SALIENT TAX ISSUES FOR

SME’S IN GHANA
WILLIAM KOFI OWUSU DEMITIA
JULY 2018
 09/04/2023

2 INTRODUCTION
• Section 1 of the Income Tax Act, 2015 (Act 896)
requires all persons who have chargeable income
(taxable income) within a year to pay tax on that
income.
• Section 2 of the Income Tax Act, 2015 (Act 896)
defines chargeable income as the total of a
person’s assessable income less deductions
permitted under the law.
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3 INTRODUCTION

• The definition of assessable income under section

3 of the Act depends on the tax residence of the
person.
• For a resident person, assessable income
comprise income from sources within Ghana and
sources outside of Ghana
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4 INTRODUCTION

• In the case of a non-resident person assessable

income includes income which has a source in
Ghana and income which is effectively connected
with a permanent establishment of that person.
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5 TAXATION OF NON-PROFIT
ORGANISATIONS
Charitable Organisations (Section 97)
• Income accruing to or derived by a charitable organization
is exempt from tax.
• However, this exemption does not apply to the business
income of a charitable organization.
• An entity requires the approval of the Commissioner-
General before it will be regarded as a charitable
organization for tax purposes.
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6 TAXATION OF NON-PROFIT
ORGANISATIONS
• Clubs and Trade Associations (Section 98)
• A club , trade association and other similar
institutions are treated as companies for tax
purposes.
• Income of clubs, trade associations or similar
institutions include entrance fees, subscriptions
and other amounts derived by the institution from
members during that year.
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7 TAXATION OF NON-PROFIT
ORGANISATIONS
• Clubs and Trade Associations (Section 98)
• The income of a club, trade association or similar
institution is exempt from tax.
• However, business income of a club, trade
association or similar institution is not exempt
from tax.
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8 TAXATION OF NON-PROFIT
ORGANISATIONS
Building and Friendly Societies (section 99)
• The Act treats a building or friendly society as a
company for tax purposes.
• Income of a statutory building society, registered
building society, statutory friendly society or
registered friendly society is exempt from tax in a
year of assessment if the following conditions are
satisfied:
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9 TAXATION OF NON-PROFIT
ORGANISATIONS
Building and Friendly Societies (section 99)
(a) Membership of the society and contributions to
the society are restricted to only individuals;
(b) The organisation refrains from engaging in
party political activities; and
(c) The Commissioner-General has given a ruling
that the society has satisfied conditions stipulated
above.
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10 TAXATION OF COMPANIES

• Under Act 896, a company is liable to tax

separately from its shareholders.
• The Act imposes an obligation on a resident
company to withhold tax on the amount of the
dividend paid to the shareholder. The tax withheld
on the dividend payment is 8%.
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11 TAXATION OF COMPANIES

• The Commissioner-General may, by notice in

writing treat as dividend, a part of the income of a
company when the following conditions exist:
• the company is controlled by not more than five
persons; and
• the company does not pay dividend to its
shareholders within a reasonable time after the
end of the accounting year of the company
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12 TAXATION OF COMPANIES

• A company is expected to file an estimate of the

tax payable for the year by the date for payment
of the first tax instalment (31st March)
• A company is expected to file its return of income
for tax purposes at most four (4) months after the
end of the accounting year of the company.
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13 TAXATION OF COMPANIES

• Generally, the corporate income tax rate is 25%.

For companies engaged in mining and petroleum,
the corporate tax rate is 35%.
• Companies principally involved in the hotel industry
have a tax rate of 22%
• Income of a company from the export of non-
traditional goods is taxed at the rate of 8%.
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14 TAXATION OF COMPANIES

• Companies in manufacturing business located

outside Accra and Tema and in the regional
capitals pay tax at the rate 18.75% and those
located outside the regional capitals pay tax at the
rate of 12.5%.
• Income of Free Zone Companies after the
concessionary period from export of goods and
services outside Ghana is taxed at the rate of 15%.
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15 TAXATION OF PARTNERSHIPS

