Understanding the tax landscape in Ghana is essential for individuals and businesses alike. Whether you are an employee, self-employed, or a business owner, being informed about the types of taxes you may be subject to is key to staying compliant and avoiding penalties. Below is a clear overview of the main taxes in Ghana and how they apply.
Personal Income Tax (PIT)
Personal income tax applies to income earned by individuals, including salaries, wages, bonuses, and other forms of compensation. If you are an employee, sole proprietor, or partner and earn more than GH¢ 402 per month, you are required to pay this tax.
Ghana operates a progressive tax system, meaning that higher income earners pay a higher percentage in taxes. Tax rates range from 0 percent to 25 percent, depending on income brackets. The regulation of income tax is governed by the Income Tax Act, 2015 (Act 896).
Corporate Income Tax
Corporate income tax is charged on the profits of companies and corporations operating in Ghana, both resident and non-resident. The standard rate is currently 25 percent, although some sectors such as manufacturing may benefit from lower rates.
Corporations are required to make quarterly tax payments to the Ghana Revenue Authority. This tax typically does not apply to small businesses structured as sole proprietorships or partnerships. Businesses can also deduct certain allowable expenses, including operational costs and depreciation, when calculating their taxable income.
Withholding Tax
Withholding tax is deducted at the source when a payment is made to another individual or entity. The payer, known as the withholding agent, is responsible for deducting the tax and remitting it to the Ghana Revenue Authority.
The withholding tax rate varies depending on the type of payment. For example, rental payments may be subject to an 8 percent rate, while professional services can attract a 15 percent rate. In many cases, withholding tax is treated as a final tax, which means the recipient is not required to include that income in their annual return.
Gift Tax
Gift tax is levied on the transfer of money or property without receiving something of equal value in return. Gifts subject to this tax include:
- Assets in Ghana such as land, buildings, shares, money including foreign currency, vehicles, and business property
- Gifts given to residents or invested on their behalf
- Monetary benefits that favor residents
However, exemptions exist for gifts received under a will, from close relatives, or those used for charitable or public purposes by religious organizations. This tax is addressed under Section 4(2vii) of Act 896.
Rent Income Tax
Rent income tax applies to individuals who lease out property. This tax is levied on the income received from tenants and must be paid within 30 days of receiving the rental amount.
Failure to pay the tax on time results in an interest penalty of 125 percent of the statutory rate, compounded monthly. Timely compliance is essential to avoid these significant penalties.
Vehicle Income Tax (VIT)
Vehicle income tax is targeted at commercial transport operators. It is collected on a quarterly basis, with payments due by the fifteenth day of the first month of each quarter—namely January 15, April 15, July 15, and October 15.
Once the tax is paid, vehicle owners receive a sticker, which must be displayed on the front windscreen of the vehicle as proof of payment.
Pay As You Earn (PAYE)
PAYE is a system where tax is deducted from an employee’s salary by the employer and remitted to the tax authorities. This applies to all employment income, whether received in cash or in kind.
Employers are required to file monthly PAYE returns on behalf of their employees by the fifteenth day of the month following the month in which the deduction was made. Ensuring these deductions are accurate and submitted on time is a legal obligation for all employers.
Conclusion
Ghana’s tax system encompasses a variety of taxes that apply to different income types and business structures. From personal and corporate income tax to more specific levies like rent and vehicle income tax, understanding your tax obligations is vital. Staying informed helps ensure compliance, avoid penalties, and build a sustainable business or financial future.