Income tax in Ghana is unlike many African countries. Ghana has an extremely friendly income tax system which really benefits both low and middle income earners in Ghana. The government of Ghana through its legislature has passed income tax laws which not only protect workers but also assure them some good saving and investment for their old age. Income tax in Ghana is classified into five major classes which determine how much Ghana employee is supposed to pay to the government as income tax. This article will look at the procedure involved in calculating income tax in Ghana.
How to calculate income tax in Ghana
Tax calculation in Ghana is done either on monthly basis or on yearly intervals. Taxation year in Ghana ends on 31st December every year. The procedure of taxation used in Ghana is very simple, short and precise which makes it easy to calculate income tax for someone’s disposable income. The calculation is done using a powerful system calculator called income tax calculator Ghana. Computation of income tax in Ghana is done using this calculator.
It computes an individual PAYE and income to come up with the final tax which the person is required to pay to the government. The calculator is automatically programmed in such a way that it gives the tax value just after feeding your income values. Percentage of income tax on salary in Ghana is very favorable and therefore the process favor low income earner. The procedure is as follows;
- For the first GHS 0-3132 per year, the tax exposed to it is 0%. This means that a person earning anything below 3132 does not pay income tax to the government of Ghana. This value is equivalent to GHS 261 per month. However, any amount above 3132 is subjected to income tax law.
- The next GHS 840 yearly which is equivalent to GHS 60 is subjected to a tax of 5%.
- The next GHS 1200 yearly which is equivalent to GHS 1000 per month is subjected to a tax of 10%.
- The next GHS 33720 which is equivalent to GHS 2810 monthly is exposed to a tax of 17.5%.
- Any amount with exceed 38892 is taxed at 25%. This does not mean that all the salary will be subjected to this tax. It’s only the extra value which exceeds 33720 which will be taxed 20%.
This procedure is done by an income tax calculator after feeding values of someone’s income. However, this system is only applicable to residents in Ghana. Foreign workers working in Ghana are exposed to a flat tax of 20%. All allowances are also not included in the taxable income. Note that the above method is only used to calculate PAYE.
All deductions are then removed from the total tax and the final figure gives the actual value of payable tax. Some of the important tax benefits enjoyed by the people in Ghana include: 35% tax relief for people who have at least two kids or are guardian to at least two people.
New income tax law in Ghana
The 2015 income tax act Ghana law (act 896 )was amended in 19 February 2016. The act provided new regulations on how income tax was to be imposed to Ghanaians citizen. Important changes which were made in the new income tax rates in Ghana included the following:
Service supply under contract payment was reduced to 7.5% from the previous figure of 15%. This was a great relief to the taxpayers in Ghana. Payment for unprocessed mineral by residents from Ghana was also reduced from 10% to 3%. Lastly, the 5% tax imposed to lottery winning was cancelled and it was agreed that the first 2592 will not be taxed. However the 5% tax still holds for any amount above 2592.
Income tax types in Ghana
The government of Ghana acquires its income tax in several ways. These include the following:
1. Corporate tax
This tax is usually imposed to all companies operating in Ghana. This tax is usual at a flat rate of 25%. It contributes largely to the total revenue of the country.
2. Pay as you earn (PAYE)
This tax is levied to all people working in Ghana. It can be calculated either on monthly or yearly basis. Employee income tax rate in Ghana are determined by the PAYE and they usual does not exceed 25% of the total income. See the screen shot below for the current income tax rates in Ghana.
3. Stamp tax
This is usually tax which is imposed to self-employed individuals mainly from the informal sector. It’s characterized by small business owners operating within the country. The tax levied depends on the size of the business. This form of tax is popular very popular in Ghana.
4. Personal income tax
This tax is imposed to self-employed people and small business owner in Ghana. The act provide that this tax be imposed in four equal installments since the income earner might be earning too low to afford yearly tax at once.
5. Stamp duty tax
Ghana revenue authority administers this tax under the 2005 stamp duty act (act 689). This act requires that tax paid to the revenue authority and then a document offered to stand for the tax. It can be described as a statement with legal obligation.
6. Rent tax
Tax on rent income in Ghana is usually levied under this category. All rent earners are required by the law to pay 8% of their income from rent as tax to the government of Ghana. This majorly involves people with rent properties like buildings and other valuable assets.
7. VAT tax
Value added tax is directly charged from production companies and the effect is spread to the whole consumption chain. The businesses or companies usually accounts for all the taxes charged and the amount is added to the production cost of goods, therefore consumers pay this tax after buying the goods.
8. Capital gain tax
This tax is charged for the appreciated value of assets. Assets which can gain in value include; land, business assets, shares among others.
The good thing is that income tax percentage in Ghana has never gone beyond 25%. There Ghana remains to be among the tax friendly nations in the region.