• The Act provides that a partnership is not liable to

pay tax on its income and not entitled to any tax
credit with respect to that income but is liable to tax
with respect to final withholding payments.
• In other words, the partnership is not taxed as an
entity. The income or loss of the partnership is
allocated to the partnership in line with their profit
and loss sharing ratio as stated in the partnership
agreement.
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16 TAXATION OF PARTNERSHIPS

• Where at least two existing partners continue the

partnership after a change of partners, the
partnership is treated as the same entity before
and after the change.
• Taxes paid under the Act in relation to income of
the partnership is allocated to the partners, in their
profit and loss sharing ratio and treated as paid by
the partners.
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17 TAXATION OF SOLE
PROPRIETORSHIPS

• The third schedule to the Income Tax

Regulations, 2016 (L.I. 2244) groups self
employed persons into Categories A, B and C.
• Category A covers retail traders, susu collectors,
drinking and chop bar owners, bakeries, business
centres, estate and accommodation agents.
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18 TAXATION OF SOLE
PROPRIETORSHIPS

• Category B covers dressmakers, tailors,

hairdressers, beauticians, barbers, artisans, hiring
services (excluding vehicle hiring) and freelance
photographers.
• Category C covers butchers, individual
undertakers, corn and other millers, charcoal and
firewood vendors, auto technicians, vulcanizers
and alignment operators, shoe and equipment
repairers and traditional healers.
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19 TAXATION OF SOLE
PROPRIETORSHIPS
Category A Quarterly Payment
(GHS)

Large 45
Medium 30
Small 10
Table Top 3
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20 TAXATION OF SOLE
PROPRIETORSHIPS
Category B Quarterly Payment
(GHS)

Large 35
Medium 20
Small 5
Table Top 3
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21 TAXATION OF SOLE
PROPRIETORSHIPS
Category C Quarterly Payment
(GHS)

Large 25
Medium 15
Small 3
Table Top 3
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22 TAXATION OF SOLE
PROPRIETORSHIPS

• The Commissioner-General is mandated to issue a

“tax stamp” to a person who pays the tax.
• The tax is supposed to be paid on or before the
15th January, 15th April, 15th July and 15th October
of each year.
• The payment made is merely a payment on
account and it does not relieve the individual of
the obligation to file a tax return at most four (4)
months after the end of the calendar year.
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23 TAXATION OF SOLE
PROPRIETORSHIPS

• Under the third schedule to the Income Tax

Regulations, vehicle owners are also required to
pay a vehicle income tax every quarter.
• The amount payable depends on the nature of the
vehicle.
• The payment made is merely a payment on
account and it does not relieve the person of the
obligation to file a tax return at most four (4)
months after the end of the calendar year.
 WITHHOLDING TAX (S. 115, 116, 119, & 1ST SCHEDULE)
24
Resident Persons Rate (%)   
Interest payments (excluding payments to individuals and resident financial 8 On A/c
institutions)
Interest paid to Individuals (excluding payments made by resident financial 1 On A/c
institutions)
Dividend 8 Final tax
Rent of residential property (where rent is investment income) 8 Final tax
Rent of non-residential property (where rent is investment income) 15 Final tax
Fees, allowance to resident director/manager, board member, trustee 20 On A/c
Fees to lecturers, invigilators, examiners, part-time teachers, and endorsement 10 Final tax
fees
Commissions to a sales agent, resident insurance sales or canvassing agent 10 On A/c

Commissions to resident lotto receivers or agents 10 On A/c

Supply of goods exceeding GHC 2,000 p.a. 3 On A/c
Supply of works exceeding GHC 2,000 p.a. 5 On A/c
Supply of services exceeding GHC 2,000 p.a. 7.5 On A/c
 09/04/2023

25 WITHHOLDING TAX OBLIGATIONS

• Employers are required to withhold taxes at the appropriate

rate from income of employees earn during a month.
• Any amount of tax withheld from payments made to any
person must be paid over to the Ghana Revenue Authority
by the 15th day of the following month.
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26 SPECIFIC INCENTIVE FOR

