ICAG

MAY
2019

TAXATION AND FISCAL

POLICY
BACT 305
TAXATION
TAXATION OF
EMPLOYMENT
INCOME
 EMPLOYMENT
 To exercise employment means to be seen to have
taken a position or hold an office – entitling the
holder to a fixed or ascertainable remuneration
other than an office or position as director of a
company or a manager of a body of persons.
 It is necessary to decide whether an activity
carried out by an individual amounts to a
profession or an employment.
 Income Tax Act, 2015 (Act 896), failed to define
employment
 DISTINCTION BETWEEN CONTRACT OF SERVICE
AND CONTRACT FOR SERVICES
 Contract of service (employment) means two
parties enter into a contract where one party
engages the services of the other under
specific terms which include what has to be
done, the remuneration, how the contract
should be terminated, etc. Here there is a
master-servant relationship.
 Contract for service (self-employment) gives
rise to a principal and agent relationship. The
principal does not direct how the service must
 DISTINCTION BETWEEN CONTRACT OF SERVICE
AND CONTRACT FOR SERVICES
Contract of Service Contract for Service
Employer Controls and The professional is free to
directs how the work should determine how the task
be performed would be performed
Employee receives salary The professional or self-
and other remuneration employed receives fees for
task assigned
Tax is deducted through the There is Withholding tax on
PAYE system supply of Goods, Works and
Services
Employees must perform The Professional can
the assigned task by delegate aspects of the
 DISTINCTION BETWEEN CONTRACT OF SERVICE
AND CONTRACT FOR SERVICES
Contract of Service Contract for Service
Employee does not bear Self-employed bears all losses
losses or keep profits and keeps profits
Employer provides tools The self-employed provide
for the task their own tools
Stipulated time of work: No stipulated working hours;
Regular and defined Free to decide when to work
hours of contract
Payment of SSF and PF The self-employed can
by employer voluntarily contribute to SSF
if he desires to do so
 EMPLOYMENT INCOME
Section 4(1) of the income tax Act 2015 (Act 896)
states 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.
S. 4 (2) A person who is ascertaining the gains and
profits of an individual from employment for a year
of assessment or part of a year of assessment shall
(a) include in the calculation, an amount specified in
respect of:
(i) salary, wages, leave pay, fees, commissions, and
 EMPLOYMENT INCOME

(ii) overtime pay and bonuses; as provided by

Regulations
(iii) personal allowances, including cost of living,
subsistence, rent, entertainment or travel
allowance;
(iv) a discharge or reimbursement of expenses
incurred by the individual or an associate of the
individual;
(v) payments for the individual’s agreement to
conditions of the employment;
 EMPLOYMENT INCOME
(vi) subject to section 94, retirement contribution
made to a retirement fund on behalf of the
employee and retirement payments received in
respect of the employment;
(vii) other payments, including gifts, received in
respect of the employment; and
(viii) other amounts required to be included under
Part III and
(ix) any other allowances or benefits paid in cash or
given in kind if they are derived by the individual
during the year from the employment.
 EXEMPT EMPLOYMENT INCOMES S.4(2)b
S. 4(2)(b) exclude from the calculation an amount
specified in respect of
(i) an exemption under S. 7
(ii) a final withholding payment
iii) a discharge or reimbursement of expenses incurred by
the individual on behalf of the employer that serve the
proper business purposes of the employer;
iv) a discharge or reimbursement of the individual’s
dental, medical or health insurance expenses where the
benefit is available to all full-time employees on equal
terms
 EXEMPT EMPLOYMENT INCOMES
S.4(2)b
v) payments providing passage of the individual
to or from Ghana in respect of the individual’s
first employment by the employer or termination
of the employment where the individual-
(a) is recruited or engaged outside of Ghana;
(b) is in Ghana solely for the purpose of serving
the employer; and
(c) is not a resident of Ghana;
 EXEMPT EMPLOYMENT INCOMES
S.4(2)b
vi) any provision of accommodation by an employer
carrying on a timber, mining, building, construction,
farming business or petroleum operations to that
person at any place or site where the field operation of
the business is carried on; or as prescribed by
Regulations.
vii) payments made to employees on a non-
discriminatory basis that, by reason of their size, type
and frequency, are unreasonable or administratively
impracticable for the employer to account for or to
allocate to the individual.
viii) Redundancy pay
Calculation of income from payment for Redundancy or Loss
or ---Termination of Employment.
Generally, payments on termination of employment or
redundancy are not taxable because they are not in return
for the services rendered.
Lump sum payment and other payment made to employees
on the termination of their contract of employment as a
result of management decision but not through their own
volition is exempt
However a lump sum payment may have the attributes of a
taxable remuneration and tax free compensation.
A payment that relates to the employee’s entitlements
under his contract of service is taxable.
Lump sum paid as a genuine compensation for loss of office
will not be taxable
Calculation of income from payment for Redundancy or Loss or ---
Termination of Employment.
• Examples of payment that are taxable include:
Payment in Lieu of Notice
• Payments in lieu of notice received from an employer and paid in
accordance with the terms of employment contract is liable to tax.
Payment in Lieu of Leave
• Any salary received by an employee while on leave is part of the
employee’s income and is taxable.
• If the employee’s employment is terminated and any earned leave has not
been taken, the employer may wish to make cash payment in lieu of leave
to eliminate the accumulated leave balance. Cash in lieu of leave is similar
to the salary paid when leave is taken, and this is taxable.

