Taxable Income

Taxable income from an employment is a person’s gains or profit from employment, including any allowances or benefits paid in cash or given in kind to or on behalf of the person from that employment, other than exempt income

Section 8 Internal Revenue Act, 2000 (Act 592) As Amended

Note Not the entire employee’s income is taxable

(Non taxable/exempt employment income) Benefits in kind are also Taxable Some tax reliefs (reductions) are granted to

employees under certain conditions

Assessable Income

Cumulative Total

Tax rate Tax Amount

Cumulative Total

First 84.00 84.00 0% 0.00 0.00

Next 20.00 104.00 5% 1.00 1.00

Next 60.00 164.00 10% 6.00 7.00

Next 1,186.00 1,350.00 17.5% 207.55 214.55

Over 1,350.00 - 25%

Amount per month in Ghana Cedis

The income tax of an Employee with an Taxable Income of GHc 847.00

Assessable Income

Cumulative Total

Tax rate Tax Amount

Cumulative Total

First 95.00 95.00 0% 0.00 0.00

Next 30.00 125.00 5% 1.50 1.00

Next 70.00 195.00 10% 7.00 8.50

Next 1,498.00 3,383.00 17.5% 270.65 270.65

Over 1,690.00 - 25%

Amount per month in Ghana Cedis

Note: Non residential are taxed 20% flat rate Personal income includes incomes from

Business, Investment and Employment. For an employee who earns income

exclusively from employment, Tax paid on his employment income constitutes his final assessment.

Tax Exempt Incomes

Minimum wage is exempt from Tax. Minimum wage equals GHC 84.00/month

(1008.00/year or 3.11 a day)

Note: Minimum wage calculations are based on:•27 working days a month (Not 21.67 days)•324 working days a year (Not 260 days)

The following incomes are exempt from Tax in Ghana: A reimbursement/discharge of an employee’s

medical, dental, or health insurance expense where the benefit is available to all employees on equal basis

A discharge or reimbursement of expenses incurred by the employee on behalf of the employer

A severance pay Night duty allowances to night workers not exceeding

50% of basic salary Accommodation on site in mining, farming, timber,

building or construction industries. A passage for the commencement or completion of

employment in or out of Ghana. Clothing (Protective) allowances

Taxation of Benefits in kind

Benefits in kind received as a result of an employment contract are (for tax purpose) value as a percentage of Total Cash Emoluments (TCE).

Total Cash Emolument is the total of an employee’s cash income less exempt income, and incomes taxed at concessionary rate (overtime and bonus).

Benefits Tax valueShared accommodation 2.5% of Total Cash EmolumentFurnishing only 2.5% of TCEAccommodation only 7.5% of TCEAccommodation with furnishing 10% of TCE

Benefits Tax value Maximum Tax Value per month

(GHc)Fuel Only 5% of TCE 150.00Vehicle only 5% of TCE 150.00Vehicle + Fuel 10% of TCE 300.00Vehicle + Fuel + Driver

12.5% of TCE 350.00

Accommodation

Transport

Personal Income Tax Reliefs

Reliefs description Relief amounts per annum

(GHc)

Proposed Relief per annum

Marriage/Dependant 35.00 100.00(Dependant spouse or two children)

Child education 30.00/Child 100.00(Maximum 3 children)

Old age relief (60 years and above) 35.00 100.00Aged (60+) dependant relatives 25.00/person 50.00

(Maximum 2 persons)Training and development 100.00 200.00Disability relief 25% of assessable incomeSocial Security (As contributed)Voluntary Pension Contribution (Tier 3)

35% of basic salary less Tier 1&2 contributions (16.5%)

The assessable income of an individual (employee) is reduced by the following amounts:

A tax rate of 5% shall be applied to bonus income that does not exceed the lesser of:◦ 1620 Currency points (per annum)◦ 15% of employee’s Total Qualifying Income

Total Qualifying Income is the total of the person’s income for the year.

Note: Only the excess over GHc1620.00 or 15% of TQI is

added back to the gross salary and taxed at the graduated rate.

Overtime income is taxed at a concessionary rate for qualifying Junior employees if:

Total overtime income for the year does not exceed 50% of employees’ Total Qualifying Income.

A qualifying junior employee is an employee whose income from employment does not exceed GHc 9,600.00 per annum (800/month).

