Parliament has amended the Income Tax (Amendment) Act 2015 to exempt withdrawals from third tier Provident funds and personal pension schemes from tax.
The Pensions Act of 2008 established a three-tier pension scheme consisting of three levels of contributions, namely Tier 1, which is a mandatory basic national social security scheme, whereas Tier 2 is a mandatory occupational pension scheme that is fully funded and privately managed, while Tier 3 is a voluntary provident fund and personal pension scheme — also fully funded and privately managed.
This is to cushion individuals who have lost their jobs or capital due to the Coronavirus pandemic.
The Amendment in fiscal terms will amount to 639 million Ghana cedis if all funds are withdrawn under the given circumstances.
The house also approved a request to waive taxes on personal emoluments of health workers for April, May and June, and additional allowance for frontline health personnel for March, April, May and June this year.
A Deputy Minister of Finance, Abena Osei Asare, informed the house about government’s rationale behind these policy decisions.
“Mr. Speaker, the COVID-19 pandemic has resulted in some economic challenges for businesses. Some sectors of the economy have suffered losses which may lead to some employees being laid off permanently and the folding up of businesses of some self-employed businesses. Such persons may require funds to sustain themselves. One ready source of funds will be contributions to the third tier provident funds and personal pension schemes.”
“Mr. Speaker, withdrawals from the third-tier and personal pension schemes before retirement are however subject to tax if they are withdrawn before 10 years by contributors in the formal sector, and before five years by contributors in the informal sector. Mr. Speaker, the government has decided to exempt such withdrawals from tax for employees who lose their jobs permanently or whose businesses collapse due to the COVID-19 pandemic. Exemptions will be equivalent to 15 percent to the withdrawals” she noted.
But the Ranking Member on Parliament’s Finance Committee, Cassiel Ato Forson, said government should extend a similar gesture to SSNIT contributors to offer them some relief amidst the Coronavirus pandemic.
“There is something all of us must understand and find a clever way to make sure this happens. Mr. Speaker, as we speak, government owes SSNIT some money. The government can decide to pay SSNIT and ask SSNIT to be able to take up that mandate. Government alone as a state can’t take up the responsibility of paying the wages and salaries of private-sector workers; Ii can’t.”
“There are several ways the government can engineer and do this. One of the ways for us to encourage SSNIT to take up the burden of contributors is by paying some lump sum to contributors in times like these where businesses are struggling. It will be prudent for all of us to reconsider and debate this and encourage an amendment to the law to enable pensioners and contributors to withdraw some monies to support their businesses.”