• NB: Lump Sum Payment Made To Employees Who Resign Out Of Their
Own Volition Is Taxable.
Treatment of Medical & Dental benefits on equal terms
(Section 4(2)(b)(iv)
• Payment for dental, medical services and payment for health
insurance provided to the employee is exempt from tax if such
services or payments are available on a non-discriminatory basis to
all employees.
• Such services or payments must be available to all employees and
provided without discrimination. For example, the same categories of
employees should have access to the same medical facility.
For example
• All junior staff should enjoy the same medical services and payments
• All senior staff should enjoy the same medical services and payments
• All management staff should enjoy the same medical services and
payments
• All top-management staff should enjoy the same medical services
and payments
 EMPLOYMENT GIFT
• Gifts received in respect of an employment are taxable. Where there is a link
between the payment and the employment and that the payment would never
have been made but for the employment, that gift would be considered as an
employment gift. The under listed are typical examples of employment gift:

Tips:
• Employees in certain trades receive tips which form a substantial part to their
income. The payments of tips received from the employer or a third party as a
reward for services rendered in the course of the employment are taxable.

Awards:
• Under an incentive scheme, prizes may be awarded by an employer to his
employees, for the efficient performance of their work, such as for time-
keeping, production, sales, etc. Such payments are taxable on the employees.

Appreciation:
• Gift of any kind that is used to show appreciation is taxable.
Payment Made To Employee On A Non Discriminatory
Basis (Sect 4(2)(B) (Vii)
• 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 is exempt from tax.
• Examples include the underlisted payment.
• free or subsidised 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
Payment Made To Employee On A Non
Discriminatory Basis (Sect 4(2)(B) (Vii)
• Bus services provided by the employer
• annual staff parties and functions
• recreational and sports facilities available to all
employee’s eg gym
• counseling services to redundant employees and
welfare counseling services available to employees
generally
• health screening and medical check-ups
• provision of eye care tests and corrective glasses
• provision of parking facilities for all employees
 EXEMPT INCOMES (S.7)
S. 7(1) The following are exempt from tax:
(a) the salary, allowances, facilities, pension and
gratuity of the President in accordance with Article 68
(5) of the Constitution;
(b) the income of the Government of Ghana or a local
authority, other than income from activities which are
only indirectly connected with the Government or
authority’s status as such;
(c) the income of a public corporation where,
(i) that public corporation is not set up as a
commercial venture
 EXEMPT INCOMES (S.7)
(d) pension
(e) capital sum paid to a person as compensation or a gratuity in relation to
(i) personal injuries suffered by the person; or
(ii) the death of another person;
(f) the income of a non-resident person from a business of operating ships or
aircraft, provided the Commissioner-General is satisfied that an equivalent
exemption is granted by that person’s country of residence to persons resident
in this country
g) the income from cocoa of a cocoa farmer
(h) the income of a person receiving instruction at an educational institution
from a scholarship, exhibition, bursary or similar educational endowment;
 EXEMPT INCOMES (S.7)
(i) the income of an individual entitled to privileges to the extent provided for
by-
(i) the Diplomatic Immunities Act, 1962 (Act 148) or a similar enactment;
(ii) an Act giving effect to the Convention on the Privileges and Immunities
of the United Nations and the Convention on the Privileges and Immunities of
the Specialised Agencies of the United Nations; or
(iii) an Act giving effect to any Convention, treaty or protocol conferring
privileges and immunities on officers of any AU or ECOWAS office or
secretariat or any agency of the two institutions,
(iv) Regulations made under an Act referred to in subparagraph (i), (ii) or
(iii);
 EXEMPT INCOMES (S.7)
(j) the income of an individual to the extent provided for in an agreement
between the Government of Ghana and a foreign government or a public
international organisation for the provision of technical services to Ghana
where-
(i) the individual is a non-resident person or an individual who is resident in
Ghana solely by reason of performing that service; and
(ii) the agreement has been ratified by Parliament in accordance with Article
75 of the Constitution;
(k) the cost of living allowance (other than training allowance paid in lieu of
salary paid for services rendered abroad by members of the Ministry of Foreign
Affairs and officers attached to official Ghanaian diplomatic or consular
missions abroad;
 EXEMPT INCOMES (S.7)
(L) income from temporary employment of an individual with the Government of Ghana
where
(i) the individual is not a citizen of the country
(ii) the income is strictly exempt under employment contract, and
(iii) the income is paid out of the Consolidated Fund
(M) the income of an individual from employment in the public service of the government of
a foreign country where-
(i) the individual is either a non-resident or resident in Ghana solely by reason of
performing that employment;
(ii) the individual does not exercise any other employment or carry on a business in
Ghana;
(iii) the income is payable from the public funds of the foreign country; and
(iv) the income is subject to tax in the foreign country.
 EXEMPT INCOMES (S.7)
(n) a state-owned or state-sponsored educational
institution
(o) an institution or trust of a public character
established by an enactment solely for the purposes of
scientific research

