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.
There are many types of income tax that businesses may be eligible to pay in Ghana, here is a quick overview of them
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.
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.
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.
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.
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 (%)
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:
The total tax the person would be required to pay is GHS 5263.8 giving them an effective tax rate of 14.3%
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:
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.
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.
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.
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.
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.
Tax laws can change, so stay informed to remain compliant.
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.
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.