Withholding tax in Ghana is among the things that sparked interest in the public eye after enactment of the new Tax act. Raising the minimum threshold and changes made in the deductive rates were not taken lightly by the members of the public. As a result, curiosity for the current rates has been gradually increasing across various parts of the country as people expressed their own views.
What is withholding tax in Ghana
Well, for those who are still in the dark or yet to pay direct taxes and get introduced into the system, withholding tax is basically an amount of tax that is withheld by a party making payment to another.
The amount is usually charged at the source before being issued to the recipient. For instance, if you were to receive GHC 10,000 as payment for your services, a withholding tax of 15% would mean that ultimately you will have GHC 8500 as your take-home pay. GHC 1500 which is retained by your employer or rather the party making the payments would be issued to the tax authorities on your behalf.
The most common type of this kind of tax is Pay As You Earn (PAYE). PAYE is usually withheld by your manager on your employment income. The amount withheld is usually paid to the Domestic Tax Revenue Division (DTRD) by 15th of every month. This department is part of the Ghana Revenue Authority entitled to domestic tax administration.
Withholding tax (WHT) can be final or on account. These are simply financial terms regarding deductions on your total tax obligations. For example, when your WHT is described as final, it means your income or profit which has suffered the WHT tax already will not have to be included on your tax returns.
Consequently, when it is rendered on account the income must still be included in the tax returns and the WHT tax already paid to be deducted so as to arrive at your final tax liability. For instance, if you owe GHC 20000 but managed to pay a withholding tax of GHC 1500 during that financial period, your tax liability is GHC 8500.
The threshold for withholding tax in Ghana is set at GHC 2000. This is the minimum amount that attracts WHT as stipulated in the law. On the other hand, the applicable rates for this classification of tax range between a minimum of 5% to a maximum of 15%. The rates are, however, tentative and hence keep on changing from time to time.
Types of withholding taxes in Ghana
For you to make the right decision on what to do and when, it is wise that you familiarize yourself with the different types of withholding taxes in Ghana.
- Withholding tax from payment for goods and services.
- Withholding tax from payment of dividends to resident shareholders.
- Withholding tax from payment of interest to a resident company i.e. banks and other financial institutions.
- Withholding tax from payment and non-resident persons.
- Withholding tax from fees to a resident part-time teacher, lecturer, examiner, examinations invigilator or supervisor.
- Withholding tax on management and technical service fees.
- Royalties, natural resource payments.
- Endorsement fees.
- Withholding tax from employment income (PAYE).
Withholding tax rates Ghana
Withholding tax in Ghana 2018 features some noticeable changes both in resident and non- resident persons. For instance, payment of petroleum subcontractors on residents incurs a tax rate of 7.5%, and it is still rendered ‘on account’. As for non-residents, on the other hand,the same payment calls for a 15% WHT rate but considered final.
Additionally, the supply of goods exceeding GHC 2000 is a subject to 3% WHT for resident persons while 5% is charged on the supply of works exceeding that similar amount. The deductions for these incomes are considered ‘on account’.
Below is a table illustrating the various incomes for the resident and non- resident persons and their corresponding withholding tax rates;
How to calculate withholding tax in Ghana
Calculation of withholding tax in Ghana may seem like rocket science and somehow incomprehensible, but with a careful understanding of the procedure, everything falls into place. Take PAYE for example, it is part of the withholding tax that a majority of people experience regularly. If we learn how to solve it, every other WHT problem may eventually be simple to go about.
Computation of withholding tax from employment income is as follows;
- Deducting 5.5% Social Security from basic salary,
- Then add all allowances after the 5.5% social security deduction,
- Deduct applicable personal relief(s).
- Use the right tax table to compute the tax on the remainder, which is basically the taxable income.
The tax payable derived from that calculation is the one also referred to as the withholding tax.
Keep in mind that taxable benefits are also deducted at source. However, not all benefits are taxable. There are some exemptions for some of the benefits employees get such as reimbursement for health insurance or dentist cost where the benefit is guaranteed to all employees. Other than that, passage costs of an employee who is either engaged or recruited outside Ghana or even for a non- resident who is chiefly serving the employer in our country are also not subject to any tax deductions.
Other non-taxable benefits/income include
- Lump sum payment upon retirement or rather pension upon retirement because of old age, sickness among other infirmities.
- Accommodation provided by the employer to an employee on either a mining, timber, construction or farming business site in which the operation of the business is carried on.
- Compensation of costs incurred on behalf of the employer.
- Night duty allowances (It is limited to 50% of the salary)
- Gains that arise from trading on the Ghana Stock Exchange are also excused from taxation for a duration of twenty years of assessment starting from the basis period in which operations began.
- Interest or divided given to an individual who invested in a capital venture financing company.
Finally, also bear in mind that in a situation of a married couple, one individual only can claim the marriage or child education relief.
Withholding tax act Ghana
There had been constant debates on the tax laws in Ghana. Many people, especially those in business, expressed their grievances on high withholding percentage rate for services. The 15% was unbearable taking into account that majority of the people in the service sector were mainly in margins between 5% to 7%. This basically meant that the tax also grabbed a significant portion of their capital.
The proposal that the tax was to be slashed by half was a welcoming joy to the members of the public. At last, their business would not be crippled as the rate now lies at 7.5 %. Implementation of the withholding tax law in Ghana was believed to be user-friendly and somehow lenient.
The law also stipulates that A withholding tax certificate Ghana should be issued to the person paying the tax by a withholding agent such as an employer. The agent is required to prepare the certificate himself/herself before serving the taxpayer.
The agent is also compelled by the law to deduct the exact tax at source and issue it to the commissioner. Any details concerning the payment are also to be submitted alongside the tax.
As for the period of submission, the law also clearly states that the tax withheld by the agent should be paid within fifteen days after the end of the month, in which the taxation amount was withheld.
Failure to adhere to any of the rules basically calls for consequences. For example, the law states that in case the withholding agent fails to do the assigned task, he is personally liable to pay to the commissioner the amount of tax which has been withheld.
Aside from withholding taxes, the new income tax laws saw the introduction of one percent tax on interest paid to an individual. This means that any interest accrued on fixed income deposit, interest from banks, treasury bills among others would automatically attract one percent deduction.
In addition to all that, the interest and dividends paid to a member of an approved unit or mutual trust are also taxed at one percent. This applies in the case of the holder being an individual. Earlier on such interests, dividends or any other form of income relating to approved mutual funds were not taxed.
Imposition of this kind of tax was met with criticism as players in the investment sector let out their concern that the move could really affect interest in an industry which is still struggling to be stable and draw people in.