S. 7 (2) The Minister may by Legislative Instrument make

Regulations exempting any person, class of person or
income from tax.
S. 7 (3) Subject to the conditions in Article 174(2) of the
Constitution the Minister may grant a waiver or variation
of tax imposed by this Act
A body of persons formed for the purposes of promoting
 TAXATION OF EMPLOYMENT INCOME
Notwithstanding, an employee is not treated as having received a
taxable benefit where his employer provides him with the following:
• A. meals in any canteen in which meals are provided for staff
generally
• B. luncheon vouchers, provided they cannot be sold or assigned
by the employee
• C. a uniform, an overall or any protective clothing
• D. Reasonably removal expenses, which may include temporary
subsistence allowance. Must be incurred as a result of
employee’s transfer, or a change of employment, which requires
him to move house. E.g first appointment
• - Act 896 presumes that person to be a non-resident or
employment to or from Ghana
• S. 4 (3) For the purposes of this section, any
amount, allowance, or benefit is a gain or
profit from employment if it provided
• (a) by the employer, an associate of the
employer, or a third party under an
arrangement with the employer or an
associate of the employer;
• (b) to an employee or an associate of an
employee; and
• (c) in respect of past, present, or prospective
employment.
 BENEFITS IN KIND
ACCOMMODATION Value for tax purposes
BENEFIT
Accommodation with 10% of the person’s total cash
Furnishing (soft emoluments (TCE)
accommodation)

Accommodation only 7.5% of the person’s total cash

(Hard) emoluments(TCE)