EMPLOYERS

• Employment of Graduates: Companies which

employ fresh graduates from a recognized
Ghanaian tertiary institution is allowed a
deduction for the salaries and wages paid to the
fresh graduate and an additional deduction
depending on the percentage of the fresh
graduates in relation to the total workforce of the
company.
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27 SPECIFIC INCENTIVE FOR

EMPLOYERS

• If the fresh graduates constitute 1% of the

company’s workforce, 10% of salaries & wages
of the fresh graduates is allowed as an additional
deduction. Where the fresh graduates employed
are more than 1% but do not exceed 5% of the
workforce, 30% of salaries & wages of the fresh
graduates is allowed as an additional deduction.
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28 SPECIFIC INCENTIVE FOR

EMPLOYERS

• Employing fresh graduates such that they exceed

5% of the workforce enables the company to
deduct an additional 50% of salaries & wages of
the fresh graduates
• A fresh graduate to mean a person who has
graduated from a tertiary institution for the first
time whether or not that person was previously
employed.
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29 SPECIFIC INCENTIVE FOR YOUNG

ENTREPRENEURS
• A young entrepreneur who is not more than
35years old engaged in the business of
manufacturing, ICT, agro processing, tourism,
horticulture, energy production, waste processing,
creative arts and medicinal plants is exempt from
tax for a period of five years.
• After the initial five years, a concessionary rate of
tax is applied for another five year period
depending on the location of the business.
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30 TEMPORARY CONCESSIONS

• Under the Sixth Schedule of the Act, the income

of an individual who conducts tree crop farming
wholly within the country is subject to tax at the
concessionary rate of 1% for a period of ten years
of assessment from the year in which the first
harvest of the crops occurs.
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31 TEMPORARY CONCESSIONS

• At the end of the ten year period, the Act provides

further incentives for a period of five years
depending on the location of the business engaged
in tree crop farming.
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32 TEMPORARY CONCESSIONS

• In the case of cash crop or livestock farming other

than cattle or fish, the concessionary rate of 1%
applies for a period of five years of assessment
from the year in which the business commences.
• For individuals engaged in cattle farming, the
concessionary rate of 1% applies for a period of
ten years of assessment from the year in which
the business commences.
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33 TEMPORARY CONCESSIONS

• An individual engaged cash crop farming,

livestock farming or cattle business enjoys
additional tax incentives for a period of five years
after the initial five years of assessment
depending on the location of the business.
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34 TEMPORARY CONCESSIONS

• The income of a person from agro processing

business in Ghana is taxed at a concessionary rate of
1% for a period of five years of assessment from
the year in which commercial production
commences.
• Agro processing business is defined in the Act to
mean “the business of converting crops, fish, or
livestock produced, caught or raised in the country
from their raw state into edible canned or packaged
product.”
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35 TEMPORARY CONCESSIONS

• The income of a person engaged in agro

processing business is taxed at a reduced rate for
a period of five years after the initial five years of
assessment depending on the location of the
business.
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36 TEMPORARY CONCESSIONS

• The income of a person from cocoa by-product

business conducted wholly in the country is taxed
at the concessionary rate of 1% for a period of
five years of assessment from the year in which
commercial production commences.
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37 TEMPORARY CONCESSIONS

• Cocoa by-product business is defined as a

business that produces on commercial basis,
cocoa by-products derived from substandard
cocoa beans, cocoa husks and other cocoa waste
as its main raw materials.
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38 TEMPORARY CONCESSIONS

• After the five years of assessment during which a

person engaged in cocoa by-product business is
taxed at the concessionary rate, the Act provides a
reduced rate of tax for an additional period of five
years depending on the location of the business.
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39 TEMPORARY CONCESSIONS

