THE TAX SYSTEM IN GHANA

 

In this world, nothing is certain but death and taxes. This statement, famously reported to have been said by Benjamin Franklin, certainly holds true in Ghana, as it does in other parts of the world. This article aims to shed light on the tax system in Ghana by explaining the role of the Ghana Revenue Authority (GRA) in the country’s tax regime as well as the various taxes that are levied and paid in Ghana. 

 

Ghana Revenue Authority (GRA)

The GRA is the agency in charge of tax collection and assessment in the country. It is the first adjudicator between parties in the event of a disagreement, enforcing the terms of the tax legislation. The GRA is under the supervision of the Ministry of Finance and Economic Planning.  

Taxation of Individuals

Income tax is the most common form of direct tax charged in Ghana.  Income has its source in Ghana if the income is accrued or derived in Ghana. Generally, all income arising within the Ghanaian territory is liable to Ghanaian income tax regardless of the nationality of the recipient. The amount which is taxed and the rate at which it is taxed are generally determined by a person’s characteristics (i.e, individual or an entity (company, trust, or partnership)), residency status, and sources of income.

 

Under the Income Tax Act 2015 (Act 896), an individual is resident in Ghana for tax purposes if that individual is 

• present in Ghana for an aggregate period of 183 days of more in any 12-month period that commences or ends during the year
• a citizen who is temporarily absent from Ghana for a period of not more than 365 continuous days where that citizen has a permanent home in Ghana; or
• an employee of the Government of Ghana who has been posted abroad.

 

Assessable Income and Chargeable Income

Assessable Income is the income of a person from any employment, business or investment. A resident person’s assessable income is that person’s worldwide income from all sources. A non-resident person’s assessable income is that person’s income from Ghana. The assessable income of a non-resident person, who has a permanent establishment in Ghana is the income of the permanent establishment.

Chargeable Income on the other hand is made up of all income from employment, business, investment and other sources minus any allowable deduction. Chargeable income from each source of income is determined separately. 

 

Rates of monthly taxation for Individuals

Tax rates are shown in the table below for the purpose of calculating monthly deductions.

	Chargeable income (Annual)	Rates	Tax
	Ghana Cedis (GHS)	%	(GHS)
First	3,828.00	Free	–
Next	1,200	5.0%	60.00
Next	1,440	10.0%	144.00
Next	36,000	17.5%	6,300.00
Next	197,532	25.0%	49,383.00
Exceeding	240,000	30.0%

 

Non-resident individuals are subject to a flat tax rate of 25% on their chargeable income. 

 

Income from Employment 

It is the responsibility of employers to file monthly tax returns on behalf of their employees. The employer must withhold and pay the employees’ taxes to the GRA. The withheld tax must be filed and paid by the 15th of the month which follows the month in which the tax is withheld.

At the end of the fiscal year, the employer must prepare an annual reconciliation of the taxes withheld on a monthly basis to determine whether there are any discrepancies. If there is a shortfall, the employer must pay the difference within 15 days of the end of the fiscal year (that is, on or before January 15). 

Failure to settle the balance due on the return by the 15th of January attracts 125% of the statutory rate compounded monthly and applied to the amount owed at the beginning of the period. 

 

 

Taxation of Companies

Companies and other corporate bodies, unlike individuals, are required to account for income and expenses on an accrual basis for each accounting year, rather than a calendar year. Most companies in Ghana are taxed at a rate of 25%, while those in the extractive sector are taxed at a rate of 35%. Companies should take advantage of different concessionary tax rates depending on the type of their firm, industry, and location.

A company is classified as resident if it is incorporated under the Companies Act, 2019 (Act 992), or if the management and control of the company is exercised in Ghana at any time during the year. A Ghanaian permanent establishment is treated as a resident company for the purposes of income taxation. 

Each resident company must complete a self-assessment form in the third month of its financial year, indicating an estimate of taxes payable for the financial year. The estimated tax must then be paid to the GRA in quarterly installments, with the total amount paid eventually equaling at least 90% of the actual tax payable for the accounting year. Resident companies are also required to file corporate income tax returns no later than four months after the end of their financial year. Then, after deducting estimated taxes paid and taxes withheld during the year, they must pay any unpaid corporate income taxes.

 

Value-Added Tax (VAT)

VAT is a tax which is levied on a product at every point in its production where value is added – from the moment of manufacture to the point of sale. In contrast to income tax which is a direct tax, it is consumption-based tax and is the best known form of indirect tax. 

 

VAT is levied on all goods and services supplied in the country, whether they are made in Ghana or imported from other countries. It forms part of the final price that consumers pay and is remitted to the GRA by VAT-registered suppliers of these goods and services. The standard VAT rate is 12.5%. However, for exported goods and services, the VAT rate is 0% (known as zero rated supplies). Taxable supplies made by wholesalers and retailers also receive a rate of 3%. 

The VAT base for imported supplies is calculated by adding the duty-inclusive costs, insurance costs, and freight value. 

VAT-registered suppliers must file monthly VAT returns and pay VAT to the GRA by the last working day of the month following month to which the returns relate. VAT-registered suppliers may deduct VAT incurred in their registered business activities when calculating the VAT payable for each month if certain conditions are met. 

 

Withholding VAT

Designated VAT-registered entities are required to withhold VAT on standard-rated VAT supplies and remit the withheld VAT to the GRA by the 15th of the month following the month for which the VAT was withheld. The withheld VAT is calculated as 7% of the supply’s taxable value. 

