Ghana – Reduction in Top Rate of Personal Income Tax, Income Threshold Raised
Ghana – Reduction in Top Rate of Personal Income Tax
This report covers changes to Ghana’s personal tax rate and the income bands to which the rates apply.
Recent changes to Ghana’s personal income tax regime have brought about a reduction in the highest marginal personal income tax rate for resident individuals.1
A key measure is the reduction in the 35-percent maximum income tax rate – which was introduced on 1 August 20182 – to 30 percent. The annual maximum tax band on which the rate of 30 percent applies has also been expanded to chargeable income exceeding GHS 240,000 (previously, income exceeding GHS 120,000).
The revised personal income tax regime took effect from 1 January 2019.
WHY THIS MATTERS
With the lowering of the maximum tax rate and the expansion of the annual maximum tax band, employees who have been subject to the maximum rate will now potentially experience savings of an estimated GHS 12,396 per annum plus 5 percent on additional chargeable income exceeding the GHS 240,000.
There will be a reduction in assignment-related tax costs in respect of assignees into and out of Ghana, subject to Ghanaian tax law.
Employers may need to consider their budget projections for assignments due to the changes.
Furthermore, employers may need to make the necessary payroll adjustments and update hypothetical taxes for tax equalized assignees.
Residents: Rates and Bands
The revised graduated tax rates and bands effective from January 1. 2019, are shown below:
| Chargeable Income Tax | Annual (GHS) |
Rates |
|---|---|---|
| First | 3,456 | Nil |
| Next | 1,200 | 5% |
| Next | 1,680 | 10% |
| Next | 36,000 | 17.5% |
| Next | 197,664 | 25% |
| Exceeding |
240,000 | 30% |
Source: KPMG, Ghana
Nonresidents: Rates and Bands
The tax rate applicable to nonresident individuals has however been maintained at 25 percent from the last revision in August 2018.
Changes in Income Tax Bands/Rates Yield Incentives and Savings:
The new rules give rise to the following tax incentives and savings:
- Total tax exemption/relief for minimum wage earners*.
- Increase in the annual maximum tax band from GHS 120,000 to GHS 240,000 and a reduction in the maximum tax rate from 35 percent to 30 percent.
- Marginal decrease in taxes for the respective tax bands.
This presents the below tax savings:
| Tax Band | Tax Savings per annum GHS |
|---|---|
| 5% | 16.20 |
| 10% | 50.40 |
| 17.5% | 137.70 |
| 25% | 396.00 |
| 30% | 12,396 plus 5% on additional income exceeding GHS 240,000 |
Source: KPMG, Ghana
* Minimum wage earners are individuals who earn GHS 10.65 a day
Recap of Current Rules: Who Is Resident?
An individual is deemed resident for a year of assessment if that individual is:
- a citizen of Ghana (other than one with a permanent residence outside Ghana and lives in that home for the whole year of assessment);
- present in Ghana for a period or periods amounting in total to 183 days or more in any 12-month period that commences or ends during the year of assessment;
- an employee or official of the Ghanaian government on posting abroad;
- a citizen who is temporarily absent from Ghana for not more than 365 continuous days (where the individual has a permanent home in Ghana).
FOOTNOTES
1 The Tax (Amendment) (No.2) Act, 2018 (Act 979), which amends the graduated tax rates for resident individuals in the First Schedule of the Income Tax Act, 2015 (Act 896).
2 For coverage of the changes in August 2018, see GMS Flash Alert 2018-108 (21 August 2018).
* * * *
GHS 1 = USD 0.203
GHS 1 = EUR 0.178
GHS 1 = GBP 0.155
GHS 1 = NGN 73.38
The information contained in this newsletter was submitted by the KPMG International member firm in Ghana.
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