capital gain to attract tax liability; if we have a national identity for every Ghanaian.
When a document is presented to the Land Valuation Division for tax assessment, why is the focus only on stamp duty and not capital gains tax? The deeds agreement (indenture) gives a recital on the chronology of ownership with dates. The Land Valuation Division, if proper historical values are kept should make it easy to reckon whether capital gains was made or not. Property values increase over time attributed to the forces of demand and supply. Is Land Valuation Division abreast with market data, which can be tendered in as evidence in court? Should we hold the Lands Valuation Division accountable for real estate transaction data scarcity? Can we attribute GRA’s inability to mobilize capital gains tax on real estate transactions, to lack of real estate data?
If real estate data was readily available, will the GRA be able to mobilize capital gains tax from real estate transactions without a proper addressing system, national identification, cash based transactions and lack of real estate data . In our opinion, we strongly believe that TIN is a good step towards widening our tax base; however, for the GRA to be successful in its journey a solid real estate market data repository must also be considered. Government cannot be successful in mobilizing real estate taxes without a property transaction database.
Article By :
Kwame Yeboah Ankapong Kwame Kankam Adom
(Real Estate Consultant) (Real Estate Consultant)
Disclaimer: The view expressed in this article is solely the views of the authors and not in any way reflect the views of the organisation they work for or may be affiliated to.