Shared 2.5% of the person’s total cash

accommodation emoluments
Furnishing only 2.5% of the person’s total cash
emoluments
 BENEFITS IN KIND
VEHICLE Value for tax purposes
BENEFIT
Driver and 12.5% of the person’s total cash
Vehicle with emoluments up to a maximum of
Fuel GHS1,500 per month (was 600)
Vehicle with 10% of the person’s total cash
Fuel emoluments up to a maximum of
GHS1,250 per month (was 500)
Vehicle Only 5% of the person’s total cash
emoluments up to a maximum of
GHS625 per month (was 250)
Fuel Only 5% of the person’s total cash
 LOAN BENEFIT
LOAN BENEFITS
 A benefit consisting of a loan provided for the
year of assessment in return for services,
whether by way of employment or otherwise, or
by an entity to a member or manager of the
entity is quantified as follows:
 Where the term of the loan provided by the
employer to the employee does not exceed 12
months and the aggregate amount of the loan
and any similar loan outstanding at any time
during the previous 12 months does not exceed 3
months basic salary of the employee, the loan has
no tax implications for the employee.
 LOAN BENEFIT
LOAN BENEFITS
 However, where the term of the loan exceeds 12 months or
the aggregate amount of the loan and any similar
outstanding loan at any time during the previous 12 months
exceeds 3 months basic salary of the employee, the loan
will have tax implications for the employee.
 The loan benefit will be calculated as a ¼ (25%) of the
difference between the interest that the employee
would have paid if the statutory rate had been applied to
the loan amount and the actual interest paid by employee
during the year of assessment.
 A key criterion in the determination of loan benefits is
“statutory rate”, which is defined to mean the Bank of Ghana
 LOAN BENEFIT – ILLUSTRATION
LOAN BENEFITS
Miss Catherine Asare is and employee of Attack Ltd on an annual
basic salary of GH¢240,000. Her Employer granted her a loan
amounting to 80,000 for a period of 12 months at an interest rate of
15%. The BOG statutory rate for that period was 28%
Loan is more than 3 months salary (GH¢240,000/12) x 3 = 60,000
hence loan benefit is taxable
Calculate loan benefit as follows: GH¢
Interest per BOG rate – (80,000 x 28%) = 22,400
Interest paid (80,000 x 15%) = 12,000
Loan Benefit = 10,400
Taxable Loan Benefit = 10,400/4 or 25% x 10,400 = Gh¢2,600
 THE PROVISION/USE OF DOMESTIC SERVANTS BY AN EMPLOYER
LOAN
There are 2BENEFITS
classes (BENEFITS IN KIND]
A. Watchmen, Garden boys, etc whose job it is to KEEP WATCH
and MAINTAIN the property.
B. Stewards, househelps, and cooks, etc providing PERSONAL
SERVICES.
 In the case of Class A, where the property being occupied
by the employee belongs to the employer, then it is taken
that they are maintaining the property of the employer. [It is
not a benefit in kind]
 However, where the property belongs to the employee and
the employer provides the use of domestic servants in class
A, then this is deemed a benefit in kind.
 THE PROVISION/USE OF DOMESTIC SERVANTS BY AN EMPLOYER
LOAN BENEFITS
 In the case of Class B, whether the employee is living in
his own premises or that of the employer, once they are
providing the service to the employee, it’s a benefit in
kind.
 Here the provision of those services amounts to
provision of a benefit in kind.
IT MATTERS- WHO PAYS THE DOMESTIC SERVANTS?
 a. Where the EMPLOYER pays directly the wages of
Domestic Servants = BENEFIT IN KIND
 b. Where the EMPLOYER gives money to the EMPLOYEE
to be handed over to the Domestic Servants = BENEFIT
IN CASH/CASH ALLOWANCES
 Deductions
 Social security

 Voluntary (Provident Fund)

 Mortgage Interest

 Contribution and donation to a worthwhile

cause
 Deductions
Mortgage Interest
 In determining the chargeable income of an
individual from employment, the 4th paragraph of
the 6th Schedule to Act 896 allows a deduction of
mortgage interest in respect of only one
residential premise during the lifetime of that
individual.
 Mortgage interest is defined to mean interest
incurred by an individual in respect of a
borrowing employed in constructing or acquiring
the individual’s only place of residence.
 Deductions
Contribution and Donations to a Worthwhile Cause (S.
100)
The following are the allowable deductions for worthwhile
causes (Contribution and Donations ) approved by
Government:
i. Charitable organization which meets the requirement of
S. 97 of Act 896 of 2015.
ii. A scheme of scholarship for academic, technical,
professional and other course of study.
iii. Development of any rural or urban area.
iv. Sports development or sports promotion.
v. Any other worthwhile cause approved by the
 BONUS
Where an employer pays a bonus to an employee during a
year and the sum of the payment and other bonuses paid by
the employer to the employee during the year:
Does not exceed 15% of the annual basic salary of the
employee, the employer shall withhold tax from the gross
amount of the payment at the rate of 5%.
Exceeds 15% of the annual basic salary of the employee, the
employer shall add the excess payments to the employment
income of the employee for the year, and
Withhold tax from the payment using the graduated rate for
a resident individual and for a non resident individual at 25%.
 Illustration – BONUS
Mr. Abanga took an appointment as an Accounts
Manager of Papa Ltd on a salary of GHS70,000
per annum. As part of his condition of service, he
is entitled to an annual bonus of GHS20,000.
Determine the bonus tax payable.