• The income of a company whose principal

activity is the processing of waste including
recycling of plastic and polythene material for
agricultural or commercial purposes pays tax at
the concessionary rate of 1% for a period of seven
years of assessment the year in which the business
commences.
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40 TEMPORARY CONCESSIONS

• The income of a company issued with a certificate

by the Minister for Works and Housing that that
company is engaged in low cost housing business
is subject to tax at the concessionary rate of 1%
for a period of five years of assessment from the
year in which the operations commences.
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41 TAXATION OF EMPLOYEES

• Basic Salary - An individual’s monthly basic

salary means income represented by monthly
salary paid to an employee and applicable to the
grade, rank or position of that employee without
addition of any allowance or benefit paid in cash
or given in kind to that employee or applicable to
the grade, rank or position of that employee.
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42 TAXATION OF EMPLOYEES

• Cash Allowances -These are other benefits paid

in cash to the employee or on his behalf. These
may include commuted/transport allowance, fuel
allowance, accommodation allowance,
telephone/mobile units allowance, professional
allowance, clothing allowance, entertainment
allowance, utility (electricity/water) allowance,
etc.
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43 TAXATION OF EMPLOYEES

• Benefits in Kind-These are allowances granted to

an employee but not paid in cash. It could take
two forms, accommodation and vehicle elements.
Additionally, a reimbursement or discharge of a
person’s dental, medical, or health insurance
expenses where the benefit is not available to all
full-time employees on equal terms can be
considered as benefits in kind.
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44 TAXATION OF EMPLOYEES

• Overtime Pay-This is usually paid in cash. It is

paid to employees who work beyond basic
working hours, weekends, and holidays.
• In Ghana, overtime pay is taxed at a special rate
for junior staff employees earning up to a certain
amount for per year.
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45 TAXATION OF EMPLOYEES

• Bonus-This is paid to employees because of good

work done or the overall good performance of the
entity. The bonus on good work done or the
overall performance of the company depends on
the policy of the employer.
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46 TAXATION OF EMPLOYEES

• OVERTIME PAYMENT
• Where an employer makes a payment during a
year of assessment to a qualifying junior
employee for overtime work by that employee,
and the payment for the overtime work to that
employee satisfies the following conditions:
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47 TAXATION OF EMPLOYEES

• OVERTIME PAYMENT
a) is up to 50% of the basic salary of the employee for
the month, the employer shall withhold tax at the
rate of 5% from the payment
b) is more than 50% of the basic salary of the
employee for the month, the employer shall withhold
tax at the rate of 10% from the amount of payment
that exceeds 50% of the basic salary for the month.
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48 TAXATION OF EMPLOYEES

• OVERTIME PAYMENT
• A qualifying junior employee is a junior staff
member whose qualifying employment income
does not exceed GHS18,000 in a year of
assessment.
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49 TAXATION OF EMPLOYEES

• BONUS PAYMENT
• Where an employer pays a bonus to an employee
during a year of assessment and the sum of the
payment and other bonuses paid by the employer
to the employee during the year
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50 TAXATION OF EMPLOYEES

• BONUS PAYMENT
a) does not exceed 15% of the annual basic salary
of the employee, the employer shall withhold
tax from the gross amount of the payment at
the rate of 5%;
b) exceeds 15% of the annual basic salary of the
employee, the employer shall:
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51 TAXATION OF EMPLOYEES

• BONUS PAYMENT
i. add any excess above the 15% payments to the
employment income of the employee for the year,
and
ii. withhold tax from the payment in accordance
with the income tax rates for resident individuals.
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52 TAX RELIEFS FOR INDIVIDUALS

• In the case of an individual with a dependant

spouse or at least two dependant children, 200
currency points, [GHS200.00]
• In the case of an individual with a disability, 25%
of that individual’s assessable income from any
business or employment. It should be noted that
investment income is excluded;
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53 TAX RELIEFS FOR INDIVIDUALS

• In the case of an individual who is sixty years of

age and above, 200 currency points (GHS200.00);
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54 TAX RELIEFS FOR INDIVIDUALS

