Avoid Common Tax Pitfalls

1. Acquire a Tax Identification Number (TIN)

A business in Ghana must register for a Tax Identification Number (TIN) before commencing operations. This TIN is required to file tax returns, make any tax claims, declaration, and engage in other transactions with the government or third parties. Each person is entitled to only one TIN and shall not apply for another TIN.

• Reference: Section 11 & 12, Revenue Administration Act, 2016 (Act 915)

2. Pay Corporate Income Tax 

Income tax is payable for each year of assessment by a person who has a chargeable income for the year or receives a final withholding payment during the year. For most companies, the corporate tax rate is 25%, but some industries may be subject to different rates. For instance, companies engaged in the hospitality industry (hotels), income from the export of non-traditional goods, and rural banking enjoy concessionary rates ranging from 8% to 22%. Companies in the extraction industries pay corporate tax at 35%.

• Reference: Section 1 & First Schedule, Income Tax Act, 2015 (Act 896)

3. Withholding by Employers (PAYE)

Employers are required to withhold taxes on employee’s salaries known as Pay-As-You-Earn (PAYE) and remit same to Ghana Revenue Authority (GRA). PAYE is a system of deducting income tax at source, and rates vary from 0% to 35%, depending on the employee's income bracket.

• Reference: Section 114, Income Tax Act, 2015 (Act 896) & First Schedule, Income Tax (Amendment) (No. 2) Act, 2023 (Act 111)

4. Value Added Tax (VAT) 

Persons whose taxable supplies exceed the threshold (currently GHS 200,000) must register for Value Added Tax (VAT). VAT is charged at a standard rate of 15%. Nevertheless, retailers whose turnover is less than GHS 500,000 are required to charge VAT at a flat rate of 3%. Retailers with turnover above GHS 500,000 are to charge VAT at 15%. Estate developers are to charge VAT at a flat rate of 5% on the supply of immovable properties other than for accommodation.

Monthly VAT returns are mandatory for registered businesses, and failure to file on time will result in penalties.

• Reference: Section 6, VAT Act 2013 (Act 870), Section 3, VAT (Amendment) (No. 2) Act, 2022 (Act 1087) & Section 3, VAT (Amendment) Act, 2023 (Act 1107)

5. Maintain Accurate Financial Records

To ensure proper tax reporting, businesses must maintain accurate and up-to-date records of all transactions, including invoices, receipts, and bank statements within the country. This helps in preparing accurate tax returns and provides evidence in the event of an audit by the Ghana Revenue Authority (GRA). These documents shall be retained for a period of at least six years. 

The Commissioner General despite the above may by service of a notice in writing relieve a person of the obligation to maintain documents or the time for which they are to be retained but only to the extent specified in the notice. The commissioner General may by service of notice in writing also require a person to retain documents described with reasonable certainty in the notice for a period specified in the notice. The latter applies to whether or not the documents relate to the tax affairs of the person.

Failure to maintain proper documents as required by tax law attracts a penalty for each month or part of a month during which the failure continues.

• Reference: Section 27 & Section 72, Revenue Administrative Act, 2016 (Act 915)

6. Tax Incentives

The tax laws provide several tax incentives for specific sectors and regions. These include:

• Reduced corporate tax rates for manufacturing companies in rural areas.
• Temporary concession for start-ups in the agro-processing and waste-processing sectors.
• Additional deduction for employing fresh graduates.

Understanding and applying for these incentives can reduce the tax burden on businesses.

• Reference: First schedule and sixth schedule, Income Tax Act, 2015 (Act 896)

7. Withholding Tax

A resident person shall withhold tax where that person pays for the supply of goods, services and works such as fees to consultants, dividends, and rent. Depending on the nature of the payment, withholding tax rates range from 3% to 25%. Businesses are required to withhold the applicable taxes and remit them to the GRA. Failure to withhold taxes as required will result in surcharges.

• Reference: Section 116 & First schedule, Income Tax Act, 2015 (Act 896)

8. Filing of Tax Returns 

Timely submission of tax returns is essential. The tax laws impose penalties for late filings, which can severely affect the cash flow of businesses. Ensuring you are aware of the filing deadlines for corporate income tax, VAT, PAYE, and other taxes is crucial.

• Corporate Income Tax Returns: Not later than four months after the end of each year of assessment.
• VAT returns: Monthly (On or before the last working day).
• PAYE returns: Monthly (On or before the 15^th).
• Withholding tax returns: Monthly (On or before the 15^th).

Reference: Section 117 & 124, Income Tax Act, 2015 (Act 896), Section 52, VAT 2013 (Act 870), Section 73, Revenue Administration Act, 2016 (Act 915)