Solution
Bonus Amount - 20,000
15% of basic salary - 10,500
Excess Bonus - 9,500
Bonus tax (5% x 10,500) = 525
Note: Excess Bonus of GHS9,500 will be added to
basic salary and allowances to determine Total
Cash Emolument
 OVERTIME
Where an employer makes a payment during a
year to a qualifying junior employee for overtime
work by that employee, the employer shall
withhold tax as follows:
Does not exceed 50% of the basic salary of the
employee for the month, withhold tax from the
payment at the rate of 5%; and
Exceeds 50% of the basic salary of employee
for the month, withhold tax from the payment
at the rate of 10%.
OVERTIME (CONT’D)
“qualifying junior employee” means
• a junior staff member and
• the qualifying employment income of that
employee from the employment for the year
of assessment does not exceed eighteen
thousand currency points.
 OVERTIME - Illustration
Mr. Sam is a messenger at the Top Spot Ltd earned an
annual Basic salary of GHS16,000. He was paid an
overtime of GHS10,000 during the year of assessment.
Determine the overtime tax for Mr. Sam
Solution
Overtime paid 10,000
50% of Basic Salary - (50% x 16,000) 8,000
Excess 2,000
Overtime Tax = (5% x 8,000) + (10% x 2,000) = 400 +
 PERSONAL RELIEFS
 A provision has been made for individuals generating income
from employment or business to benefit from personal reliefs as
per the schedule below:
1. Marriage/ responsibility relief: An individual with a dependant
spouse or has at least two dependant children is entitled to a
relief of GHS1,200 per annum.
This relief is granted to:
a) An individual who provides the necessities of life for the
dependant spouse.
b) An individual who provides the necessities of life for two or
more dependant children).
Note: If both couple are gainfully employed only one spouse may
claim the relief
 PERSONAL RELIEFS
2. Disability relief: 25% of that Individual’s Assessable
Income from business or employment. This is granted
to an individual who is disabled.
To qualify for this relief:
a) The individual must be certified by the Department
of Social Welfare as a disabled person
b) The relief is granted in respect of income from
employment or business only.
This means that the individual will not qualify for the
disability relief in respect of investment income earned.
 PERSONAL RELIEFS
3. Old Age relief: An individual who is sixty years of age and
Above is entitled to a relief of GHS1,500 per annum
4. Aged Dependent Relative: An individual with a dependant
relative, other than a child or spouse, who is sixty years of age
or more is entitled to GHS1,000 per annum per dependant
Relative and not more than two dependant relatives.
To qualify for this relief:
 The individual must provide for the necessities of life – food, clothing and
shelter to the dependant relative.
 Only one person may claim the aged dependant relative relief in respect of
the same aged dependant relative. Other relatives may claim the aged
dependant relative relief in respect of other relatives but not the same aged
relative for whom another relative has already made a claim.
 PERSONAL RELIEFS
3. Child Education: An individual who is sponsoring the education of
the child or ward in a recognised registered educational
institution in Ghana is entitled to GHS600 per child/ward per
annum up to a maximum of three (3) children/ward
To qualify for this relief:
 The individual must sponsor the education of the child or ward in a
recognised, registered educational institution approved by the
Ministry of Education.
 Only one person may claim the child education relief in respect of
the same child, The other spouse may claim the child education
relief in respect of other children but not in respect of the same
child
 Thus an individual who sponsors the education of his or her ward in
any recognized, registered educational institution (from
 PERSONAL RELIEFS
4. Cost of Training: An individual who has undergone
training to update the professional, technical or
vocational skills or knowledge is entitled to a relief of
up to GHS2,000.
 This is granted to an individual who undergoes training
to update the individual’s professional, technical or
vocational skills or knowledge.
 NB: “KNOWLEDGE” does not include academic
knowledge
 INDIVIDUAL INCOME TAX SCHEDULE
Personal Income Tax Schedule 2023
Taxable Income GHS Tax Rate (%)
First 4,824 Nil
Next 1,320 5
Next 1,560 10
Next 36,000 17.5
Next 196,740 25
Next 359,556 30
Exceeding 600,000 35
COMPUTATION OF CHARGEABLE INCOME -EMPLOYMENT INCOME ONLY-FORMAT
Basic Salary(S.4) XX
Add Cash Allowances(and other Cash Benefits (S .4):
Cost of living/Subsistence Allowance, XX
Professional Allowance, Responsibility XX
Risk/Entertainment Allowance, etc XX
Fees, Commissions, Gratuities, XX
Leave Pay XX
Gifts, etc XX
Total Cash Emoluments(TCE) [Reg 29] XXX
Add: Benefits in kind/Non Cash Benefits:[S.4,26 & Sch 4]
Car Element(% of TCE) XX
Rent Element (% of TCE) XX
Loan Benefits XX XX
Add Other Indirect Payments
Retirement Contribution on Behalf of the Employee XX
Assessable Income from employment XXX
Less Personal Reliefs:
Social Security Contribution XX
Marriage Relief, Old Age, Cost of Training, etc XX
Mortgage Interest [Sch 6(4 & 5)] XX
Contribution to worthwhile cause(S. 100) XX XX
CHARGEABLE INCOME XXX
TAX PAYABLE(on chargeable income)-Using the Tax table xxx
Computation of Tax Outstanding
Chargeable income XX
Tax Thereon using Graduated Table XX
Less Tax Credits XX
Tax Paid on Accounts XX XX
Tax Outstanding/(Tax Refund) XX
PRACTICE QUESTIONS WILL BE SOLVED NEXT WEEK