PAY AS YOU EARN (PAYE)

What is PAYE

PAYE is a tax deducted from your income as an employee and is paid by an employer on your behalf. The tax is charged on all of your income of whether it is received in cash or in kind.

How PAYE works

The monthly PAYE is deducted at source by your employer using the monthly graduated individual tax rate. These items are deducted from employees’ income before calculating PAYE.

Deductions and allowances

  • Social Security and National Insurance Trust-5.5% of basic salary.
  • Mortgage Interest paid on only one residential premises of the employee’ lifetime.
  • Provident fund up to 16.5% of your basic salary either paid by the employer or employee or both.
  • Contributions and donation to a worthwhile cause

These are some of the allowances that will be added to salary for PAYE purposes such as; Transport allowance, Rent (Accommodation) allowance.

  • Risk allowance, Night duty allowance, Responsibility allowance, Child Education allowance, House help allowance, Cook allowance, Garden boy allowance, etc.
  • Allowances paid in cash are added to the salary. Benefits to the employees in kind are added for tax purposes, but when the benefit is paid in kind, it is quantified in monetary value before it is added to salary such as electricity, water, vehicle with driver and fuel, vehicle and fuel, vehicle only, fuel only, accommodation and loan benefit are also benefit in kind which are quantified in the law. (See link: The Fourth Schedule of Act 896,2015 for the tax rates applicable)

Eg.

Mr. Kofi is an employee of Yahweh Co. ltd. His monthly basic salary is Gh¢500. additionally, he entitled to monthly allowances such transport allowance Gh¢ 500.00, Rent allowance Gh¢ 650, Risk allowance Gh¢250. Mr. Kofi contribute Gh¢150 per month to a provident fund. This is how Mr. Kofi PAYE payable will be Computed.

(I)

Kofi’ annual basic salary is Ghc40,000.

Total bonus received is Gh¢5,000.

Kofi’s bonus tax

15% of Gh¢40,000 = Gh¢6,000

total bonus received = Gh¢5,000

Because bonus received is less than the 15% of annual basic salary, Kofi’s tax on bonus is 5,000 x 5% = Gh¢250

(II)

Kofi’s annual basic salary is Gh¢40,000.

Total bonus is Gh¢ 7,000.

Kofi’s bonus tax

15% of Gh¢40,000 = Gh¢6,000

Bonus received = 7,000

Excess bonus (7,000 – 6,000) = 1,000

Bonus tax (6,000 x 5%) = 300

The difference between the 15% and the bonus received of Ghc7,000 is Ghc1,000. The Gh¢1,000 is then added to Kofi’s annual basic salary of Gh¢40,000 and tax with the graduated rates.

Overtime

Overtime rate is applicable to employees who are junior staff and their qualifying employment income including profits and gains to be taxed in the year is not more than Gh¢18,000. A junior staff whose qualifying employment emolument is more than Gh¢18,000 is not entitled to overtime pay.

When an employer pays overtime to any employee that is not more than 50% of the employees monthly basic salary, the employer will deduct 5% as overtime tax. However, if the overtime paid is more than 50% of the employee’s monthly basic salary, the excess of the 50% is taxed @ 10%. Unlike bonus no overtime is added to basic salary. It should be noted that for non- resident employees’ tax on bonus or overtime is 20%

 Eg.

(i)

Kofi is the manager of ABC Ltd, his basic salary for the month is Gh¢1,400 and receives Gh¢1,000 as overtime pay. Overtime tax is not applicable to Kofi because he is not a junior staff although his qualifying employment income (Gh¢1,400 x 12 = Gh¢16,800 is not up to Gh¢18,000. Kofi’s overtime pay will be added to salary and taxed).

  (ii)

Kofi is a driver and receives monthly basic salary of Gh¢800 and a total allowance of Gh¢200 per month. His overtime pay for the month is Gh¢500. Kofi’s qualifying employment income is Gh¢12,000 (800 x 12 + 200 x 12) 50% of Kofi’s basic salary is Gh¢400 (800 x 50%) overtime pay is Gh¢500

Overtime tax is computed as follows:

Gh¢400 x 5% = Gh¢20

Gh¢100 (500 – 400) x 10% = Gh¢10

Total = 30

 

Company Income Tax (CIT)

Companies pay tax on their business and investment income also known as gains and profits, which does not include expenses made to obtain the income.

The tax rate applicable to a company depends on the industry as follows:

Income of a Trust 25
Company principally engaged in the hotel industry 22
Company engaged in the export of non- traditional exports 8
Financial institutions from loans granted to farming enterprises 20
Financial institutions from loans granted to a leasing company 20
Manufacturing companies located in regional capitals  (except Accra & Tema) 18.5%
Manufacturing companies located outside Accra, Tema and the regional capitals 12.5
Free Zone Enterprises after 10 years tax holiday (on domestic sales) 25
Free Zone Enterprises after 10 years tax holiday (on export of goods and services) 15
Petroleum income tax 35
Mineral income tax 35

The following businesses pay 1% tax during their tax holidays. These businesses pay the actual tax rates after their tax holidays.

 

Item

 

Rate

Agro processing business conducted wholly in the country for the first five (5) years 25%
Cocoa-by product business wholly in the country for the first five (5) years. 25%
Tree crop farming for the first  ten (10) years 25%
Cash crops or livestock( excluding cattle) for first 5 years 25%
Cattle farming for first 10 years 25%
Waste processing business for first 7 years 25%
Income derived from a certified low cost housing company low cost housing company 25%
Young entrepreneurs who are into businesses such as manufacturing, information and communication technology, agro processing, energy production, waste processing, tourism and creative arts, horticulture and medicinal plants have five years tax holidays and after five years the following rates apply
Accra and Tema 15%
Other regional capitals outside Tema and Accra 12.5%
Outside, Accra, Tema and other regional capitals 10%
The three northern regions 5%

 

 PAYE for Temporary Workers

When a resident individual is a temporary worker, his or her tax is calculated as any other employee.

 

Casual Workers

When a person makes payment to a casual worker, there should be deduction of 5% tax on the amount and pay to C-G

 

Income from other sources

such as income from Employment, Business and Investment. At the end of the year income from each source are put together as one and taxed.

You have to file a return at the end of the year.

 

Deadline for submitting your return

Companies are supposed to file and pay for quarterly instalments of taxes on or before March, June, September and December.

Companies prepare and present their annual accounts to GRA at the end of their accounting year. Example is from January to December.

Tax Clearance Certificate (TCC)

What is TCC

TCC is a document given to a person from the GRA as evidence that the person has fulfilled all his tax obligations or has made adequate arrangements to fulfil that obligation.

 

Requirement

  • The applicant shall state the purpose for which the TCC is required.
  • The Commissioner-General will issue the TCC to the applicant to cover a specified period if you are in good standing if you have satisfied your tax obligations.
  • You need TIN to apply for TCC
  • For a new company, you need to be registered with GRA, then apply for TCC and attach bank statement (s), business registration certificates and pay part of your Provisional or Self-Assessment to be give a Tax Clearance Certificate

 

 How to apply

  • A person may apply to the Commissioner-General who is represented by the head of the office in writing.
  • The application would have to be delivered in person at your Domestic Tax Revenue Division office

Uses

  • clear goods at the port
  • register land title
  • tender for supply of goods, works and services with government ministries, government agencies, local government authorities and other bodies in which public funds are vested.
  • renew practising certificate
  • renew residential and work permit by expatriates

Expiration

  • TCC can only be used for the specified period
  • The Commissioner-General will issue the TCC to the applicant to cover a specified period if you are in good standing

Tax rates

(link for Monthly and Annual graduated tax rate table)