 

National Health Insurance Levy (NHIL) and Ghana Education Trust Fund Levy (GETFL) 

The VAT base for local supplies used to be the total of the invoice value plus the National Health Insurance Levy (NHIL), the Ghana Education Trust Fund Levy (GETFL) and the COVID 19 Levy. This was however changed in August 2018 when the NHIL and GETFund components were separated from VAT as part of the 2018 Mid Year Budget.

The NHIL and GETFL, both of which are levied at 2.5% of the invoice value of supplies, are thus no longer deductible when calculating the monthly VAT payable by VAT-registered suppliers. Unlike VAT, the NHIL and GETFL apply to imported services regardless of whether the service is used in the taxable activity. VAT-registered suppliers must submit separate NHIL and GETFL returns by the same deadline as VAT (15th of the month which follows the month in which the tax is withheld).

 

COVID-19 Levy

The COVID-19 Health Recovery Levy, 2021 (Act 1068), was enacted by the Parliament of Ghana in April 2021 as a special levy on supply of goods and services and imports. Its purpose is to raise revenue to support COVID–19 expenditures and other related matters.

 

With the exception of exempt goods and services, the Levy is charged on the value of the taxable supply of all goods and services both made in and exported into Ghana.

The percentage of the levy is 1% and it is applied to the taxable supply after deducting the National Health Insurance Levy (NHIL), the Ghana Education Trust Fund Levy (GETFund Levy), and Value-Added Tax (VAT).

The 12.5 percent VAT is also calculated on the taxable supply’s value, which includes the NHIL, GETFund Levy, and COVID-19 Levy.

 

Exempted Goods and Services

The following goods and services are entirely exempt from VAT and other payments including the COVID 19 levy. They are found in the first schedule of the Value Added Tax Act 2013 (Act 870).

1. Agricultural and aquatic products that are produced in Ghana in a raw state such as maize, sorghum, millet, tubers, guinea corn, rice, fish, other than ornamental fish, crustaceans, mollusks, vegetables and fruits, nuts, coffee, cocoa, and edible meat of animals that have been slightly processed through smoking, salting or similar processes.
2. Live animals such as cattle, sheep, goats, swine and poultry bred or raised in Ghana. This excludes horses, asses, mules, hinnies, and other exotic animals.
3. Transportation that includes travel by bus and similar vehicles, as well as train, boat, and air.
4. Goods designed exclusively for use by persons with disability.
5. Machinery for use in agriculture, mining, railway and industry.
6. Crude oil and hydrocarbon products such as petrol, diesel, kerosene, liquefied petroleum gas, natural petroleum gas.
7. Postage stamps issued by the Ghana Post, other than for expedited services or for philatelist purposes.
8. Salt for human consumption, including table salt.
9. Mosquito nets, whether or not impregnated with chemicals.
10. Agricultural inputs such as seeds, bulbs, fertilizer, herbicides, veterinary drugs, feed and vaccines for domesticated animals.
11. Fishing gear such as boats, nets, twine, hooks, raw material imported for use in production of nets and twines.
12. Water, excluding water commonly supplied in bottles or other packaging suitable for supply to consumers.
13. Education services; laboratory and library equipment used to render education services; educational materials approved by the Ministry of Education such as textbooks, supplementary readers, newspapers, atlases, charts, maps and music.
14. Medical services, medical supplies, and pharmaceuticals.
15. Land for dwelling, agricultural purposes, and civil engineering and public works including roads and bridges. It excludes the sale of immovable property by an estate developer and hotel accommodation, warehousing and storage.
16. A supply to a dwelling of electricity up to a maximum consumption level specified for block charges for lifeline units.

 

Applicable Laws

1. Income Tax Act, 2015 (Act 896)
2. Value Added Tax Act, 2013 (Act 870)
3. Income Tax (Amendment) Act 2016 (Act 907)
4. Income Tax Act (Amendment) Act 2018 (Act 973)
5. Covid 19 Health Levy Act 2021 (Act 1068)

 

Breakdown of VAT and Ancillary Payments as at October 2021

Value Added Tax (VAT) – Standard Rate	12.50%
National Health Insurance Levy (NHIL)	2.50%
Ghana Education Trust Fund (GFL)	2.50%
1% COVID-19 Levy	1.00%
(VAT) on NHIL and GFL and 1% COVID-19 Levy*	0.75%
Total VAT	19.25%
* (12.5%*(2.5%+2.5%+1.0%))

Nartey Law Firm is a leading corporate and commercial law firm in Ghana providing legal services to individuals, domestic and international businesses. Ensuring the success of our clients’ objectives is at the core of what we do.  Comprised of a dedicated team of lawyers with extensive experience in corporate, commercial and international law and litigation, we pride ourselves with the diligent execution of all client matters, whilst guaranteeing an uncompromising standard with respect to excellence in service delivery. Some of our focus areas are Real Estate, Trade and Commerce, Banking and Finance, Regulatory Advisory, Capital Markets and Mergers and Acquisitions. 

 

CONTACT:

NARTEY LAW FIRM 

TEL: +233 (0)553508582 

Email:info@narteylaw.com

 

Disclaimer: This publication is for information purposes only and is not intended to constitute legal advice. If you require information on any matter discussed in this article, kindly reach out to the firm directly.