Ask a room of tax students whether research and development spending is deductible in Ghana and you will get two confident, opposite answers. Both are partly right. The Income Tax Act, 2015 (Act 896) allows the deduction in Section 13, and switches it off for petroleum and mining operations in Sections 67 and 81. In this article you will learn exactly where the line sits, what ICAG’s papers have tested, and a four-line format for the exam hall.
The general rule you must know first
Section 9(1) of Act 896 allows a deduction for an expense wholly, exclusively and necessarily incurred in producing the income. Section 9(2) denies a deduction for an expense of a capital nature, and Section 9(3) says an expense is capital if it secures a benefit that lasts more than twelve months.
What Section 13 says
Section 13(1): “A research and development expense that meets the requirements of section 9(1) may be deducted irrespective of whether the expense is of a capital nature.”
Section 13(2) defines R&D expense as including expense incurred in the process of developing the person’s business and improving business products or processes, and excluding expense otherwise included in the cost of an asset used in that process.
Plainly: R&D spending passes through the capital barrier, but only if it still meets the wholly, exclusively and necessarily test, and only for the part that is not the cost of an asset. The asset part goes through capital allowances under Section 14.
The sector override: sections 67 and 81
Section 67(2)(a) provides that in calculating income from a separate petroleum operation, the Commissioner-General shall not allow a deduction for research and development expenditure. Section 81(2)(a) says the same for a separate mineral operation.
Rule of thumb: general business, Section 13 applies. Upstream petroleum or mining, add R&D back.
If you want to see this explained visually with worked examples, watch the full lesson on the Profs Tax Academy YouTube channel.
A teaching illustration
Kofi Foods Ltd (an illustration built for teaching, not an exam question) spends GH¢400,000 developing a new packaging process, including GH¢150,000 on a testing machine. The machine is asset cost: excluded by s.13(2)(b) and handled through capital allowances. The remaining GH¢250,000 meets s.9(1) and is deductible under s.13(1), though capital in nature. If the same GH¢250,000 were incurred in a separate mineral operation, s.81(2)(a) would bar it and it would be added back.
What the examiners asked
- Principles of Taxation (Paper 2.6), December 2022, Q4(b), 6 marks: “What is the tax treatment of Research and Development?” The Chief Examiner reported that the majority of candidates “had no idea of how to treat research and development expenditure and Interest” and called it an area where “candidates can easily earn marks”.
- Principles of Taxation, November 2023, Q4(a)(i), 3 marks: Research and development expenditure. Same three-part answer; same examiner complaint.
- Advanced Taxation (Paper 3.3), November 2019, Q5(c)(ii), 2 marks: Kaeka Ltd, upstream petroleum, R&D of US$4,500,000. Treatment: added back, not allowable in petroleum upstream operations.
- Advanced Taxation, July 2024: Q3(b) lists R&D first among deductions the Commissioner-General shall not allow in a separate petroleum operation. Q4 (Toamines Ltd, a mining company) adds back R&D of GH¢3,300,000.
Four mistakes that cost marks
- Adding R&D back as “capital” in a general-business question.
- Deducting R&D for an oil or mining company.
- Deducting the cost of the research equipment as R&D.
- Forgetting that s.13 still requires the s.9(1) test.
EXAM TIP: Four-line answer: (1) s.13(1) R&D meeting s.9(1) is deductible even if capital. (2) Definition and asset-cost exclusion in s.13(2). (3) Petroleum s.67(2)(a) or mineral s.81(2)(a): no deduction. (4) Apply to the numbers.
Conclusion
Section 13 is short and examiners keep testing it. Learn the rule, the exclusion and the sector override, and a topic that costs most candidates marks becomes yours. Spot the sector first, then apply the rule.
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