Taxes fuel the engine of progress in any nation, providing the resources for essential services like education, healthcare, and infrastructure. In Ghana, a rapidly developing country brimming with potential, understanding the tax system is crucial for both individuals and businesses seeking to contribute and thrive.
This article provides details on taxes in Ghana, rates, and penalties.
1. Withholding Tax
It’s an advance payment of tax. Designated entities, known as withholding agents, deduct a specific percentage from eligible payments made to individuals or businesses for services rendered. The withheld tax is then remitted to the Ghana Revenue Authority (GRA) on the recipient’s behalf.
Key points:
Applicable Parties: Registered partnerships, companies, trusts, and other businesses making various payments qualify as withholding agents.
Taxable Transactions: WHT applies to payments for services exceeding specific thresholds, including supply of goods, works, and services, rent, royalties, interest, and professional fees. The rate varies depending on the transaction type and recipient profile.
Recipient Exemptions: Certain individuals and entities not liable for income tax might be exempt from WHT. Exemptions apply to specific categories like non-resident companies under double taxation agreements.
Registration Requirement: Only registered businesses with valid Tax Identification Numbers (TIN) can legally withhold tax. Failure to register can result in penalties and non-compliance issues.
2. Corporate Income Tax
This is a corporate income tax (CIT) levied on all income earned by companies registered in Ghana, regardless of their origin. It is calculated based on the company’s profits at the end of its financial year. THe CIT rate is 25%.
The following entities are subject to Corporate Income Tax
- A friendly society, building society or similar society
- A pension fund, provident fund, retirement fund, superannuation fund or similar fund
- A government, a political subdivision of a government, or a public international organisation
- A partnership in which at least twenty of the partners have limited liability for the debts of the partnership
- A trust with at least twenty beneficiaries whose entitlements to participate in the income or capital of the trust are divided into units such that the entitlements are determined by the number of units owned
- Non-resident company which operates through a branch or which has a permanent establishment within Ghana is subject to tax in the same manner as a resident company, if the permanent establishment is a Ghanaian permanent establishment
Due dates:
- First payment: on or before 31st March of each year of assessment
- Second payment: on or before 30th June of each year of assessment
- Third payment: on or before 30th September of each year of assessment
- Fourth payment: on or before 31st December of each year of assessment
3. Communication Service Tax
CST is charged at a rate of 5%. It is levied on charges payable by both individual and corporate users of electronic communication services (ECS) provided by service providers other than private electronic communication services.
ECS examples are:
- National fixed network and mobile cellular network operators
- Internet Service Providers (ISPs)
- Public/Corporate Data Operators
- Providers of Radio(FM) broadcasting services
- Providers of Free-on-air and Pay-per-view television services
- Free zones Enterprises
- Recipients of electronic communications services from Non-resident persons.
4. Pay As You Earn (PAYE)
PAYE is a tax collection system where employers withhold a portion of an employee’s income and remit it directly to the relevant tax authority on their behalf. This deduction applies to all employment income, regardless of payment form (cash or in kind).
These items are deducted from an employee’s income before calculating PAYE:
- Social Security and National Insurance Trust (SSNIT) – 5.5% of basic salary.
- Mortgage Interest paid on only one residential premise of the employee’s lifetime.
- Provident fund up to 16.5% of your basic salary either paid by the employer or employee or both.
- Contributions and donations to a worthwhile cause.
5. Value Added Tax (VAT)
VAT is an indirect consumption tax levied on the incremental value added to goods and services at each stage of the production and distribution chain. This means that businesses at each stage collect VAT on the difference between the price they paid for the product or service and the price they sell it for. Ultimately, the burden of VAT falls on the final consumer, as it is included in the total price they pay.
With the passage of The Value Added Tax, (Amendment) No. 2 Act, 2022 (Act 1087) by parliament as law, the VAT rate has been increased from 12.5% to 15%.
A penalty of an amount of not more than 50,000 currency points or 3 times the amount of tax involved, whichever is higher.
Note:
“Penalty unit” refers to such units established by the Fines (Penalty Units) Act 2000 (Act 572). The monetary value of a penalty unit stands at GH¢12.00.
“Currency points” as referred to in the Income Tax Act, 2015 (Act 896). The monetary value of a currency point stands at GH¢ 1.00
6. Mineral Royalties Tax
Pursuant to Ghanaian law, any entity involved in mining activities is subject to the Minerals and Mining Operations Tax (Mineral Royalty). This tax is assessed annually at a rate of 5% on the total revenue generated by each individual mining operation even when multiple parties (except for a partnership) hold the mineral rights or share a processing facility.
The income of a person from mineral operations includes:
- Income received from disposal of minerals.
- A compensation received from an insurance policy in respect of loss or destruction of minerals;
- Amount received for sale of information pertaining to the operations or mineral reserves;
- A gain from the disposal or assignment of interest;
- Surplus from an approved rehabilitation fund; and
- Other incidental revenue received.
7. Gift Tax
These are gifts received in respect of the employment. Such gifts may arise from one’s employment relationship, donated by the employer, an associate of the employer or a third party under an arrangement with the employer or an associate of the employer. Outlined under section 4(2vii), of Income Tax Act 896, 2015.
Taxable gift includes:
- Any of the following assets situated in Ghana: building of a permanent or temporary nature, land, shares, bonds and other securities, money, including foreign currency, business and business assets, and any means of transportation (land, air or sea), goods or chattels not included in the above or part of, or any right or interest in/ to/ over any of the assets referred to above.
- An asset or a benefit, whether situated in Ghana or outside Ghana, received by a resident person as a gift by or for the benefit of that person. A resident person is one who has stayed in Ghana for cumulative 183 days within the year of assessment.
- An asset, whether situated in Ghana or outside Ghana, received by or for the benefit of a resident person as a gift where the asset has been or is credited in an account or has been or is invested, accumulated, capitalized or otherwise dealt with in the name of or on behalf of or at the direction of that person.
- A favor in money or money’s worth or a consideration for an act or omission or the forbearance of an act or omission that ensures for or to the benefit of a resident person.
8. Vehicle Income Tax
This tax is collected from commercial transport operators on a quarterly basis.
Due dates for payment of VIT are:
- 15th January
- 15th April
- 15th July and
- 15th October
Features
- It is categorized based on the tonnage and number of passengers.
- It is obligatory for all commercial vehicle operators to buy VIT stickers from any Domestic Tax Revenue Office.
- Stickers are in various categories and rates depending on the vehicle’s passenger capacity and type of operation e.g. taxis, trotros, tour buses, tipper trucks, etc.
- The sticker must be pasted on the front windscreen of the vehicle.
- VIT monitoring is done with the assistance of the Ghana Police Service.
9. Rent Income Tax
Rent income tax applies to landlords who earn money from renting or leasing out residential or commercial properties. This tax must be paid within 30 days of receiving the rent payment. There are two rates for Rent Income Tax: 8% for residential premises and 15% for non-residential premises. Failure to pay your tax on rent income by the due date attracts an interest of 125% of the statutory rate compounded monthly.
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