• In the case of an individual sponsoring the

education of the individual’s children or wards in
any recognized registered educational institution
in Ghana, 200 currency points (GHS200.00) per
child or ward, but that individual may only claim
a relief in respect of three children and, where two
or more persons qualify in respect of the same
child or ward, only one relief shall be granted;
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55 TAX RELIEFS FOR INDIVIDUALS

• In the case of an individual with a dependant

relative, other than a child or spouse, who is sixty
years of age or more, 100 currency points
(GHS100.00) but that individual may only claim a
relief in respect of two dependant relatives and,
where two or more persons qualify in respect of
the same relative, only one relief shall be granted;
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56 TAX RELIEFS FOR INDIVIDUALS

• In the case of an individual, the cost of training if

it is to update the professional, technical or
vocational skills or knowledge of the individual,
the cost of training not exceeding 400 currency
points (GHS400.00).
 09/04/2023

57 TAX RELIEFS FOR INDIVIDUALS

• The Act defines a “dependant child, spouse, or

relative” in respect of an individual as a child,
spouse, or relative of the individual for whom that
individual provides the necessities of life.
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58 TAX RELIEFS FOR INDIVIDUALS

• The assessable income of an employer or

employee shall be reduced by contributions made
by the employer or employee to the mandatory
pension schemes under the National Pensions Act,
2008 (Act 766).
• The reductions in the assessable income shall not
exceed the total of 18.5% of the individual’s
income.
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59 TAX RELIEFS FOR INDIVIDUALS

• The National Pensions Act, 2008 (Act 766)

requires an employer to contribute 13% of the
employee’s basic salary to the mandatory tier 1 &
2 of the pension schemes.
• The individual employee must also contribute
5.5% of the person’s basic salary to the
mandatory pension schemes.
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60 TAX RELIEFS FOR INDIVIDUALS

• In addition, payments made on retirement or

under a retirement fund on account of old age,
sickness, or other infirmity to an employee is
exempt from tax under section 7 of the Act.
• Contributions made to a provident fund which has
been regularized as a third-tier pension scheme is
exempted from taxes under the National Pensions
Act, 2008 (Act 766).
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61 TAX RELIEFS FOR INDIVIDUALS

• The rule is that, contributions not exceeding

161/2% of a contributor’s monthly income, made
either by a contributor or the contributor’s
employer or both, shall be treated as deductible
income, (i.e. tax exempt) for the purpose of
income tax for the contributor and the
contributor’s employer to the extent of their
respective contributions.
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62 TAX RELIEFS FOR INDIVIDUALS

• The law further requires that, this benefit would

be exempt from taxes if the employee does not
withdraw from the scheme for ten (10) years after
the date of first contribution.
• For persons who are self-employed and in the
informal sector, the benefit would be exempt from
taxes if the person does not withdraw from the
scheme for five (5) years after the date of first
contribution.
63 INDIVIDUAL ANNUAL INCOME TAX
SCHEDULE
NO CHARGEABLE RATE CUMULATIVE CUMULATIVE
INCOME OF INCOME TAX
TAX
1. First GHS3,132 Nil GHS3,132 -
2. Next GHS840 5% GHS3,972 GHS42
3. Next GHS1,200 10% GHS5,172 GHS162
4. Next GHS33,720 17.5% GHS38,892 GHS6,063
5. Exceeding 25%
GHS38,892
64 INDIVIDUAL MONTHLY INCOME TAX
SCHEDULE
NO CHARGEABLE RATE CUMULATIVE CUMULATIVE
INCOME OF TAX INCOME TAX