Employee overtime per month (GHc)

Overtime Tax Rate

GHC 120 or less 2.5% of Gross Amount of PaymentBetween GHC 120 and GHC 400

10% of Gross Amount of Payment

Above GHC 400 Add entire overtime to beneficiary’s income and tax at the prevailing personal tax rate

If annual income exceeds GHc 9,600 (800 per month), Overtime relief does not apply to the individual

New Pension Act (2008)

The Act provides for a three tier scheme ◦ A mandatory basic national Social Security

Scheme managed by SSNIT (Tier 1)◦ A mandatory occupational pension privately

managed (Tier 2)◦ A voluntary Personal Pension scheme privately

managed (Tier 3)

Basic SSNIT contribution is applicable to all persons with employment contracts that are: ◦ Aged not less than 15 and not more than 45 at entry◦ People who are currently 55yrs are exempt but can join

Self employed persons can opt to join. SSF Employee contribution: 5.5% Basic salary SSF Employer contribution: 13% Basic salary Exempt members shall continue to pay 17.5%

until retirement. Minimum contribution is 18.5% of the monthly

equivalent of the national daily minimum wage.

DEFINITION ◦ A fund governed by a trust to which a contributor or

the contributor’s employer or both contribute. ◦ Benefits are linked to the level of contribution◦ Benefits are based on defined contribution◦ Part or all accrued benefits can be assessed before

retirement age. 10 years from contribution date for Provident Fund’s 5 years from contribution date for Personal Pension’s

35% less percentage utilized on tier 1 and tier 2

Difference represents the maximum contribution that the employee and employer can make to the fund

An employer may fully sponsor the scheme

Provide the administrative and accounting services required to enable a worker join

Make appropriate payroll deductions and remit within 14 days.

Employees contribution to tier3 is taxable only to the extent by which it exceeds it’s share of the allowable difference.

Should be governed by a trust Can be a company Individual

The fund must be registered with the Pensions Authority

Trustee must be approved by the Pensions Authority

SCG CONSULTING

Withdrawals from tier3 shall be subject to tax if it takes place before retirement

Maximum limit for employee on tier 1 and tier 2 will be 16.5%

Maximum limit for exempt employees is 17.5%

Maximum limit for non tier 1&2 employees is 35%

Other payroll considerations

Prohibited deductions An employer shall not make any deduction by

way of discount, interest or any similar charge on account of an advance of remuneration made to a worker in anticipation of the regular period of remuneration.

Holiday pay All categories of employees are entitled to full

pay on every public holiday. If the employee performs work on a public

holiday, then the employer shall pay in addition to the normal pay, the remuneration which would have been payable if that day was not a holiday.

Working days Act 651 (34) 8 hours per day 40 hours per week 5 working days a week 260 working days a year (52 weeks in a year x 5 days per

week) 21.67 days per month (260/12 months =21.67)Paid overtime Act 651(35) A worker shall not be compelled to do overtime except

◦ Very nature of business requires overtime ◦ In cases of emergencies that require that workers engage in

overtime ◦ An overtime rate must exist

All hours worked in excess of the hours fixed by the rules of that undertaken shall be regarded as overtime work.

Rest period Act 651(40-42) At least 30min break during the 8 hours period, but

forms part of normal hours A daily continuous rest of at least 12 hours duration

between two consecutive working days. At least 48 consecutive hours in every seven normal

working days Leave days Act 651 (20) In any undertaking every worker is entitled to not less

than fifteen working days leave with full (including the cash equivalent of any remuneration in kind) pay in any calendar year of continuous service.

Continuous service The worker should have worked for not less than 200

day in the tax year.

Leave records Act 651(27)Every employer shall keep a record showing: The date of employment of each worker Annual leave entitlement Date on which leave is taken Remuneration received whiles on leaveFilling of Tax returns Monthly filings are required to be done by the employer latest by

the 15th day of the month following the month in which the deduction relates.

An employer shall not later than the 31st march; furnish a (annual) return of each person employed by him.

The employer is required to furnish each employee with a copy of the employee’s return at the time of filing the returns.

In the case of an employee whose assessable income for the year consist exclusively of income from employment, the copy of the return provided to him is treated as an assessment served on the employee by the commissioner.

Penalties for late filling Failure to furnish return: GHc12 for each

day of delay Failure to pay tax on due date:

◦ Less than 3 months: 20% of tax payable (+ tax unpaid)

◦ More than 3 months: 30% of the tax payable (+ tax unpaid)

Any Questions?