- Tax deduction in Ghana has always played a crucial role in shaping the finances of the country and how its administration is run.
There are certain allowances or income that are considered to be non-taxable allowances in Ghana due to one reason or the other. This is despite the numerous types of taxes imposed by the Ghanaian Government
It is pertinent to state that in Ghana, tax exemptions are usually granted either due to the nature of the income or allowance or to ensure relief.
Non-Taxable Allowances in Ghana: The Exemptions
Many income/allowances are non-taxable in Ghana and below are some of them:
1. The first one is the income generated by a non-resident person from a business that operates ships or aircraft if the Commissioner-General is convinced that the same exemption is awarded by that person’s country of residence to persons resident in Ghana.
2. Another is any income directly connected to the Government or local authorities’ activities.
3. Income of an approved unit trust or mutual fund.
4. Income of an approved Real Estate Investment Trust.
5. Salary, allowances, facilities, pension, and gratuity of the President;
6. Interest and gains generated by a non-resident person on bonds issued by the government of Ghana.
7. Income of a non-commercial public corporation.
8. Pension.
9. Income of a cocoa farmer from cocoa.
Types of Taxes for Individuals in Ghana
- Personal Income Tax (PIT)
- Pay As You Earn (PAYE)
- Gift Tax
- Tax Stamp
- Vehicle Income Tax (VIT)
- Rent Income Tax
Personal Income Tax, PIT
The Ghanaian Tax Administration charges Personal Income Tax, PIT on an individual’s net income which is calculated based on gross income minus allowable tax reliefs and capital gains of the taxpayer in question.
Income taxable is either from investment, business or employment. Sole proprietorship and partnership businesses that earn above GH¢ 365 per month are expected to also pay Income Tax.
Just like every type of tax law, the Personal Income Tax is powered by Income Tax Act 2015 (Act 896).
Furthermore, individuals in Ghana are expected to remit income tax from the dual option of either withholding payment of the year of assessment or from their chargeable/assessable income.
Accessable income for the Ghanaian taxpayer is regarded as the individual’s worldwide income from all sources. For non-residents, it is income from Ghana alone.
In specifics, income tax from employment for the year under review includes; salary, wages, leave pay, fees, commissions, gratuities, overtime pay, bonuses and other benefits and allowances paid in cash or given in kind.
However, income tax from business for the year under review includes; Service fees received for trading stock, and gains from capital assets. Gift received by individuals for businesses, any amount effectively connected with the business worthy of inclusion as investments.
On the flip side, income tax from investment for the year under review includes; gifts received connected to the investment, gain from the realization of investment assets, interest, annuity, rent, royalty, and natural resource payment.
Exception of Personal Income Taxes in Ghana
For a more robust understanding of non-taxable allowances in Ghana, there is a need to highlight exceptions to the payment of income tax along the criteria of employment, Business and Investment.
Below are exempted from the circulation of employment income:
- Redundancy pay
- Final Withholding payment
- An expense incurred by an individual in the sted of an employer
- An expense incurred as discharge or reimbursement of the dental, medical or health expenses health insurance expenses of an individual, where the benefit is available to each full-time employee on equal terms
Below are exempted from the circulation of business income:
- Final withholding payment
- The amount included in the calculation of an individual’s employment income.
- Exempt amounts
Below are exempted from the circulation of investment income:
- Final withholding payment
- The amount included in the calculation of an individual’s employment income.
- Exempt amounts
Pay As You Earn (PAYE)
In Ghana, the Pay As You Earn Tax is tune with the provisions of the income tax but is paid by an employer on behalf of the employee on all income received in cash or in kind and attached to the employment terms.
The Ghanaian tax administration stipulates that PAYE is filed by the employer on behalf of the employee before the 15th of the month following the month in which the deduction was implemented.
Deductions Calculated Before PAYE
According to Ghana Revenue Authority, GRA, below are critical deductions that PAYE encompasses every month:
- Contributions and donations to a worthwhile cause.
- Provident fund up to 16.5% of your basic salary either paid by the employer or employee or both
- Mortgage Interest is paid on only one residential premise of the employee’s lifetime.
- Social Security and National Insurance Trust (SSNIT) – 5.5% of basic salary.
Gift Tax
An individual is captured in the Ghanaian tax net when he or she receives a gift connected to their employment, business, or investment. This gist is excluding a will upon intestacy or by way of transfer to the spouse, child or parent of that person.
Tax Stamp
The informal sector is also captured in the tax through the instrument of the tax stamp. It is paid every quarter and due on the following dates; 15th January, 15th April, 15th July, and 15th October.
Players in the informal sector expected to pay this tax include; artisans (masons, carpenters, welders, mechanics, vulcanizers), small-scale self-employed dressmakers/tailors, hairdressers/beauticians/barbers, Susu collectors, garage owners, hawkers and itinerant traders, cooked food sellers, butchers, container/kiosks/ tabletop operators.
Vehicle Income Tax (VIT)
Just like the Tax Stamp in Ghana, this is also paid on a quarterly arrangement by commercial transport operators.
The due dates of payments are as follows; 15th January, 15th April, 15th July, and 15th October. This tax is obligatory for all commercial bus drivers.
Rent Income Tax
Letting or leasing a property to another person in Ghana attracts the Rent Income Tax. The tax is obligatory to be paid within 30 days of receiving rent income on either residential premises or non-residential premises.
The rates of the Rent Income Tax are 8% for residential premises and 15% for non-residential premises.
Conclusion
To summarize, Ghana has so many types of taxes for both individuals and corporations but the government considers certain income/allowances to be non-taxable due to one reason or the other.
Follow us on Twitter for more update
The information contained herein is general and is not intended, and should not be taken, as legal, accounting or tax advice provided by Taxmobile.Online Inc to the reader. This information remains strictly the opinion of Taxmobile.Online Inc.
The reader also is cautioned that this material may not apply to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of other tax factors if any action is to be contemplated. The reader should contact his or her Tax Advisers before taking any action based on this information.
All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Taxmobile.Online Inc.