1. First GHS261 Nil GHS261 -

2. Next GHS70 5% GHS331 GHS3.5
3. Next GHS100 10% GHS431 GHS13.5
4. Next GHS2,810 17.5% GHS3,241 GHS505.25
5. Exceeding GHS3,241 25%
 65 PROPOSED ANNUAL INDIVIDUAL INCOME
TAX SCHEDULE
N CHARGEAB RATE OF CUMULATIVE CUMULATIVE
O LE INCOME TAX INCOME TAX
1. First GHS3,132 Nil GHS3,132 -
2. Next GHS840 5% GHS3,972 GHS42
3. Next 10% GHS5,172 GHS162
GHS1,200
4. Next 17.5% GHS38,892 GHS6,063
GHS33,720
5. Next 25% GHS120,000 GHS26,340
GHS81,108
6. Exceeding 35%
GHS120,000
66 PROPOSED MONTHLY INDIVIDUAL
INCOME TAX SCHEDULE
NO CHARGEABLE RATE CUMULATIVE CUMULATIVE
INCOME OF TAX INCOME TAX
1. First GHS261 Nil GHS261 -
2. Next GHS70 5% GHS331 GHS3.5
3. Next GHS100 10% GHS431 GHS13.5
4. Next GHS2,810 17.5% GHS3,241 GHS505.25
5. Next GHS6,759 25% GHS10,000 GHS2,195
6. Exceeding 35%
GHS10,000
 09/04/2023

67 VALUE ADDED TAX

• In line with the provisions of the Value Added Tax

Act, 2013 (Act 870) the tax is charged where a
taxable person makes a taxable supply in the
course of the taxable activity of that person.
• A taxable person as a person who is registered for
purposes of the Act or is required to register under
sections 6 to 16.
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68 VALUE ADDED TAX

• Generally, the tax is at a rate of 15% and it is

calculated on the value of taxable supplies. A
2.5% NHIL is collected as part of the tax making
a total of 17.5%
• The 15% contains a 2.5% GETFUND component
and government intends to decouple the 2.5%
thereby making the standard VAT rate 12.5%.
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69 VALUE ADDED TAX

• Government intends to make the 2.5%

GETFUND and 2.5% NHIL a straight levy which
is similar to a flat rate scheme.
• Currently, a flat rate of 3% is imposed on supplies
by a taxable person who is a wholesaler or retailer
of goods.
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70 VALUE ADDED TAX

• A person who is engaged in a taxable activity

shall register if—
(a) at the end of any period of twelve or less
months, the person made, during that period,
taxable supplies exceeding two hundred thousand
Ghana Cedis; or
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71 VALUE ADDED TAX

(b) at the end of any month, there are reasonable

grounds to expect that that person will make
taxable supplies in the next twelve or less
months exceeding two hundred thousand Ghana
Cedis.
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72 VALUE ADDED TAX

Also, a person must register if at the end of any

period of 3 months that person makes taxable
supplies exceeding fifty thousand Ghana Cedis and
there are reasonable grounds to expect that the
taxable supplies made in the first three months and
the taxable supplies to be made in the remaining
nine consecutive months will exceed two hundred
thousand Ghana Cedis.
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73 VALUE ADDED TAX

Despite the above threshold, a promoter of public

entertainment; an auctioneer; or a national,
regional, local or other authority or body, which
carries on any taxable activity shall apply for
registration.
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74 VALUE ADDED TAX

• A person who is not required to be registered may

apply voluntarily to be registered but the
Commissioner-General shall not register the
person if the Commissioner-General—
(a) is satisfied that the person has no fixed place
of abode or business;
(b) has reasonable ground to believe that that
person—
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75 VALUE ADDED TAX

(i) may not keep proper accounting records related

to any business activity carried on by that person;
(ii) may not submit regular and reliable tax
returns as required by or under the Act; or
(iii) is not a fit and proper person to be
registered.
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76 VALUE ADDED TAX

• Where a person required to register under the Act

fails to apply for registration, the Commissioner-
General shall register that person.
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77 VALUE ADDED TAX

• A person who fails to apply for registration is

liable to a penalty of not more than two times the
amount of tax on taxable supplies payable from
the time the person is required to apply for
registration until the person files an application
for registration with the Commissioner-General.
 THANK YOU
78

Questions, Contributions, Comments

Lecture Notes on Taxation 09/04/2023