Act 896, in fact, provided the rationale for Haig-Simon’s theory of income, which is why taxing lottery winnings is justified both under tax law and in economic research. Therefore, “winnings from the lottery” are included in subparagraph (iv) of paragraph (a) of subsection 2 of Section 6 in determining that person’s gains and profits from an investment.
It should be noted that earnings from lotteries are allowed to “include gaming, betting, and any game of chance,” according to subregulation one of Regulation 24 of the Income Tax Regulations (ITR), 2016 (LI 2244). In essence, taxation of lottery wins was already levied under the prior system, although equally and fairly up to a predetermined threshold.
Only the excess beyond the threshold was to be subject to the tax rate. That is GH2,952, or GH5,880 in the current tax bracket. In the event that lottery winnings exceeded GH¢2,592, a final withholding tax of 5% would be applied to the excess. The effective date of this regulation was August 3, 2016.
What then transpired?
The Income Tax (Amendment) Act, 2017 (Act 956) eliminated the previous clause regarding the taxation of lottery winnings in light of the January 2017 election of a new government. Act 956 states that subparagraph (iv) of paragraph (a) of subsection 2 is deleted from Section 6 of the Income Tax Act, 2015 (Act 896), which is referred to in this Act as the “principal enactment.”
As previously said, Act 896’s referenced section directs an individual determining an individual’s or another person’s income and profits from investments to include lottery winners. Because of this, it is economically and legally demeaning to point out that the aforementioned Act 956 never attempted to also eliminate Regulation 24 of the ITR, 2016 (LI. 2244).
From a technical and tax policy perspective, we are still baffled as to why the government removed the lottery wins tax under Act 956 and then reinstated it by the Income Tax (Amendment) Act, 2023 (Act 1094), which resulted in an effective tax rate rise of over 100%. While the government’s decision to reverse Act 956’s wrongdoing is praiseworthy, the threshold should be raised again so that only winnings over GH¢5,880 will be subject to a final 10% withholding tax.