Overview Of Employment Income Tax Assessment In Ghana Under The Income Tax Act, 2015 (Act 896)

9 April 2024

Introduction

In Ghana, personal income tax (PIT) also known as Employment Income Tax (EIT) is one of the major and significant sources of direct tax revenue for the government apart from business income tax and investment income tax. In recent times, there has been several fiscal policy changes targeted at increasing revenue mobilization from personal income taxes.

What Amounts to Income from Employment

The Income Tax Act, 2015 (Act 896) as amended provides that the income of an individual from an employment for a year of assessment is the gains and profits of that individual from the employment for the year or a part of the year. Included in the calculation and assessment of employment income includes, but not limited to:

1. an amount specified in respect of gains or profits such as salaries, wages, leave pay, fees, commissions, and gratuities etc
2. overtime pay and bonuses as provided by the income tax regulations
3. any other allowances or benefit paid in cash or given in kind if they are derived by the individual during the year from the employment;
4. and personal allowances, including cost of living allowance, subsistence, rent, entertainment travel allowance, security, cook, gardener, other payments, including gifts, received in respect of the employment.

What Other Benefits in Kind Are Taxable

The Income Tax Act Act 896 (as amended) provides also that, there are other benefits in kind which are taxable. These are:

(a) Driver and Vehicle with fuel - 12.5% of the total cash emoluments (TCE) of the person up to a maximum of GHC1,500.00 per month.

(b) Vehicle with fuel - 10% of the person's TCE up to a max of GH¢1,250 per month (15,000 per annum)

(c) Vehicle only - 5% of the person's TCE up to a max of GH¢625 per month (7,500 per annum)

(d) Fuel only - 5% of the person's TCE up to a max of GH¢625 per month (7,500 per annum)

(e) Accommodation and Furnishing: Accommodation with furnishing is 10% of TCE, Accommodation only is 7.5% of TCE, Furnishing only is 2.5% of TCE and Shared accommodation is 2.5% of TCE.

Are all Employment Incomes Taxable: What incomes are Exempt from Employment Income Tax

It is significant to note that not all employment incomes are taxable. The Income Tax Act 896 has provided for incomes that are exempt from tax which include the following:

1. Contributions on a mandatory occupational pension scheme like the social security and national insurance trust (SSNIT).
2. Contributions made by an employer to a provident fund scheme on behalf of a contributor shall be treated as part of the deductible. Up to 16.5% of the basic salary.
3. The salary, allowances, facilities, pension and gratuity of the President in accordance with the Constitution.
4. A capital sum paid to a person as compensation or a gratuity in relation to a personal injury suffered by that person or the death of another person;
5. Income derived by an individual entitled to privileges under the Diplomatic Immunities Law and other specified conventions.
6. A discharge or reimbursement of an expense incurred by an individual on behalf of the employer of that individual that serves the proper business purposes of the employer;
7. A discharge or reimbursement of the dental, medical or health insurance expenses of an individual where the benefit is available to each full-time employee on equal terms;
8. A payment made to employees on a non-discriminatory basis and which by reason of the size, type and frequency of the payments, are unreasonable or administratively impracticable for the employer to account for or to allocate to an individual. Eg free or subsidized meals provided in a staff canteen by the employer, so long as the meals are available to staff generally and are not provided as part of a salary sacrifice, mobile phones usage where there is no landline phones and its available to all employees, bus services provided by the employer, health screening and medical check-ups, provision of eye care tests and corrective glasses, provision of parking facilities for all employees.
9. Redundancy pay.

Are there any Personal Reliefs Enjoyed by Individuals in Employment

The income tax law has indeed provided for some tax reliefs to reduce the tax burden of persons and individuals. These are:

1. Marriage (Dependent Spouse)/Responsibility (At least 2 dependent child) - The relief isGH¢1,200per year

1. Disabled Individual - The relief is 25% of assessable income (AI).
2. Old Age (60yrs & above) - The relief isGH¢1,500per year.
3. Child/Ward Education up to three children- The relief isGH¢600per child per year
4. Aged Dependent Relative up to two (60yrs and above) - The relief isGH¢1,000per year.
5. Cost of Training/ Education - The relief is GH¢2,000per year.
6. Mortgage Interest Relief

What Happens when an Individual Makes a Donations to a Worthwhile Cause

A person may claim a deduction that is equal to the contribution and donation made by that person during that year of assessment for a worthwhile cause approved by Government of Ghana. Eg Donation to a hospital approved by the government etc.

The Pay as you Earn Tax System (P.A.Y.E Tax System)

The law provides and require employers to deduct tax at source from wages and salaries under the P.A.Y.E. system. The tax deducted from an employee's income is paid by an employer on behalf of the employee.

The tax is charged on all income of an individual in employment, whether it is received in cash or in kind.

Monthly PAYE returns must be filed by the employer on behalf of the employee on or before the fifteenth day of the month following the month in which the deduction was made.

What are the Compliance and Reporting Requirements in Respect of Employment Income Tax

1. PAYE Return - Returns must be filed by the 15^th day of the month after the month to which the tax relates, and payment made on the same day.
2. Withholding Tax Return - Return must be filed by the 15^th day of the month after the month to which the tax relates, and payment made on the same day.

What are the Offences & Penalties for Non-Compliance

1. Failure to furnish employment income tax returns: GH¢500.00 and a further GH¢10.00 for each day that the failure continues
2. Failure to pay taxes on due date: Tax payable is liable to interest calculated as 125% of the statutory rate, compounded monthly, and applied to the amount outstanding at the start of the period;

Conclusion

The above is a useful guide in respect of employment income tax in Gnana. The content of this article is intended to prove a general guide to the subject matter. Specialist advice should be sought from a tax attorney and consultant for your specific needs and circumstance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.