A Simple Guide to Small Business Taxes in Ghana

While it is common knowledge that doing business involves tax payments, it is vital to reiterate this. In Ghana, some taxes apply to only small businesses though the industry and location in which a small business operate may give rise to other tax obligations or tax exemptions. In this article, I share with you four (4) taxes that generally apply to all small businesses.

Valued Added Tax (VAT)

VAT is a tax charged on goods and services. However, not every good or service is subject to VAT. This is because of  how crucial such goods or services are to our survival. For example, medical supplies and educational services are not subject to VAT. VAT must be collected each month on behalf of the state and paid to GRA by the end of the next month. It is vital to note that the new VAT is such that there is a separate document for filing VAT only and one for both NHIL/GETFUND. Again, the VAT Act 870 provides thresholds which when met a business must compulsorily register for VAT. It thus provides that if for a 12-month period, a business makes a taxable sales value of GHS200,000 or there are reasonable grounds that a business will make a taxable sales value of GHS200,000 for a 12-month period, it must register for VAT. The law breaks this down into quarters by stating that if for a 3-month period, a business makes a taxable sales value of GHS50,000 or there are reasonable grounds that a business will make a taxable sales value of GHS50,000 for a 3-month period, it must register for VAT. Failure to register when registration is due means that a business will still have to pay any VAT due including a penalty which shall not exceed twice the VAT due to be paid.

Pay As You Earn (PAYE) Tax

PAYE is an income tax deducted at source from the earnings or incomes of employees. At source means that these taxes are deducted before the employee receives his or her take-home pay or net salary. This tax follows a graduated schedule. Thus, certain portions of an income are taxed at certain rates. The aggregate of the taxes obtained at each level becomes the total tax for the employee. Mention must be made that this tax type is influenced by the minimum wage. A new minimum wage was announced for 2020. Consequently, a new graduated schedule was given. PAYE tax must be paid by the 15^th of each ensuing month. Thus, the PAYE tax for May must be paid by 15^th June. Again, the payment must be accompanied by relevant documentation. Seek professional advice on this so that the right tax is deducted, and the right documents are also used.

Withholding tax

This tax is expressed in a single rate. It is the tax “taken out” of payments to third parties. Thus, third parties receive a net of tax amounts. The four common types are those on goods at 3%, those on works at 5%, services at 7.5%, and rent (commercial) at 15%. Although other types exist, these four are the most common. The paying firm is designated by Income Tax Act 2015, Act 896 as a withholding agent and the third party or firm receiving payment is the withholdee. The amount so withheld must be paid by the 15^th of each ensuing month. Thus, the withholding taxes for May must be paid by 15^th June. Again, the payment must be accompanied by relevant documentation. The withholding agent is obliged to obtain a receipt called withholding tax credit certificate and deliver the same to withholdee within 30 calendar days after payment.

Corporate income tax (CIT)/ Personal Income Tax (PIT)

This is the tax charged on the profit of a business for a year. CIT relates to companies whereas PIT is for sole proprietorships. This means that by its nature, this tax should be paid by the end of the year. It will not be paid if a loss is incurred. However, it must be proven that indeed a loss has been made. The State [Ghana Revenue Authority (GRA)] cannot “wait” till the year ends before receiving taxes. As a result, businesses are expected to pay what is called quarterly assessments. Thus, an estimate is made by or given to a business for a year. This amount is divided into four and paid quarterly.  For tax purposes, businesses are registered with Small Tax Offices (STO), Medium Tax Offices (MTO), and Large Tax Offices (LTO), usually depending on their revenue size. Apart from businesses with STOs which are given tax assessments (amount of tax to pay for the year), those with MTOs and LTOs undertake what is called “self-assessment”. By this, they determine their tax obligations for the year. This is just an estimation and not the final tax to be paid. Businesses are expected to prepare and submit their annual financial statements and file with GRA. This will result in either an underpayment or overpayment of CIT. If it is an underpayment, a business is required to pay forthwith. On the other hand, if it is an overpayment, a credit will be held by GRA in favor of the business against future tax obligations. This tax does not apply to not-for-profit organizations.

This article sought to provide a simple guideline to assist small businesses to remain compliant with tax laws. Make every conscious effort to be compliant with these taxes mentioned and your operations will be greatly enhanced.

Remember that you can always get experts like Built Accounting Services to help when the need arises. We provide all your accounting, tax, payroll, and finance solutions. Contact us on 0303974832 or via [email protected].

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