How to Calculate Income Tax as a Small Business Owner in Ghana

As a business owner in Ghana, navigating the complexities of taxes can be challenging, yet it remains an essential part of running a successful enterprise. One of the important taxes to know is the income tax.

Income tax is tax charged on a person or business’ total income whether the income is from an investment, business deal or employment. As a small business owner, this means that you may be eligible to pay income tax for yourself, your business and your employees depending on how well your business is doing. 

Understanding and accurately calculating your income tax not only keeps you compliant with the Ghana Revenue Authority (GRA) but also ensures financial health for your business. Let’s break down the process into manageable steps.

Types of Income Tax in Ghana

There are many types of income tax that businesses may be eligible to pay in Ghana, here is a quick overview of them

Corporate Income Tax

This kind of tax is primarily applicable to incorporated businesses in Ghana. It is typically fixed at 25% of annual income but can vary depending on the industry you’re in. It is important to note that income tax is usually paid on profit made by the business. You can read more about corporate income tax here. If a business does not make profit in a financial year, it is usually not required to pay corporate income tax. 

Corporate Income Tax in Ghana is usually paid quarterly to the Ghana Revenue Authority. Since most small businesses are sole proprietorships or partnerships, this tax does not apply to them. It is important to know how your business is registered to determine what kind of taxes are applicable to you. 

Personal Income Tax

This is tax paid on income earned by an individual from employment, business or investments. Employees, sole proprietors and people in partnerships are required to pay personal income tax in Ghana. In Ghana, income tax is compulsory for anyone who earns above GHS 420 per month.

As a business owner, you are required to pay personal income tax if you draw a salary from your business. You are also required to pay income tax on  salary, wages, leave pay, fees, commissions, gratuities, overtime pay, bonuses and other benefits and allowances paid in cash or given in kind to employees.

Rent Income Tax

This kind of tax is applicable to people who let or lease property to other people. If your business is in the real estate industry, this is an important tax to keep in mind. 

There are two types of rent income taxes that are payable in Ghana. The first is for residential premises which is a flat rate of 8% while the second is for non-residential premises which is a rate of 15%.

Unlike the previous two rents which are calculated annually, rent income tax is usually payable within 30 days from receiving rent. If a person fails to pay their rent income tax by the due date, they will face a penalty interest of 125% compounded monthly. 

Vehicle Income Tax

This kind of tax is targeted at commercial transport operators including tractors, tankers, trucks, taxis and trotros. Any vehicle which is used for a commercial purpose if required to register with the tax revenue office and pay vehicle income tax (VIT). 

VIT is paid quarterly and the due date for paying VIT is the 15th day of the first month of the quarter i.e. 15th January for the first quarter,  15th April for the second quarter, etc. Upon paying the VIT, vehicle owners are given a sticker which they must paste on the front windscreen of their vehicle.

How to calculate personal income tax

One of the first things to take note of is that the effective tax rate for you and your employees will differ depending on the level of income you earn. The GRA uses an incremental scale on personal income tax — this way, people who earn more, pay more taxes. The tax is calculated on the person’s yearly income, so the effective tax rate for one person may differ from another. 

Here’s a table showing the incremental tax rate for personal income tax in Ghana:

Chargeable income (GHS)	Tax rate (%)
First 4,824	0
Next 1,320	5
Next 1,560	10
Next 36,000	17.5
Next 196,740	25
Next 359,556	30
Exceeding 600,000	35

It is important to keep this table in mind when calculating the tax rate for your business or your employees. Here’s how to calculate the effective tax rate when paying personal income tax:

Example 1:Consider an employee earning  a gross income of 6000 GHS every year

Their effective tax rate will be calculated this way:

The first 4824 GHS is tax-free, so we subtract it, leaving us with a taxable income of 1176 GHS. Since the remaining income falls within the next category of taxable income of 5%, we take 5% of that amount, giving us a total tax of 64.68 GHS. 

As they’re paying a tax of 64.684 GHS, the effective tax rate for that employee is just 1.07%

Example 2: An employee earning 36,000 GHS per year.

For this employee, we’d have to break their taxes into the following income brackets:

• First  GHS 4824 at 0%
• Next GHS 1320 at 5%  to give 66 GHS
• Next GHS 1460 at 10%  to give 146 GHS
• Remaining GHS 28296 at 17.5% to give GHS 4951.8 

The total tax the person would be required to pay is GHS 5263.8 giving them an effective tax rate of 14.3%

Tips for calculating your income tax as a small business owner in Ghana 

Now that you know how to calculate your personal income tax, here are a few more tips for paying your tax as a small business owner in Ghana:

• Take note of the progressive tax scale

The Ghanaian tax system operates on a progressive scale, meaning the more you earn, the higher the percentage of tax you pay. As a business owner, your tax obligations might include corporate income tax, personal income tax (if you’re drawing a salary from your business), and taxes on any additional income sources.

• Be sure of your taxable income

Your taxable income is your business’s gross income minus allowable deductions. Allowable deductions can include business expenses such as operating costs, employee salaries, and business-related purchases. Ensure you keep detailed records of all your expenses, as they play a crucial role in reducing your taxable income.

• Account for Additional Taxes

Depending on your business structure and personal income, you might need to pay additional taxes. For instance, if you pay yourself a salary, you’ll need to calculate personal income tax using the progressive tax rates applicable to individuals.

• Consider Special Taxes or Exemptions

Some businesses qualify for special tax rates or exemptions. For example, newly established companies in certain sectors might benefit from tax holidays. Familiarize yourself with these provisions to see if they apply to your business.

• Utilizing Tax Credits and Incentives

Ghana’s tax laws provide various credits and incentives which can reduce your tax liability. These might include credits for manufacturing in specific sectors or for exporting goods. Check if your business qualifies for any of these incentives.

• Keep up with tax law changes 

Tax laws can change, so stay informed to remain compliant.

• Seeking Professional Help

Tax laws can be intricate and are subject to change. It’s often wise to consult with a tax professional or accountant who can provide tailored advice and ensure you’re calculating your taxes correctly.

Conclusion

Calculating income tax as a business owner in Ghana requires a good understanding of the tax system and meticulous financial record-keeping. By following these guidelines, you can ensure that your business complies with tax regulations and optimizes its financial health. Remember, paying the right amount of tax is not just a legal obligation; it’s a contribution to the nation’s development, which benefits the entire business community, including yours.